Markets were completely risk-on on Wednesday, as several tailwinds for stocks hit the wires.
The S&P 500 rose as much as 0.45%, this time not aided by the Nasdaq, which rose 0.1% at 9:30 EDT. The 10-year Treasury yield rose to 0.54% from 0.5%, a signal investors are turning incrementally more bullish on the speed of the economic recovery. The yield has collapsed of late.
FAANG stocks were not leading the day, with some of them down, leaving the leg work on the S&P 500 to other sectors, namely cyclical ones.
Tailwind number one: Johnson and Johnson (JNJ) - Get Free Report has a $1 billion funding deal with the U.S. government to produce 100 million doses of a coronavirus vaccine. The stock jumped 2% in premarket trading, before that gain moderated to 0.7% in regular trading. The drug was effective in monkeys. Pfizer PFE also has a deal with the government to provide a drug that could see 1 billion doses by the end of 2021. Pfizer shares dropped 0.1%.
Tailwind number two: The White House will send U.S. trade representative Robert Lighthizer to speak with Chinese officials on August 15 about the phase one trade deal and about the countries’ trade differences going forward. Most in the market have not expected a trade deal, but this development suggests some probability of one occurring.
Cyclical sectors lead the market Wednesday, a healthy sign, as breadth in an equity rally usually points to a firm economy. Large cap consumer discretionary rose 1%. Large cap oil rose 1.4%. Banking rose 1.6% as the yield curve expanded. Large cap industrials and materials rose 0.9% and 1.6%, respectively.
The next challenge for the U.S. market is fiscal stimulus. With interest rates already near rock bottom, the Federal Reserve’s asset purchasing program already priced into stocks, stats pausing reopenings and consumer confidence in question, another round of fiscal stimulus would continue to bridge the economy to tat vaccine. Congress has been slow-moving and the current bill may not be as sufficient as past ones.