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Why Stocks Are Struggling Monday

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Market sentiment was notably poor by midday Monday, even as a comment from the FDA commissioner points to vaccine developments that could accelerate the already-fast economic recovery. 

The S&P 500 was flat-to-down by midday, even as the components of the tech-heavy Nasdaq, up 0.5%, rose significantly. And the 10-Year Treasury yield fell to 0.71%. 

First off, Apple  (AAPL) - Get Apple Inc. Report and Tesla  (TSLA) - Get Tesla Inc Report, which combine for a market capitalization of more than $2.6 trillion, rose 3.5% and 9%, respectively. They completed 4-for-1 and 5-for-1 stock splits, meaning that investors receive 4 and 5 times the number of shares they had owned, with the new price one-quarter and one-fifth of the previous price. That’s to ensure the stock is affordable on a pure dollar basis for retail investors. These moves are supporting the S&P 500. 

Positively, FDA Commissioner Stephen Hahn said he may consider granting emergency authorization for a Covid-19 vaccine before clinical trials are finished. If Hahn’s consideration comes to fruition, the economy could rebound even fast than expected, which would be a substantial positive for stocks. Investors are well aware vaccines are in the works, although this announcement is indeed a potential added positive. 

But “the major indices started out the week on a mixed note, as the violent protests in Portland and the bleaker COVID numbers have been weighing on investor sentiment,” wrote Ken Berman, Strategist at Gorilla Trades in emailed remarks to reporters. 

Cyclical — or economically sensitive sectors — were getting hammered. 

Oil, consumer discretionary, banks, industrials and materials were all down roughly 1%. 

After daily new U.S. virus cases peaked for the year at 77,000 in the summer, they dropped to 34,000 recently. But over the weekend, cases ticked up into the mid-fourty thousands, according to Johns Hopkins data. 

An accelerated vaccine may help with this, but Hahn’s comment reflects an outcome far from concrete. And if small businesses are forced to stay closed for an even longer time, the quickly falling unemployment rate, down to 10% from above 15% earlier this year, could remain at elevated levels. 

That would threaten the speed of the recovery and the narrative that 2021 earnings per share will return to pre-pandemic levels. Meanwhile, companies have addressed their liquidity needs to the tune of roughly $1 trillion in new loans at ultra loan interest rates this year and Congress, on break for the summer, is yet to juice the economy with $1 trillion more of fiscal stimulus. 

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