Stocks Rise as Viruses Do the Same: What Wall Street's Saying

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Stocks rose sharply Monday, even as coronavirus cases surged. Wall Street has articulated exactly why. 

All three major U.S. indices rose, with the S&P 500 up 1.59% and the tech-heavy Nasdaq up 2.21%. The 10-Year Treasury yield rose to 0.68%. Yields rise when prices fall.

Negatively, the 5-day moving average of new coronavirus cases in the U.S. is sitting between 45,000 and 50,000 in the past week, according to Johns Hopkins data. Before this second wave, the high was 36,000 in April. Many states have already halted reopenings, although they have not reinstated full lockdowns yet. 

And while investors continue to favor growth stocks over cyclicals, as the economic recovery is threatened by virus developments, all sectors exhibited meaningful participation in the rally Monday. 

First off, tech led again. The NYSE FANG index, which has a large market cap weighting in the S&P 500 rose 5.45%. The iShares PHLX Semiconductor ETF  (SOXX) - Get iShares PHLX Semiconductor ETF Report, which also has a heavy weighting in the big index, rose 2.64%, as reports are out that May saw a 6.5% sales increase year-over-year for chip companies, a sign that growth areas such as 5G devices and data centers (linked to cloud spend) are in healthy shape. 

But economically-sensitive sectors performed well. Large cap consumer discretionary, industrials and banks all rose more than 1%. 

The June ISM Non-Manufacturing (services) survey showed a reading of 57, beating estimates of 51. Anything above 50 shows year-over-year growth. May's reading was 45. Stocks related to the index performed well. The S&P Construction Materials Index rose 1.99%. Lennar Homes  (LEN) - Get Lennar Corporation Class A Report, a housing construction company, rose 3.41%.

One of the most important ingredients to the recent rally has been the hope for more fiscal stimulus, which both Congress and the White House are currently in support of. 

While interest rates may have hit their bottom and the Federal Reserve is pumping billions of dollars a day though the system, another round of cash grants to households would hold people's wallets over, should there be more layoffs. And small business funding seems to be on the way. 

Here’s what Wall Street's saying: 

Ipek Ozkardeskaya, Senior Analyst, Swissquote Bank: 

"It appears that global investors are less sensitive to rising Covid cases, but as enthusiastic about the extra stimulus measures. The massive injection of cheap liquidity will likely continue inflating the asset prices."

Jason Pride, Chief Investment Officer, Private Wealth, Glenmede:

“Fiscal stimulus soothes household wallets. Personal incomes in the U.S. were higher than they started they started the year in April and May according to the Bureau of Economic Analysis, a pretty remarkable outcome given many economists estimate the months to be the depth soft this recession. How is this possible? The federal government delivered significant fiscal stimulus from unhand unemployment benefits and stimulus payments, opening its coffers to an extent unprecedented in peacetime America. Now as the second wave of infections has arrived, talks are heating up in Congress over the prospects of more stimulus."

Market Haefele, Chief Investment Officer, Global Wealth Management, UBS: 

"Investors have continued to focus on the positives, with global equity markets gaining on Monday. There are signs that healthcare systems are coping better with COVID-19, reducing the need for restrictions on freedom of movement. Central banks and governments remain committed to large scale stimulus. Republicans and Democrats in the US Congress are increasingly convinced of the need for further economic support, according to a report late last week in the New York Times, adding to USD 3tr of measures announced in March. Congress last week unanimously agreed to extend an aid program for small businesses through August. Injections of liquidity are continuing from central banks, supporting risk assets, led by a USD 3tr increase in the Federal Reserve’s balance sheet since the start of the pandemic."

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