Midday Market Update: Risk Appetite Fades

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Stocks rose Wednesday, but by midday the rally was less convincing than it was in the morning. 

In the morning, the S&P 500 was up just under 1%, with all cyclical sectors rallying hard. By midday, the gain was more than 1%, but that’s because the tech-heavy Nasdaq, the components of which have a heavy weighting in the S&P 500, rose more than 2%, as investors flocked to growth stocks amid lingering uncertainty over the economic recovery. 

The 10-Year Treasury yield rose to 0.68% from 0.64%, a bullish signal, although part of the rise can be attributed to price pressure as the Treasury Department issues new long-term debt. 

By noon, large cap materials were off slightly, as were consumer discretionary. Oil and industrials rose. Banks, after having risen in the morning, fell around 0.5% by midday. The yield curve’s expansion has boosted banks stocks in recent days, but many investors expect long-term rates to remain pressured, as the economic recovery — currently looking strong — is highly uncertain. 

The good news Wednesday: Moderna  (MRNA) - Get Report has a $1.52B deal with the U.S. government to supply 100 million doses of a COVID vaccine. The stock rose 0.5% after having gained 7% in the morning. 

Pfizer  (PFE) - Get Report also has a deal with the government to supply hundreds of millions of doses in the near future. On Tuesday, Russian president Putin said the country has the first vaccine ready, but its vaccine skipped phase three in the trial process, raising safety concerns among experts. Overall, investors are positive on a vaccine hitting the market soon, as many players are racing to find a COVID solution. 

But before  vaccine hits market, the economy needs more fiscal stimulus. Interest rates cannot fall much from here and small businesses and households need cash soon in order for consumer spend to be supported. Fiscal stimulus proved effective in May and June before a spike in cases hurt consumer confidence and caused states to pause reopenings. If too many businesses close, the road back to full employment will be a longer one.