Here's What Is Driving Stocks Higher Monday

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Stocks rose Monday, as risk-on sentiment took hold amid hopes that reopenings globally will go over well. Big tech companies, though, report earnings this week and investors continue to put their faith in the group. 

All three major U.S. indices rose, with the S&P 500 up as much as 0.9%. The 10 year treasury yield rose to 0.63% from below 0.61%. Bond yields rise as the price falls. 

"Equities up on improved risk appetite,” wrote Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank in emailed remarks to reporters. “The number of Covid-19 cases shows signs of improvement globally. As we move toward the descending portion of the curve, most developed nations disclose plans of reopening businesses starting from May.”

Still, leading the action was Amazon  (AMZN) - Get Report, Facebook  (FB) - Get Report, Google  (GOOGL) - Get Report and Microsoft  (MSFT) - Get Report, which combine for a market cap of almost $4 trillion. Those stocks were outperforming Monday, up almost 2%. These companies report earnings this week and investors are betting they’ll see more tailwinds than headwinds from Coronavirus and the recession. They’ve hugely outperformed the market’s runup since March 23, the bear market low. 

“The top 5 stocks in the S&P 500 have continued to grow their share of index market cap to 20%— near record levels driven by greater resilience in earnings forecasts that seem unjustified in such a steep and broad recession,” wrote Morgan Stanley’s Chief U.S. Equity Strategist Mike Wilson in a note. 

Amazon, reporting Thursday, is expected to see a surge in its e-commerce business, especially in groceries and essentials, while analysts say cloud services are also getting a boost in demand. These factors are expected to outweigh troubles in the companies more discretionary sales in e-commerce. The stock’s valuation has moved up to almost 90 times next year’s earnings, a valuation analysts say is justified. 

Google’s advertising business will weigh on its ability to grow revenue year-over-year, but its cloud business may provide support for the top line. 

Facebook will likely see a large headwind from advertising. 

Microsoft, while it had seen issues selling personal computing services for PC’s and devices makers who had previously halted production, is expected to see a similar cloud demand surge to Amazon’s, analysts say. 

But Monday’s rally wasn’t all about sprinkling cash into big tech. 

As the market looks past a rough 2020 and the yield curve shows signs it won’t compress — the 10 year treasury yields 0.63% versus the 3 month’s 0.11% — bank stocks are benefitting. Bank of America  (BAC) - Get Report, JPMorgan  (JPM) - Get Report and Wells Fargo  (WFC) - Get Report are largely flat for the last month against the S&P 500’s gain of 12%, but they’re outperforming Monday. All three stocks rose more than 2%. 

As stocks have gotten overextended to many on Wall Street — against ongoing virus and broader recovery risks — cash funds have seen large inflows. Institutional money funds held $2.997 trillion by mid April, up 31% from early February, according to data from the St. Louis Fed. This shows investors have been cautious even as the stock market has rallied and now may have cash on the sidelines to take incremental risk in stocks. 

Money managers TheStreet has spoken with are picking stocks selectively and carefully as many macro strategists warn against a near-term pullback. 

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