Markets Were Risk-On Monday, Confidence in Consumer Grows: What Wall Street’s Saying

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The market was very risk-on Monday, as small business stimulus gets underway and big tech finally takes a back seat heading into earnings. 

All three major U.S. indices rose Monday, with the S&P 500 up 1.5%. The 10-year treasury yield rose to 0.66% from 0.61%. Yields rise as prices fall. 

Aiding the positive sentiment — especially on the consumer — was the small business  lending program getting back underway, a program that involves more than $300 billion in relief to small businesses. Investors have been satisfied with Congress’ easy willingness to save the economy from depression, while some point out that the first slug of funding ran through quickly, leaving small businesses starved for more cash as many become illiquid. 

This round does include more stringent guidelines that allow small businesses to access more of the debt capital than do corporations, a positive, as small business account for roughly 60% of U.S. employment. 

Some on on Wall Street saying that the reason consumer confidence hasn’t fallen to the same level it did in the 2008 financial crisis is because of the swift and large fiscal and monetary stimulus efforts seen in 2020. The consumer confidence index hit 71 in April, down from 89 in March, but it hit almost 50 in 2008. 

These consumer stocks outperformed hugely Monday:

Starbucks  (SBUX) - Get Report: +2.8%

Lululemon  (LULU) - Get Report: 5.75%

TJX  (TJX Companies) : +3.9%

Burlington  (BURL) - Get Report: +4.5%

Financial institutions that are very consumer-weighted also had a big day:

Wells Fargo  (WFC) - Get Report: +5.5%

Bank of America  (BAC) - Get Report: +5.8%

American Express  (AXP) - Get Report: +2.3%

Recently, investors have found shelter in big tech, which is largely home to secular growth drivers that can cut through the virus-induced recession, although not fully. Amazon AMZN, Google GOOGL, Facebook Facebook, Netflix NFLX and Apple AAPL have return many times the percentage point gain the S&P 500 has exhibited since April 9. The S&P 500 has priced in positive outcomes on a fast economic recovery, assuming reopening globally go well. 

The market has been somewhat range-bound of late, while many see another downdraft coming, especially as valuations stretch.

Here’s what Wall Street’s saying:   

Mike Wilson, Chief U.S. Equity Strategist, Morgan Stanley:

“Consumer stronger than feared? As we enter week 7 of the health crisis the U.S., consumer and business sentiment are hitting new lows according to surveys. With unemployment likely to hit 17% in May, it’s no surprise that consumer confidence has fallen sharply. However, it’s well above its all-time lows reached during the 208-2009 and 1990 recessions. The bottom line is that with the stimulus so large and directed right at the consumer and small businesses, w may be surprised at how well the consumer fares in what is amounting to the steepest decline in economic activity in history." 

Mike Loewengart, Head, investment Strategy, E*Trade: 

"Additional global stimulus measures, slowing COVID-19 cases, and signals of normalcy returning are no doubt good news in the current environment. That said, the economy is a far cry from even walking shape right now—it’s slowly crawling back to life. While the damage is real, it may not be as widespread across industries as originally thought, and as the world seems to be slowly turning the corner on this disease, there is some cause for optimism.”

Lauren Goodwin, Economist, Multi-Asset Strategist, New York Life Investments:

"Congress passed a $480 billion extension to the CARES Act, focused on small business loans via the Payment Protection Program (PPP), aid for healthcare providers, and provisions for covid testing (more detailed blog here). It won’t be enough. Policy support for businesses and households through the crisis has been sizable and swift, but we see strong indication that demand destruction is larger. The backlog of PPP loan applications shows that the program could run out of money again in a matter of days. Additional economic rescue funding will be politically difficult moving forward. We remain underweight U.S. equity and credit in our portfolios, and believe that market volatility will persist until these covid-prompted risks are behind us.” 

Tony Dwyer, Chief Market Strategist, Canaccord Genuity: 

We are sitting tight as the “frustration phase” of the long-term bottoming process plays out (Figure 2). At this juncture the focus of investors is on the positive effect of the historic monetary and fiscal stimulus, the flattening of the COVID-19bcurve, and the closer proximity to reopen the economy. While the momentum off the low has been incredible, since the $2T Fed decision that included buying parts of the municipal and corporate high-yield market, the mega-cap stocks have been the driver. While the SPX is up 1.68% from the April 9 close, the equal-weighted SPX is down 0.89 percent and the market-cap vs. equal-weight sector performances were very different as well. The stimulus argues against getting too negative since the game changing Fed decision on April 9; but, the unknown economic recovery and signals from the credit metrics we highlighted earlier argues against excessive optimism. Again, we would look to become more offensive on either 1) a pullback associated with better relative performance of the Financials, Industrials, and Consumer Discretionary sectors.” 

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