Investors this morning appear to continue to weigh competing forces.
On the one hand, the surge in coronavirus cases and related state restrictions to curb the spread of the virus appear to weigh on sentiment, exacerbated by news that California has banned non-essential work and gatherings between 10 p.m. and 5 p.m. hours of the morning. the absence of a congressional stimulus package and fresh news that US Treasury Secretary Steven Mnuchin has said the Federal Reserve’s major emergency loan programs would be allowed to expire.
Mnuchin’s move appears to have sparked a disagreement with Fed Chairman Jay Powell, who responded with a statement saying the Fed should maintain its “full suite” of COVID-19 response tools. The markets seemed upset with the exchange – futures contracts on the S&P 500 Index (/ ES) fell almost 40 points in the early evening – but leveled off in the morning and started Friday’s session a little below the flat line.
Yields on Treasuries slipped a bit overnight, with the yield on the 10-year – which a week ago edged up to 1% – fell back to around 0.83%. A move below 0.8% would likely be a sign that people are hesitant about their investments and are willing to settle for safety despite the low return.
Market participants appeared to weigh the Fed / Treasury dispute and concerns over the number of virus cases against optimism that a vaccine could help accelerate the economic recovery by allowing businesses to return to normal more early. Pfizer Inc. (NYSE: PFE) and BioNTech SE (NASDAQ: BNTX) said they plan to submit an application today to the U.S. Food and Drug Administration for emergency use authorization of their coronavirus vaccine candidate.
In the midst of the news stream, traders don’t seem to be entirely on the risk or risk side. Stock index futures were mixed, with those linked to the Nasdaq leading the way, with investors apparently continuing to favor tech-related stocks that might not be as affected as other types of companies in the event of a widespread foreclosure. Although the 10-year yield fell and gold rose, crude oil futures – often seen as risky investments but also a sign of economic strength – were higher, and the main gauge of fear of Wall Street, the Cboe volatility index (VIX) relaxed.
Help from Stimulus Optimism, tech companies
The resurgence of coronavirus cases has fueled concerns about the economic recovery. While there has been good news on the vaccine front, it seems likely that a vaccine won’t be widely available for some time. And another thing that could help allay investor concerns – a government stimulus package – also failed to materialize.
Against this backdrop, actions started yesterday in the red. But each of the top three U.S. clues later entered green territory, helped by news that the Senate Minority Leader said the majority leader had agreed to start talking about a government stimulus package again.
It was interesting that heavy technology Nasdaq composite (COMP) entered positive territory and held on to gains before the Senate news broke that Wall Street was taking inspiration from tech-related companies as well. Microsoft Corporation (NASDAQ: MSFT), all FAANG names and the PHLX semiconductor Sector Index (SOX) have all surpassed the Dow Jones Industrial Average ($ DJI).
The chipmaker index also received a boost on Thursday from NVIDIA Corporation (NASDAQ: NVDA), which beat earnings per share and earnings guidance from analysts fairly easily and provided above-consensus guidance for the current quarter. But the company also predicted that its data center revenue for the current quarter would decline sequentially, helping to keep the day’s earnings in check.
Reopening, tug of war at the foyer
It still seems odd to view tech companies as a safe haven, given the messy dot-com bubble burst and the idea that Silicon Valley startups are far from a safe bet. But the pandemic has changed so much.
It appears investors believe tech-related stocks won’t be hit as hard as other companies as the pandemic threatens the economic recovery. Mega hats names like Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL) and MSFT are a far cry from startups, and their sheer size helps give investors a sense of confidence in these crazy times. Meanwhile, some businesses, including those related to tech, have been aided by the pandemic as more people work, learn and play from home, helping to fuel the so-called home commerce.
But as the vaccine news encouraged investors to know the pace of the economic recovery, there was also a reopening of trading that sparked the shift from growth stocks to value companies.
However, the pendulum seems to continue to swing back and forth. It appears that investors are keeping one foot in stocks which could benefit from a returning economy and the other in door-to-door trading.
CHART OF THE DAY: A SPARK OF ENERGY. the Energy Select sector index (IXE – candlestick) struggled for most of this year, but in November the sector showed an uptrend. IXE appears to be trying to break above its 200-day simple moving average (blue line). It will be interesting to see if the index breaks the moving average or if it continues to rebound and fall. Data source: S&P Dow Jones indices. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance is no guarantee of future results.
Sales of existing homes through the roof: The housing market has been a bright spot as the economy tries to come out of its coronavirus meltdown. Strong demand for new homes was helped by low mortgage rates and the limited supply of existing homes for sale. Data from the National Association of Realtors on Thursday showed October sales of existing homes topped 6.85 million, well ahead of the 6.49 million expected in a Briefing.com consensus. The latest figure marked the fifth consecutive month of sales growth and brought the seasonally adjusted annual rate to 6.85 million, the highest level since February 2006. Demand for existing homes is limiting supply, “which is going to be. a pressure point that will fuel higher prices. , excludes a growing number of first-time buyers and strengthens the prospects for new home sales, ”according to Briefing.com. We’ll have to wait until next week for October new home sales data, but this week’s October housing data has slightly exceeded expectations, while building permits are slightly below consensus. from Briefing.com.
Oil prices, producers diverge: When oil prices fall, the shares of the companies that produce the product often decline as well. But that was not the case on Thursday, and it looks like the divergence between producers and their underlying commodity could be a symptom of investors not being able to fully support home-keeping operations or reopening. Yesterday, oil prices fell as investors worried that new cases of the coronavirus would lead to restrictions that would reduce demand for the product. But surprisingly, the energy sector of the S&P 500 index rose 1.53%, making it the best performer among the 11 sectors in the index. This could be because investors, while remaining nervous about oil demand, were also optimistic about the prospects for a congressional stimulus deal and a vaccine to help the economy return to normal. .
Looking to the future: In addition to the new home sales figures, next week’s economic calendar includes data on consumer confidence, durable goods and personal consumption spending. The government is also expected to release its second estimate of third quarter GDP. Meanwhile, while much of the earnings season is behind us, investors may want to keep their eyes peeled when Deere & Company (NYSE: DE) reports its results Wednesday. The company, best known for manufacturing agricultural machinery, also manufactures construction equipment. DE is often considered a good barometer of the agricultural economy but also of international trade and the dollar.
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