The market appears torn between vaccine optimism, virus concerns, stimuli and Fed loans

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Key points to remember:

  • Treasury Secretary says major Covid-19 loan programs will expire
  • California announces lockdown between 10 p.m. and 5 a.m.
  • Pfizer
    PFE
    , BioNTech Says It Will Submit Application To FDA For Emergency Vaccine Approval

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 a.m. Investors also seemed dismayed by the continued lack of a Congressional stimulus package and fresh news that U.S. Treasury Secretary Steven Mnuchin said the Reserve’s major emergency lending programs federal government 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. Markets appeared to be shaken by the trade – futures on the S&P 500 (/ ES) index fell nearly 40 points in the early evening – but stabilized in the morning and started Friday’s session a bit 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 (PFE) and BioNTech (BNTX) said they plan to submit a request 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
NDAQ
leading the way, with investors apparently continuing to favor tech-related stocks that might not be as negatively affected as other types of companies if a widespread lockdown occurs. 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 indicator of fear of Wall Street, the Cboe volatility index (VIX), weakened.

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 subsequently 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 to note that the tech-heavy Nasdaq Composite (COMP) entered positive territory and maintained its gains before Senate news broke, indicating that Wall Street was also drawing inspiration from companies linked to the technology. Microsoft
MSFT
(MSFT), all FAANG names and the PHLX Semiconductor Sector Index (SOX) all outperformed the Dow Jones Industrial Average ($ DJI).

The chipmaker index also received a helping hand Thursday from Nvidia
NVDA
(NVDA), which beat earnings per share and analysts’ earnings guidance 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, which would help 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-cap names like Amazon
AMZN
(AMZN), Apple
AAPL
(AAPL) and MSFT are far from startups, and their sheer size helps give investors a sense of self-confidence in these crazy times. Meanwhile, some businesses, including tech-related companies, 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.

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 (DE) releases its results on 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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