The wind in the sails: the market is trying to regain ground; I…
(Wednesday market opens) As in spring, the stock market can be fickle. After yesterday’s strong headwinds linked to coronaviruses, this morning indicates a calmer day as stocks seek to regain ground.
It appears that some end-of-quarter rebalancing activity may be behind some of the volatility, but the underlying current of the stock price revision may also continue as investors alternate between stocks. at home as the pandemic continues and reopening actions when economic optimism rebounds. .
It may be that some of the latter are occurring this morning as a few hardest hit areas yesterday appear to be on the mend. Crude oil futures – which were smashed yesterday, falling nearly $ 4 a barrel – are up 2.5% this morning, but still below the $ 60 mark they crossed on Tuesday. In addition, futures on the Russell 2000 Index (RUT) – who were hit particularly hard yesterday (see more below) – lead the charge early on.
Intel, chips and re-shoring
A bright spot this morning comes from Intel (INTC), whose shares rose about 3.8% this morning after the chipmaker said it would build two new factories in Arizona. The move falls under a new chief executive who is trying to bring Intel back to fame after stumbles in manufacturing, the loss of important customers and increased competition. More broadly, the new factories come at a time of global chip shortage, but they won’t start production until 2024.
There may be some excitement in the market in general about the move, as it is a reminder of how well chip companies performed last year. After falling last year, the new plans may be able to help Intel stocks catch up with competitors that soared last year.
One thing investors may be reflecting on today is the purchasing managers index data. A manufacturing PMI in Germany stood at 66.6 for the month, and the manufacturing sector in France also exceeded consensus. But across the region, the service PMI is still low.
Increase in viral concerns
Yesterday’s first anniversary of the current bull market was marked by new concerns about the coronavirus.
Comments on Monday from the World Health Organization that cases over the past week have increased in Europe, Southeast Asia, the Eastern Mediterranean and Western Pacific regions appear to be weighing on the market. Even though the Americas and Africa have seen small declines, Wall Street still appears concerned about the global economic recovery as a whole.
The growing number of cases, even as more people get vaccinated, does not bode well for the reopening of economies. Much of France is on lockdown again, and Germany is extending restrictions. On this side of the pond, New Jersey is suspending new reopening measures as the number of cases increases.
Along with the bad news on the business front, there have also been troubling developments on the vaccine front.
Yesterday the United States said AstraZeneca (AZN) could have included outdated information in one trial, even though an announcement the day before said the vaccine was safe and highly effective in a large US trial. AstraZeneca said it will share the most recent efficacy data. In addition, the deployment of Johnson & johnson (JNJ) in the United States.
While virus concerns appeared to be the main motivation to sell yesterday, it is possible that investors are also worried about whether there could be potential tax increases to pay for planned infrastructure projects in addition. measures to revive the pandemic.
While investors are very concerned about the pandemic, they appear to be selling stocks that should do better as the economy improves. the Materials sector was the worst performing of the day, followed by Industrial, with manufacturer of agricultural and construction equipment caterpillar (CAT) one of the biggest laggards of the Dow Jones Industrial Average ($ DJI). Energy stocks also gained the upper hand as oil prices fell amid fears that slow vaccine deployments and lockdown restrictions in Europe would reduce demand for crude. Additionally, airline stocks lost altitude and cruise line stocks were weak in the water.
the Russell 2000 (RUT) lost a little more ground than the three major US indices. Part of it may be profit taking amid fears that the small cap / value rally may have gained the upper hand. In addition, many small businesses in RUT are expected to benefit from an economic reopening, so a risk-free day like Tuesday was not very kind to them. In addition, lower yields on treasury bills may have sent many regional index banks into negative territory.
With the reopening of stocks having had such a bad day, the pendulum shifted to stocks that performed well during periods of lockdown as people had to work, learn and play at home. Stay-at-Home poster stocks Zoom (ZM) and Platoon (PTON) both increased by more than 3.4%.
One of the reasons the market is doing so well is that investors seem to have envisioned a rapid economic recovery. Any delay in this speed could hurt the market, as we saw yesterday with concerns about vaccine rollouts and rising cases.
On a technical note for stocks, although the indices weakened throughout the day yesterday, it was nice to see the S&P 500 Index (SPX) bounces off 3900 and rallies to the close. That momentum may be behind some of this morning’s gains, but we’ll have to see if it continues.
The dragon and the eagle: In addition to resurgent concerns over the coronavirus and concerns about inflation, there also appears to be an underlying stream of concern over US-China relations that could weigh on the market as well. The high-level talks in Alaska a few days ago marked a cold start to what some may be hoping was a Biden-era reset in relations between the world’s two largest economies after the deadly trade war in the Trump administration. Tensions have been raised over allegations of human rights abuses, cyber attacks and pressure on Taiwan, and it is unclear how the Biden administration will handle Trump-era tariffs. Will the White House try to use their continuation as a stick or their removal as a carrot to advance on non-economic fronts? Whatever happens, the frosty talks in Alaska seem to have Wall Street on its wits, especially when combined with another wave of COVID-19 and inflation concerns.
Treasury and Fed look at market valuations: Even though the vaccine rollout has been spotty and the world continues to fight the pandemic, the stock market has recovered well from a year ago. As Wall Street overtook Main Street, some investors appear to be worried about high valuations, especially at large tech companies, but they also appear to be worried about missing out on further gains. Those who feared the market would get too strong appeared to get confirmation on Tuesday, as Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell said in remarks to the House financial services committee that some parts of the market are high.
Yet financial executives weren’t exactly sounding the alarm bells. As Yellen said, âI would say that if asset valuations are elevated by historic measures, it is also believed that with vaccinations going at a rapid pace, the economy will be able to recover on the. rails. ” Powell recalled that the banking system remains well capitalized. The two continue their virtual tour on Capitol Hill today for joint testimony before the Senate Banking Committee.
Housing affordability under pressure: As if there wasn’t enough bad news for investors to pass yesterday, housing data also disappointed. New home sales in February hit a seasonally adjusted annual rate of 775,000 units, well below the 867,000 expected in a Briefing.com consensus. This comes on the heels of weaker than expected February existing home sales data on Monday. It appears that new home sales in the Midwest and South were hit by harsh winter weather in February. But as Briefing.com points out, a sharp drop in month-over-month new home sales in the West, coupled with a higher proportion of new homes selling for $ 399,999 or less, indicate “pressures increased affordability exerted by high prices and rising mortgage rates. . The existing home market faces a similar situation, where supply is near an all-time low and prices have risen faster than income gains. This creates a situation that Briefing.com says will put pressure on affordability from a pricing perspective, even if mortgage rates rise.