Stock indices were mostly higher on Monday as investors watched for signs that a long-awaited turn on Wall Street to more growth-sensitive cyclical stocks could be brewing, to the detriment of their high-growth counterparts.
Investors also focused on President Donald Trump’s signing over the weekend of executive orders aimed at expanding certain elements of coronavirus relief. The measures face probable legal hurdles, however, and questions about their effectiveness, while continuing tensions between the United States and China could also cap the market, analysts said.
What are the main benchmarks doing? The Dow Jones Industrial Average (DJIA) traded 253 points, or 0.9%, to 27,687. The S&P 500 (SPX) rose to around 3,360, after trading around 1% of its closing high of the February 19, 3386.15. The Nasdaq Composite (COMP) fell 91 points, or 0.8%, to 10,920.
Stocks posted gains last week, with the Dow Jones rising 3.8% to 27,433.48 and the S&P 500 posting a weekly rise of 2.5% to 3,351.28, the Nasdaq gaining 2.5% to end at 11,010.98. The Nasdaq edged down on Friday after hitting a string of records that propelled it above the 11,000 mark. The Dow Jones closed 7.2% below its record set on February 12.
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What drives the market?
Monday’s trading showed signs of a rotation of high-growth tech stocks to more economically sensitive cyclical companies, a trend that has been brewing since late last week.
“As the summer peak of COVID-19 diminishes, investors are more inclined to view the economic recovery as real. This could mean that the recent move towards cyclical stocks is real and lasting for the first time since the start of the pandemic, ”said James Meyer, chief investment officer at Tower Bridge Advisors.
Still, investors say it’s unclear how far an incipient rally in cyclical businesses could go, with the coronavirus remaining a drag on the US economic recovery and the feasibility of further fiscal stimulus measures announced by the administration. Trump in question.
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After the White House and Democratic lawmakers failed last week to reach agreement on a new round of coronavirus aid, Trump signed executive orders on Saturday to suspend payroll tax collection, to provide a help with rent, to help pay off student loans. and extend some of the additional unemployment benefits that expired at the end of last month. It is almost certain that the measures will face legal challenges and logistical hurdles.
Specifically, an ordinance allows states to pay $ 400 a week in additional unemployment benefits, 75% of the funding coming from the federal government, compared to $ 600 in additional benefits that expired in late July, which were credited to help borrowers. and lenders, so far, have avoided a wave of consumer defaults.
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“Obviously, that’s less stimulus than was previously available, which probably wasn’t enough to keep the economy from slowing down – regardless of the good US jobs news on Thursday and Friday – and to kick at best. However, it’s mathematically better than nothing, ”said Michael Every, global strategist at Rabobank, in a note.
Meanwhile, U.S.-China tensions escalated, with Beijing announcing unspecified sanctions on 11 U.S. politicians and heads of organizations promoting democratic causes on Monday, including additional measures targeting Senators Marco Rubio and Ted Cruz, who were already subject to a travel ban.
In addition, Chinese jet fighters briefly crossed the center line of the Taiwan Strait on Monday, according to reports, as US Secretary of Health and Human Services Alex Azar visited the island. Azar is said to be the top US official to visit Taiwan for about four decades.
The profit season also ends this week. As of Friday, companies representing 89% of the S&P 500 market capitalization had released second-quarter results, according to Jonathan Golub, chief U.S. equity strategist at Credit Suisse Securities. In total, 81% of companies that said they exceeded expectations fell.
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Profits topped estimates by 23.2% overall, with 81% of companies reported exceeding their lowered forecasts during the pandemic. Golub also noted that while second quarter earnings per share exceeded projections by more than 23%, the third quarter consensus estimate was only raised by 3% and the fourth quarter estimate remains unchanged.
In economic data, the number of job openings in the United States rose from 518,000 to 5.8 million, up for a second consecutive month. But the number of available jobs was around 7 million before the pandemic.
Which companies are targeted?
- Social media platform actions Twitter Inc. (TWTR) gained 1.9% after The Wall Street Journal announced it had held preliminary discussions on a possible combination with TikTok, the video-sharing app that the Trump administration declared a threat to national security due to its Chinese ownership. Microsoft Corp. (MSFT) is, however, still seen as the pioneer of any deal with TikTok after weeks of talks between the latter and Beijing-based TikTok owner ByteDance Ltd., according to the report.
- Actions of Berkshire Hathaway Inc. (BRK) (BRK) rose 0.5% after the conglomerate led by billionaire investor Warren Buffett on Saturday reported an 87% increase in second-quarter profit on Saturday, thanks to the growing value of its investment portfolio, although it also took an approximately $ 10 billion depreciation on the value of its aircraft parts manufacturing business.
- Marriott International Inc. Shares (MAR) rose 4.1% despite the hotel operator reporting a larger-than-expected second-quarter loss and revenue below Wall Street estimates.
- Actions of Royal Caribbean Cruises Ltd. (RCL) climbed 11% on Monday even after the cruise line reported a larger-than-expected second-quarter loss. But revenues fell less than expected as cruises were suspended due to the pandemic.
- Actions of Eastman Kodak Co. (KODK) fell nearly 26% after the US International Development Finance Corp. is withholding its planned loan of $ 765 million after the deal went through regulatory review.
How are other markets traded?
The yield on 10-year treasury bills (BX: TMUBMUSD10Y) increased 1.4 basis points to 0.574%. Bond prices move inversely with yields.
The greenback rose 0.1%, with the ICE US dollar (DXY) index being a gauge of the dollar against half a dozen currencies, to 93.52 on Monday morning.
In Europe, the Stoxx Europe 600 index (XX: SXXP) ended up 0.3%, after rising 2% last week, and the FTSE 100 (FR: UKX) also rose 0.3 %, following its weekly increase of 2.3%.
In Asia, China’s CSI 300 Index (XX: 000300) ended trading up 0.4%, while Hong Kong’s Hang Seng Index (HK: HSI) closed down 0.6% .
US benchmark oil (CL) traded 91 cents higher, or 2.2%, around $ 42.13 a barrel on the New York Mercantile Exchange. Gold futures for December (GCZ20) added $ 11.80, or 0.6%, to trade at $ 2,039.60 an ounce.
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