U.S. stocks gathered a little steam in choppy trade midday Friday as investors parsed a pair of economic reports that came in better than expected.
Investors have been hedging their bets about the economic recovery from COVID-19 by increasing purchases in technology and e-commerce shares, which are deemed more resilient to the economic damage from the pandemic.
How are stock benchmarks faring?
The Dow Jones Industrial Average DJIA, +0.31% rose 96 points, or 0.3%, to reach around 27,835; the S&P 500 SPX, +0.12% was 5 points, or 0.2%, higher at about 3,391. The Nasdaq Composite Index COMP, +0.30%, meanwhile, was trading 38 points, or 0.3%, higher at 11,303, after carving out a new intraday record high at 11,323.71.
Separately, the small-capitalization Russell 2000 index RUT, -0.58% , viewed as a bet on the health of the economy, was off 0.8% at 1,552, while the large-capitalization focused Nasdaq-100 index NDX, +0.53% was up 0.4% near 11,520.
For the week, the Nasdaq Composite is on track for a weekly gain of 2.6%, the S&P 500 is on track to gain 0.5%, and the Dow is off 0.4%, FactSet data show.
What’s driving the market?
After the Nasdaq Composite posted its 35th record close of 2020, the power of technology plays has reasserted itself on Wall Street, but analysts are concerned about the breadth of the rally, with only a handful of names fueling the gains.
“Breadth yet again was negative, and this represents the 4th time in the last 3 weeks we’ve seen negative breadth on gains,” wrote Mark Newton, market technician at Newton Advisors, in a Friday note. “This is the highest number of negative breadth readings within 3 weeks time since 2007.” Deterioration in areas of the market, including energy and financials, which have been under-loved during the S&P 500 and Nasdaq indexes’ rally to all-time highs, could create problems for the broader market over the longer term, he said.
“Overall, groups like Energy and Financials have fallen to near make-or-break levels with regards to their respective trends, and can’t fall much more without causing some violation that would result in both of these sectors experiencing more meaningful deterioration over the next 4-6 weeks,” he wrote.
A persistent stalemate in Congress on producing another coronavirus financial aid plan and light trading volumes during the seasonally slower August session also have contributed to choppy trade over the week.
“It’s a grind right now,” said Keith Lerner, chief market strategist for Truist/SunTrust Advisory Services, in an interview with MarketWatch. Lerner calls another round of congressional aid a “when, not if” and expects something to be achieved without too much market drama.
With so much economic data over the past few months having surprised so much to the upside, there will be a higher bar for positive market reaction to fresh data, he said. Still, his analysis shows that on average, one year after an all-time high, stocks are up 9.2%.
For now, Lerner said, “We are in a seasonably choppier time heading into elections. We might get some consolidation. Until things change you still want to stick with what’s working. Technology, homebuilders, other areas like industrials are starting to look a little better. Don’t force the value trade, wait for confirmation.”
In economic data, the U.S. IHS purchasing managers indexes for August were better than expected, with a flash reading for manufacturing at 53.6, a 19 month high, and up from 50.9 in July. The service sector index rose to 54.8 for August, a 17 month high, and up from 50 in July. A reading of 50 or above indicates improving conditions.
In other economic reports, a report on sales of existing homes in the U.S. rose 24.7% between June and July to a seasonally-adjusted annual rate of 5.86 million, the National Association of Realtors reported Friday. It was the second month consecutively in which the monthly increase was the largest on record, according to the trade group. Compared with a year ago, sales were up 8.7% in July.
“Low mortgage rates and strong demand, including from households looking for larger homes in less densely populated areas, continue to support home sales,” wrote Nancy Vanden Houten, lead economist at Oxford Economics in a Friday note.
“Still, further gains in sales will come more slowly. Mortgage purchase applications stalled in July and August, and going forward, a slow economic recovery and a still-weak labor market will limit the upside for home sales,” she wrote.
Meanwhile, health-care news favored bullish investors, with Pfizer Inc. PFE, +0.34% and BioNTech BNTX, +8.23% saying that they are track to submit a COVID-19 vaccine candidate as early as October, while Johnson & Johnson JNJ, +0.07% said it was beginning the latter phases of its large vaccine trials.
On the bearish side of the ledger, a report from Reuters indicated that the U.S. has not confirmed plans to meet with China to check on their adherence to the trade deal signed in January, despite comments from Chinese officials on Thursday.
Democratic presidential candidate Joe Biden, is not likely to ease Sino-American tensions either should he be elected in November and may aim to further crack down on the country’s human rights violations, according to a report from the Nikkei Asian Review, which comes as the former vice president accepted his party’s nomination for president on Thursday night, casting himself as a salve to a nation wounded by the policies of President Donald Trump.
In health news, the U.S. daily case tally of the coronavirus that causes COVID-19 increased to 46,029 on Aug. 20, according to New York Times Data, as there were at least 1,042 fatalities, the third-straight day that the death toll topped 1,000. As of Friday morning, the U.S. remained first globally with 5.58 million cases and 174,290 deaths, according to Johns Hopkins University data, has was still third in the world with 1.95 million recovered.
Which stocks are in focus?
- Ride-hailing companies Uber Technologies Inc. UBER, -1.19% and Lyft Inc. LYFT, -2.92% were in focus on Friday after they won more time Thursday in their appeal of a ruling that ordered them to immediately classify their drivers as employees in compliance with state law. Shares of Uber were down 0.9%, while those for Lyft were down 2.3%.
- Shares of Tesla Inc. TSLA, +4.29% looked set to extend the recent run up to their first-ever close above the $2,000 mark, and to buck the weakness seen in its peers and the broader stock market. Shares were up 2.8%.
- Shares of Foot Locker Inc. FL, +1.47% rose Friday, after the athletic shoe and gear retailer reported a fiscal second-quarter profit that topped forecasts and a big same-store sales beat.
- Shares of Deere & Co. DE, +5.65% surged nearly 5% toward a record high Friday, after the agriculture and construction equipment maker reported fiscal third-quarter profit and revenue that were well above expectations, while providing a somewhat upbeat outlook.
- Apple’s stock AAPL, +3.73% also extended a climb after touching a market value of $2 trillion. Shares gained rallied more than 4%.
- Amazon.com’s shares AMZN, -0.32% were in focus after a key executive, Jeff Wilke, announced his retirement in 2021. The company’s stock was off 0.3%.
How are other markets faring?
The 10-year Treasury note yield TMUBMUSD10Y, 0.632% fell about 2 basis points to 0.635%. Bond prices move inversely to yields.
December gold futures GCZ20, -0.09% seesawed 0.2% lower to $1,943.30 an ounce on Comex. The U.S. crude benchmark CL00, -2.91% declined 2.4%, with the most-actively traded October contract, falling $1 to reach $41.82 a barrel on the New York Mercantile Exchange.
Global equities were on the backfoot. China’s CSI 300 000300, +0.84% rose 0.9% and Japan’s Nikkei NIK, +0.17% closed 0.2% higher.
The Stoxx Europe 600 SXXP, -0.15% closed at 365.09, down 0.15%. The U.K.’s FTSE benchmark UKX, -0.18% closed 0.2% lower at 66.10.
In currencies, the greenback was up 0.5% against its major rivals at 93.28, based on trading in the ICE U.S. Dollar Index DXY, +0.62%.
Add Comment