Stocks open slightly lower as earnings season begins. Once launched by Alcoa, the unofficial start to earnings season now begins with several financial firms reporting. The S&P 500 Index opened slightly weaker Tuesday morning following four straight up days, although the Nasdaq pressed higher, as market participants evaluate a challenging mix of earnings, the election, stimulus talks, and COVID-19.
Asian shares gain; Europe slightly off. The MSCI Asia Pacific Index climbed 0.2% overnight, led by strong gains in Australia. European shares are off slightly at midday as the region continues to contend with a surge in COVID-19 cases. A measure of German investor confidence missed consensus expectations by a wide margin, highlighting rising concern over the potential economic costs of additional COVID-19 containment efforts.
Big day for big cap tech. The Nasdaq 100 added more than 3% on Monday, for the best day since April 29 and second highest close ever. Anticipation over the Amazon Prime Day sale (starting Tuesday) and Apple’s iPhone 12 event (Tuesday) sparked much of the rally. Communication services also had a big day, as FAANG (Facebook, Amazon, Apple, Netflix, and Alphabet) all rallied. Although we’ve seen some rotation into value over the past two months, we continue to remain bullish on growth and tech, as they should continue to benefit from the current environment, and would consider adding on any pullbacks.
Negative real rates, once rare, have become more common. The 10-year Treasury yield currently sits below inflation, as measured by the core Consumer Price Index (CPI), making the real rate (the rate taking out inflation) negative. Once a relative rarity, negative real rates have become more common, occurring 37% of the time since the start of 2011. Nevertheless, current extremes are still unusual, and even reversion to the average over that period would push the 10-year Treasury yield to just over 2%, although that would likely take several years. For more on negative real rates and their impact, see today’s LPL Research blog.
It has been a busy week. We consider the strongest week for the S&P 500 in more than three months, ongoing stimulus talks, election news, potential tax increases, and earnings season in this week’s Market Signals: Stimulus Talks, Election News, and Earnings Season.
Technical update. Markets surged to begin the week, as the S&P 500 posted a 1.6% gain and the Nasdaq jumped 2.6%, its best day in over a month. Mega cap growth stocks were responsible for much of the gains, as internal data was far more restrained with advancers on the NYSE outnumbering decliners by just 1.7:1. The S&P 500 needs just a 1.5% gain from Monday’s close to mark a new all-time high.
COVID-19 news. New cases in the United States have now risen by double digit percentages for six straight days, pushing the seven-day moving average 14.5% higher to 49,819 (source: COVID Tracking Project). Hospitalizations are rising only gradually but upward pressure from the latest increase in cases is building. The first case of reinfection was reported. Johnson & Johnson paused its vaccine trial due to an illness in a participant. Singapore reported no new local cases for the first time since February.
LPL Research in the Media
LPL Research on CNBC. LPL Financial’s Chief Market Strategist Ryan Detrick joined CNBC this morning to talk about the election and where to invest. You can watch the full interview here.
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