Stocks rise, recovering some losses

February 19, 2021 0 By boss

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Stocks rose Friday as the major indexes looked to recuperate some recent declines.

The Dow gained more than 50 points, or 0.2%, while the S&P 500 and Nasdaq also advanced after declining a day earlier. The Nasdaq looked set to outperform against the other two major indexes for the first time this week, as investors over the past several sessions extended a rotation into cyclical stocks and away from some high-growth tech names.

“While performance breadth has increased, our work shows that the dispersion of individual stock returns has been on the rise and the direction and movement among S&P 500 stocks have become more independent,” BMO Capital Markets strategist Brian Belski wrote in a note Thursday. “This combination of rising performance dispersion and falling intra-stock performance sets up an environment that is conducive for potential alpha generation and one that should favor stock selection, in our view.”

Though the major equity indexes have drifted lower these past few sessions, they have still held near record levels as optimism over a strong economic recovery continues to fuel a risk-on mood. The S&P 500 remains less than 1% below its recent all-time high. And Treasury yields have also climbed amid optimism over a firming economic backdrop, and jumped to a fresh one-year high of just over 1.32% on Friday.

Developments around the virus have been encouraging after a post-holiday spike. New COVID-19 cases, hospitalizations and deaths have abated in recent weeks, and the number of new cases per day has averaged 77,665 over the past week, for a drop of 43% from the average of the two weeks prior, according to New York Times data. And an analysis from Bloomberg on Thursday showed that the U.S. vaccine supply is poised to double from the current rate of 10 million to 15 million doses per week within the next few weeks, allowing more shots to be given in the near-term.

While some economic data have already showed signs of a rebound in many areas of the economy, other data disappointments have underscored the nonlinear nature of the economic recovery. New jobless claims unexpectedly rose to a one-month high last week, as virus-related pressure on the labor market weighed more heavily than anticipated even after some improving trends in new infections. And while retail sales handily topped expectations at the start of this year, some economists have warned that a pullback may occur in February due to extreme weather and diminishing benefits from stimulus checks distributed earlier this year.

10:00 a.m. ET: Existing home sales unexpectedly rose in January, reaching the highest level since October 

Sales of previously owned homes in the U.S. unexpectedly increased in January, extending 2020’s strong run of housing market activity. 

Existing home sales rose 0.6% to a seasonally adjusted annual rate of 6.69 million in January, reaching a three-month high, according to the National Association of Realtors. Consensus economists were looking for sales to fall 2.4% over December to 6.60 million, according to Bloomberg data. 

Still, however, housing market activity has slowed from a historic clip last year as inventory and affordability start to weigh. 

“Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market,” Lawrence Yun, NAR’s chief economist, said in a statement. “Sales easily could have been even 20% higher if there had been more inventory and more choices.”

9:25 a.m. ET: Stocks open higher

Here’s where markets were trading shortly after the opening bell:

  • S&P 500 (^GSPC): +12.70 points (+0.32%) to 3,926.67

  • Dow (^DJI): +67.57 points (+0.21%) to 31,560.91

  • Nasdaq (^IXIC): +64.08 points (+0.48%) to 13,929.48

  • Crude (CL=F): -$0.61 (-1.01%) to $59.91 a barrel

  • Gold (GC=F): +$6.50 (+0.37%) to $1,781.50 per ounce

  • 10-year Treasury (^TNX): +3.7 bps to yield 1.324%

9:10 a.m. ET: ‘The economy will be overheating next year. The only question is by how much’: BofA

With unprecedented levels of fiscal and monetary stimulus pumping into an economy already beginning to recover, many pundits have pointed out that risks of overheating, and of rapidly rising rates, could hinder the rebound.

“Market moves of late – and particularly in the last week – sent a clear story of optimism about the U.S. economy. We agree. We currently forecast 6.0% GDP growth this year and 4.5% next year, leaving us on the very high end of the economic consensus,” Bank of America economist Michelle Meyer wrote in a note Friday. “The risk is that growth will be even stronger given prospects for greater stimulus.”

The firm’s base case forecast is that the virus-induced economic output gap will close by the end of 2021, and turn positive by 2.7% by the end of 2022.

However, “if we got an additional half-percent this year and next on the back of greater stimulus, the output gap surplus could increase to 3.9% by the end of next year, which would be the greatest surplus since 1973,” she added. “So, yes, the economy will be overheating next year. The only question is by how much.”

“It is a delicate balance: if rates rise too quickly based on expectations for a strong economy and acceleration in inflation, it could actually end up delaying the recovery,” she said. “There are two primary channels by which higher rates impact the economy: (1) higher borrowing costs, hurting the interest-rate-sensitive sectors of the economy, such as the housing market; and (2) equity market sell-off and widening credit spreads, leading to a negative confidence shock.”

8:52 a.m. ET: Fourth-quarter earnings results have blown past estimates, topping expectations by an average of 16.6%: Credit Suisse

S&P 500 companies have so far delivered fourth-quarter earnings results that handily topped estimates, in a testament to the faster-than-expected rebound in corporate profitability as companies stringently cut costs during the pandemic.

Companies comprising 88.8% of the S&P 500’s market capitalization reported fourth-quarter results as of Friday morning, according to an analysis from Credit Suisse’s Jonathan Golub. Of these, 78% of companies have topped their projections and earnings have topped expectations by 16.6% in aggregate.

Heading into fourth-quarter earnings season, consensus analysts were expecting profits to decline on a year-over-year basis for a fourth consecutive quarter. However, earnings per share on now instead tracking toward a rise of 3.6%. And excluding cyclical companies hardest hit by the pandemic, earnings per share on tracking toward an impressive 15.2% growth rate, Golub added.

But as Yahoo Finance has written about previously, companies that beat expectations haven’t been rewarded for exceeding expectations. This earnings season, companies that have topped both revenue and EPS expectations have underperformed the market by an average of 0.4%, versus a historical average outperformance of 1.5%, Golub said.

7:25 a.m. ET Friday: Stock futures point to a slightly higher open

Here’s where markets were trading ahead of the opening bell:

  • S&P 500 futures (ES=F): 3,920.25, up 10.75 points or 0.27%

  • Dow futures (YM=F): 31,481.00, up 50 points or 0.16%

  • Nasdaq futures (NQ=F): 13,687.75, up 54.75 points or 0.4%

  • Crude (CL=F): -$1.29 (-2.13%) to $59.23 a barrel

  • Gold (GC=F): -$6.70 (-0.38%) to $1,768.30 per ounce

  • 10-year Treasury (^TNX): +2.2 bps to yield 1.309%

6:01 p.m. ET Thursday: Stock futures trade slightly higher

Here’s where markets were trading Thursday evening as the overnight session kicked off:

  • S&P 500 futures (ES=F): 3,911.25, up 1.75 points or 0.04%

  • Dow futures (YM=F): 31,448.00, up 17 points or 0.05%

  • Nasdaq futures (NQ=F): 13,645.5, up 12.5 points or 0.09%

People walk past the New York Stock Exchange (NYSE) at Wall Street on February 17, 2021 in New York City. - Wall Street stocks retreated early Wednesday as worries about potentially higher inflation accompanied much better-than-expected US retail sales. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

People walk past the New York Stock Exchange (NYSE) at Wall Street on February 17, 2021 in New York City. – Wall Street stocks retreated early Wednesday as worries about potentially higher inflation accompanied much better-than-expected US retail sales. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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