If this morning is any indication, trading today could be a bit of a waiting game.
As investors arrive at their desks—at home or in the office—it seems they’re looking for clarity on two big events that would likely move the market and affect the economy.
One of those things is news from a panel that is meeting today to decide whether to recommend to the U.S. Food and Drug Administration a vaccine from Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX). Such a vote of confidence could mean that the vaccine starts rolling out soon, a scenario that would likely cheer investors and traders hoping that a vaccine rollout will help get the economy back on more solid footing.
They’re also waiting on another round of support for segments of the economy that have been hard-hit by the virus. But a stimulus deal on Capitol Hill may take a little more patience from investors and traders than news on the vaccine front. The House of Representatives passed a funding measure that would give congress time for further negotiations, but both sides still seem to be a ways away from coming to an agreement that could help boost not only domestic consumer spending, but could also have ripple effects for the global economy.
Tech-Related Shares Stumble
Although a stimulus deal hasn’t been reached yet, it seems like the market has at least partially baked one into the cake, along with optimism about a vaccine. But momentum from those two factors seemed to have slowed enough on Wednesday that investors and traders didn’t have too much fear of missing out by selling some equities.
After the three main U.S. indices hit fresh intraday record highs in morning trading Wednesday, all three pulled back and ended solidly in the red, led lower by shares of tech-related companies. The tech heavy Nasdaq Composite lost the most on a percentage basis, and the S&P 500 Index's Information Technology sector was the worst performing of the day.
Tech shares were under pressure as stocks broadly paused in an apparent consolidation of recent gains. And news that the Federal Trade Commission and a coalition of 46 states along with Washington, D.C. and Guam filed two separate antitrust lawsuits against Facebook (NASDAQ:FB) didn’t help things.
The lawsuits, which could result in FB having to divest Instagram and WhatsApp, come as regulatory scrutiny hangs over other big tech-related companies. As the dust settles and a new political structure sets in, we might see a resurgence in 2021 of some of the increased regulatory scrutiny of big business.
Turning Down Risk Volume Knob
Wednesday might have seen a dialling-back of the risk knob—not a full-on flip of the switch to risk-off. The selling could hardly be called panicked, especially compared with what we saw earlier in the year, and other indicators suggested that it wasn’t so much of a risk-off day as it was the market taking a breather.
Although Wall Street’s main fear gauge, the Cboe Volatility Index (VIX) crept up during the session, and the U.S. dollar also gained, demand for the relative safety of U.S. government debt declined, pushing yields up a touch. People weren’t exactly fleeing stocks and running into Treasuries.
Meanwhile, gold, another so-called safe-haven investment, fell—something you might not expect if investors were particularly jittery. Also, crude oil, which is often bought when traders are feeling more optimistic about the global economy, performed relatively well especially when you consider that Energy Information Administration data showed a surprise build in U.S. crude stockpiles. The domestic crude benchmark only fell by 8 cents yesterday, but futures rallied in the overnight hours to back above $46 in the front-month contract.
It appears that oil traders are thinking that the crude in inventories will get sopped up by demand—if Congress can get a stimulus deal passed to help keep economic activity humming until a vaccine becomes widely available.
But there’s a possible downside to a stimulus deal, at least for Wall Street. An aid package for Main Street might make the Fed think there is less of a need to step in itself. Fed support—particularly its bond-buying program that covers Treasuries, corporate bonds, and mortgage-backed securities—has arguably been a big factor in why stocks have been able to more than recover even as the pandemic drags on.
Amid the Wednesday weakness, there were a couple of guidance bright spots. Lowe’s (NYSE:LOW) nailed it—announcing strong guidance and a $15-billion share buyback. And to keep the clichés brewing, shares of Starbucks (NASDAQ:SBUX) got a double shot of espresso after the close after reaffirming guidance—calling it a “significant” rebound in 2021—and upping long-term earnings growth of 10-12% per share.
This Chart Shows S&P 500 And Treasury Yields.
CHART OF THE DAY: YIELD SIGN: On days when the stock market experiences selling, investors often turn to the relative safety of U.S. government debt, with that demand pushing yields lower. But even though the S&P 500 Index (SPX—purple line) fell yesterday, longer-dated Treasury yields—including that of the 10-year note, as represented here by the 10-Year Treasury Note Yield Index (TNX—candlestick)—went higher as investors sold the debt instruments. It’s possible that’s an indicator that Wednesday’s selling in equities was more profit taking than it was serious fear on the part of investors. Data sources: S&P Dow Jones Indices, Cboe Global Markets (NYSE:CBOE). Chart source: The thinkorswim® platform from TD Ameritrade (NASDAQ:AMTD). For illustrative purposes only. Past performance does not guarantee future results.
Panel Discussion: As for headlines today, investors are probably going to be looking for some to come out of a Food and Drug Administration advisory panel meeting, as it’s the next step toward U.S. authorization of the vaccine from Pfizer BioNTech. The panel’s job is to let the agency know if they think the product should be approved—an eventuality health analysts appear to think is likely. While passage by the panel could potentially give the market another boost, it’s worth remembering that a good bit of optimism about a vaccine has likely already been priced into the market, especially as the United Kingdom has already approved the vaccine. So any positive news from the panel might be a “buy the rumor, sell the fact” kind of event.
At the same time, if there’s some kind of negative news there, it would seem that could really pressure equities. And it’s worth remembering that even if the U.S. does approve the vaccine, it seems likely that it won’t be widely available until well into next year, leaving the economy to potentially continue to suffer along with an increasing number of people getting infected during the colder months.
Dashing Higher: In notable single-stock news Wednesday, food-delivery company Doordash (NYSE:DASH) began official trading, and shares closed more than 85% higher after IPOing at $102. Such a performance comes as meal-delivery services are in high demand as more people dine at home because of the pandemic. It also may be a broader indication of the health of the stock market, as investors might not be so willing to pile into a tech-related startup if they didn’t think better times might be ahead. But there also seem to be risks. DASH has been helped by the pandemic, and some of that demand may start to wane after a vaccine is widely available. Plus, the food-delivery market is quite competitive, with GrubHub (NYSE:GRUB), Uber (NYSE:UBER) Eats (whose parent company recently acquired Postmates), and a smattering of others grabbing for market share. Plus, top pizza chains—and pizza is still the top choice among delivered foods—still use their own drivers for delivery.
Time To Look At Emerging Markets? With DASH’s high flying debut day along with the main three U.S. indices hitting intraday record highs, some investors might wonder whether domestic equities are getting too expensive. Markets are constantly looking for balance, and this year has been good for U.S. stocks as investors have looked for safety. Now, there may be some room for money to flow into emerging markets. Aside from a valuation comparison—which is tending to favor stocks in less developed markets at the moment—there are some other things going for emerging markets right now. Prices for crude and other natural resources have been making a comeback, a boon for commodity-exporting economies. The U.S. dollar is also on the back foot, making it easier for emerging market countries to repay dollar-denominated debt.
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