Vaccine rollout raises hopes for cyclical economic recovery next year
U.S. stocks ended lower Wednesday, a sharp reversal from a round of intraday records, as investors migrated out of big technology outperformers into more downtrodden sectors in the belief that any new fiscal stimulus plan from Congress and a vaccine rollout will restore economic normality next year.
How did stock benchmarks perform?
- The Dow Jones Industrial Average DJIA fell 105.07 points, 0.4%, to finish at 30,068.81, but off session lows.
- The S&P 500 index SPX lost 29.43 points, 0.8%, ending at 3,672.82.
- The Nasdaq Composite COMP skidded 243.82 points, 1.9%, to close at 12,338.95.
- The Russell 2000 RUT small-cap index fell 15.63 points, or 0.8%, to end at 1,902.162, after trading positive earlier in the session.
On Tuesday, the S&P 500 registered its 30th closing high of 2020 and the Nasdaq notched its 50th.
What drove the market?
U.S. equity benchmarks were brought lower by selling in technology shares, amid renewed buying in some downtrodden sectors, including energy, that have been hit hard by the public-health and economic crisis spurred by COVID-19.
“The market is lower because the largest stocks in the S&P 500 are down,” said Andrew Slimmon, portfolio manager at Morgan Stanley Investment Management.
Shares of tech giants Apple Inc. AAPL, Microsoft Corp. MSFT, Amazon.com, Inc. AMZN, Facebook, Inc. FB and Google GOOGL GOOG parent Alphabet Inc. shed between 1.9% to 2.3%.
Facebook also was hit on Wednesday with an antitrust suit from the U.S. government and 48 state attorneys general claiming it committed unlawful, anticompetitive acts that put rivals out of business to cement its status as the pre-eminent social-networking giant.
The selling in tech stocks contrasted with energy and consumer discretionary sectors, which lead the S&P 500 gains.
“Energy, materials, industrials and financials are more economically sensitive at the start of a new business cycle,” said Mike Goldman, managing partner at WestEnd Advisors, noting that he thinks it’s a good time to add energy exposure.
“As we come out of the pandemic, the cyclical nature of travel, production and trade is likely to really benefit the demand for energy,” he said, while pointing out that many energy companies also significantly cut their capital expenditures during the crisis, leaving more upside for stocks if energy prices push higher.
Despite positive signals on the horizon, some investors remain wary. “I still think there’s a potential for some kind of bolt from the blue surprise,” said Peter Andersen, founder of Andersen Capital Management. “I’m very cautious. There are still some questions to be answered. I’m hoping we have a smooth end to December.”
Andersen is bullish over the long-term though, he said in an interview. Once past some of the near-term headwinds, “I think 2021 is going to be one of the historic years for recovery, up there with the end of major wars. We’re already seeing enormous demand from consumers. Can you imagine when we get a semi-all clear and we’re moving back toward normalcy?”
Among those near-term hurdles are negotiations over another round of government aid and the U.S. rollout of a COVID-19 vaccine.
U.S. Treasury Secretary Steven Mnuchin proposed a $916 billion package on Tuesday, though Democrats still prefer an earlier bipartisan $908 billion proposal and Senate Majority Leader Mitch McConnell on Wednesday claimed Democratic congressional leaders were being uncooperative.
The focus on fiscal aid comes as the global tally of COVID-19 cases rose above 68 million on Wednesday, according to data aggregated by Johns Hopkins University, while the death toll rose above 1.55 million.
Investors are waiting for a Food and Drug Administration meeting scheduled to take place Thursday as the next step toward the likely authorization of the BioNTech BNTX and Pfizer Inc.’s PFE experimental COVID-19 vaccine, which began to be distributed to vulnerable populations in the U.K. on Tuesday. A similar FDA meeting for Moderna Inc.’s MRNA vaccine candidate is set for Dec. 17.
BioNTech on Wednesday said regulatory documents related it its COVID-19 vaccine candidate were subject to a cyberattack on the European Medicines Agency, but that none of its systems of those of Pfizer were breached in the incident.
In U.S. economic data, job openings rose in October, the U.S. Labor Department said Wednesday morning, but layoffs rose more quickly.
Meanwhile, U.K. Prime Minister Boris Johnson was in Brussels Wednesday to meet European Commission President Ursula von der Leyen, in a bid to secure a post-Brexit trade deal. Fears of a ‘no-deal’ scenario when the transition period ends on Dec. 31 weighed on stocks and the British pound GBPUSD on Tuesday.
Which stocks were in focus?
- Car maker Honda Motor Co. HMC said Wednesday it temporarily halted production at its plant in England after shipping delays linked to the COVID-19 pandemic and preparations for Brexit left it with a shortage of parts. Shares rose 1%.
- DoorDash Inc. DASH shares soared almost 80% on their debut Wednesday on the New York Stock Exchange, after opening at $102 a share under the ticker “DASH.” Shares closed 85.8% higher.
- Vera Bradley VRA shares slumped 13.9% after the company’s results fell short of analyst expectations and management declined to offer guidance because of uncertainty caused by the pandemic.
- FireEye Inc.FEYE shares slid 13.1% after the cybersecurity company late Tuesday said sophisticated hackers accessed its tools used to test its customers’ security.
- Tempur Sealy International Inc. TPX is set to invest $150 million in next three years for growth initiatives and targets $280 million in buybacks.
- Shares of Campbell Soup Co. CPB ended 2% lower, even after the food company blew away analyst expectations in the most recent quarter.
- Cardtronics PLC CATM shares surged 31.9% after the company said it had received a buyout offer.
How did other markets fare?
- The yield on the 10-year Treasury note BX:TMUBMUSD10Y advanced 2.6 basis points to 0.939% on growing expectations for reflationary stimulus. Yields and bond prices move in opposite directions.
- The ICE U.S. Dollar Index, DXY a measure of the U.S. currency against a basket of six major rivals, was up 0.1% at 91.04.
- The pan-European Stoxx 600 Europe index XX:SXXP closed up 0.3%, while London’s FTSE 100 index UK:UKX rose 0.1%.
- Oil futures finished slightly lower, with the U.S. benchmark CL settling down 0.2% at $45.52 a barrel. Gold futures tumbled 1.9%, as stimulus bets nudged investors to riskier assets. The February contract GCG21 settled at $1,838.50 an ounce.