Stocks rallied on Wednesday, adding gains for a second consecutive day as investors calibrated a resurgence of COVID-19 cases against a red-hot economic expansion that continues to show momentum.
Strong earnings provided a ballast to beaten-down markets, helping stocks to come full circle from Monday's pandemic-inspired meltdown. Industry bellwethers Coca-Cola (KO), Johnson & Johnson (JNJ) and Verizon (VZ) gave investors reason to focus on the fundamentals. All three companies topped market expectations, converging with sentiment that drove Tuesday's rally in a market that's seen very little downside in recent months.
“The truth is investors have been very spoiled by the recent stock market performance,” LPL Financial chief market strategist Ryan Detrick wrote on Wednesday.
“Incredibly, we haven’t seen as much as a 5% pullback since October. Although we firmly think this bull market is alive and well, let’s not fool ourselves into thinking trees grow forever. Risk is no doubt increasing as we head into the troublesome August and September months,” he added.
JNJ topped estimates, but forecast a slim $2.5 billion in 2021 sales of its COVID-19 vaccine, which has sandbagged by safety concerns and production issues.
In addition, Netflix (NFLX) and Chipotle (CMG) both posted strong Q2 results. The streaming giant beat analysts’ expectations for new subscribers in the quarter, but fell short of the target for estimates for Q3. Netflix also revealed more of plans to break into the gaming market, but its stock had its worst day in three months as markets registered their disapproval over its mixed earnings results.
Chipotle also impressed Wall Street by smashing estimates during the quarter, thanks to the mass return of customers after COVID-19 restrictions, and ongoing strength in digital sales.
The week started out with major benchmarks suffering their worst declines of 2021, which took the spotlight from quarterly earnings that have almost uniformly reflected a strong rebound. The rising case count driven by the Delta variant — a more communicable form of COVID-19 — pushed the Dow (^DJI), Nasdaq (^IXIC) and S&P 500 (^GSPC) to their biggest drop in months.
However, investors are reconsidering some of that pessimism, with some analysts pointing out that hospitalizations and deaths haven't risen as dramatically — and are far below where they were during the worst days of the COVID-19 outbreak.
“The market is playing this collective game of chicken right now,” CIC Wealth executive vice president Malcolm Ethridge told Yahoo Finance Live. “We all collectively agree that we can’t go on this way for much longer. There’s no obvious catalyst.”
Major indices added to Tuesday's gains, when the Dow clawed back almost 2% on the day as investors bought Monday's dip.
At the same time, bond yields have been on the decline, suggesting that investors are less concerned about inflation — but likely more concerned about growth, and the threat of COVID-19. More specifically, analysts say the threat of new restrictions can't be ruled out entirely.
All eyes will be on Thursday's jobless claims, which last week set a fresh pandemic-era low. Since the onset of COVID-19, the data series has served as an avatar of the labor market's health, and could take on new importance if rising infections start to trigger new restrictions — which may lead to another round of job losses.
"Bond Investors are growing concerned about the threat of renewed lockdowns due to the increase in COVID variants. We have seen at least one county in the U.S. revert to a mask mandate" in Los Angeles, noted Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.
"Other countries like South Africa, Australia and Indonesia are reimposing lockdowns. As a result, investors are seeking the safety of Treasuries if lockdowns threaten growth," she added.
4:04 p.m. ET: Stocks rally for a 2nd day, wiping out Monday’s steep losses as strong earnings boost sentiment
Here were the main moves in markets as of 4:04 p.m. ET:
S&P 500 (^GSPC): +35.60 (+0.82%) to 4,358.66
Dow (^DJI): +286.01 (+0.83%) to 34,798.00
Nasdaq (^IXIC): +133.08 (+0.92%) to 14,631.95
Crude (CL=F): +$3.02 (+4.49%) to $70.22 a barrel
Gold (GC=F): -$6.70 (-0.37%) to $1,804.70 per ounce
10-year Treasury (^TNX): +7.1 bps to yield 1.2800%
12:10 p.m. Stocks hold gains in quiet session
Here's where major benchmarks stood as of noon ET:
S&P 500 (^GSPC): 4,351.97, +28.91 (+0.67%)
Dow (^DJI): 34,778.44, +266.45 (+0.77%)
Nasdaq (^IXIC): 14,586.72, +87.84(+0.61%)
12:00 p.m. ET: 'COVID is spreading everywhere, again'
The most sobering read of the day comes to us via JPMorgan's economics team, which quantifies what most of us already knew: The Delta-variant is leading to an appreciable surge in new cases — even in highly vaccinated states.
A necessary caveat: hospitalizations and deaths are well-contained at this point, and certainly well below levels seen last year. With that being said, Jesse Edgerton warns that:
It seems only a matter of time before the US could see another COVID wave like the one currently occurring in the UK. The second and third US COVID waves resulted in relatively modest pullbacks in travel and entertainment spending, though it is possible this time could be worse.
And there's reasons for concern, given that even highly vaccinated states are seeing their numbers climb, all of which suggests there's a non-zero chance that more lockdowns/restrictions could be revived in the fall:
In Vermont, where almost 75% of residents have received at least one vaccine dose, new cases have more than doubled over the last three weeks. In Massachusetts, where 71% of residents are vaccinated, new cases have more than quintupled. If case growth rates near these are sustained, a significant national wave of cases will result, as is currently occurring in the UK.
So what does that mean for the economy? Edgerton says Britain's experience could prove instructive:
The UK experience suggests that the Delta variant in combination with high vaccination rates will produce a rapid rise in cases, with much more muted increases in hospitalizations and deaths. US consumers and governments may thus be less inclined to pull back or restrict spending and activity than in response to past virus waves. And, in fact, the pullback in spending in response to past waves was not dramatic. Even the massive winter wave produced a relatively modest pullback in travel and entertainment spending before it crested. On the other hand, with spending levels closer to normal at this point, a new wave might produce a larger dip.
10:33 a.m. ET: Has the US boom already peaked?
In the latest edition of Yahoo Finance's Morning Brief, Myles Udland broke down a chart that, among other things, suggests the reflation trade is starting to run its course. All of which could mean the U.S. economy could be in the last throes of its boom — and while it's certainly not poised for bust, markets could already be pricing in modest growth.
However, Morgan Stanley's chief US economist Ellen Zentner has a more tempered take. "I think post-peak doesn't have to be a bad thing," she told Yahoo Finance Live on Wednesday.
"There are various turning points within a business cycle, and we've come out of a very, very rapid phase of recovery and expansion so it's only natural we move into the moderate phase."
9:30 a.m. ET: Stocks open higher, but tech lags
Here were the main moves in markets as of 9:30 a.m. ET:
S&P 500 (^GSPC): 4,341.93, +18.87 (+0.44%)
Dow (^DJI): 34,700.93, +188.94 (+0.55%)
Nasdaq (^IXIC): 14,541.53, +42.65 (+0.29%)
Crude (CL=F): $68.64, +1.44 (+2.14%)
Gold (GC=F): $1,799.50, -$11.90 (-0.66%)
10-year Treasury (^TNX): flat to yield 1.2680%
7:30 a.m. ET: Wednesday: Stock futures mixed
Here were the main moves in markets as of 7:30 a.m.:
Dow futures (YM=F): 34,534.00, +134.00 (+0.39%)
Nasdaq futures (NQ=F): 14,706.75, -16.00 (-0.11%)
S&P 500 futures (ES=F): 4,325.50, +10.00 (+0.23%)
6:20 p.m. ET Monday evening: Stock futures gain
Here were the main moves in markets, as of 6:20 p.m. ET:
Dow futures (YM=F): 34,226, +29
Nasdaq futures (NQ=F): 14,727, +5
S&P 500 futures (ES=F): 4,319, +3.50
Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek