Big Tech came out of its recent slump Wednesday as Wall Street ignored stasis on the stimulus front and bid the major indices higher, putting the S&P 500 within reaching distance of a new bull market.
House Speaker Nancy Pelosi said today that Democrats and the White House were "miles apart" on a new coronavirus rescue package, making it likely that jobless-benefit top-ups will wait at least a few weeks more.
However, the Bureau of Labor Statistics reported that the Consumer Price Index jumped 0.6% for July – its largest single-month advance since January 1991 and another sign that the U.S. economy is recovering.
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"Core CPI surprised to the upside, driving a solid gain in headline inflation as well," writes Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income. "The strength in the July report was driven by components impacted by Covid unwinding some of their previous large declines and bouncing back from depressed levels.
"We saw solid gains in transportation services components, such as airfares, motor vehicle insurance and rental cars, which reflect that bounce back."
Apple (AAPL, +3.3%) and Microsoft (MSFT, +2.9%) were among the stocks carrying the large-cap indices higher, but there were several other big moves of note:
- Tesla (TSLA, +13.1%) gapped higher after Tuesday's announcement of a 5-for-1 stock split.
- FedEx (FDX, +2.7%) gained after a UBS analyst reiterated his Buy rating and upgraded his price target from $181 to $218 on expectations for stronger margins
- Chili's parent Brinker International (EAT, +14.6%) was jolted to life after reporting a smaller quarterly loss than expected.
The Dow Jones Industrial Average climbed 1.1% to 27,976, the Nasdaq Composite popped 2.1% to 11,012, and the small-cap Russell 2000 improved a more modest 0.5% to 1,583. Meanwhile, the S&P 500 finished 1.4% higher to 3,380, putting it a mere 6 points below its Feb. 19 all-time high. Exceeding that level would confirm a new bull market.
More Room to Run? It Depends.
So, what must happen to keep this rally intact? In truth, the answer likely revolves around what part of the market you're talking about.
For instance, signals of a weakening recovery could lift consumer staples and other recessionary plays.
And "elevated U.S. economic uncertainties also could put downward pressure on the dollar," writes Chao Ma, Global Portfolio and Investment Strategist at Wells Fargo Investment Institute. As we've previously noted, a weak dollar could benefit these 19 American multinationals.
Conversely, continued signs of health from the economy, as well as positive COVID vaccine/treatment developments, would mean good things for cyclicals like financial stocks and industrial firms, as we've seen in recent sessions.
And keep a real close eye on housing stocks, which have put up ample gains in 2020 on downright stubborn strength in the housing market. The industry is notoriously susceptible to a weak economy, but there's reason to believe the market can remain elevated.
"The extension of the Federal Reserve’s emergency lending facilities through the end of the year, announced last week, should help the economy at the margin," writes Jennifer Lacombe, Associate Editor at BCA Research. "As long as Congress extends fiscal aid, policy makers’ efforts will help sustain the demand for homes and fears of a wave of mortgage defaults and distressed home sales one would expect in a severe recession will not materialize.
"If demand remains well supported while the supply of new and existing homes remains muted, home prices do not have much room to decline."
If that does come to pass, these five housing market stocks could add to their already impressive performances this year.
Kyle Woodley was long MSFT and TSLA as of this writing.
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