Stocks Edge Higher As COVID Pressure Eases

Hi Everyone,

The stock market finished higher following another choppy session, with the Dow and small-caps spearheading the rally. The Dow was up 164, or 0.6%, to 26,828, the Nasdaq gained 38, or 0.4%, to 10,941, while the S&P 500 rose by 12, or 0.4%, to 3,307. Advancing issues outnumbered decliners by a more than 3-to-2 ratio on the NYSE, where volume remained light.

Traders said that small-caps outperformed all of the large-cap benchmarks today, which could be the start of a major shift in sentiment on Wall Street. As one trader explained, “More and more investors believe that the worst is behind us with regard to the current wave of outbreaks, and that could mean that the most-affected sectors and small-caps might finally see sustained inflows and today’s session could be the start of that trend.”

Besides the relative strength of small-caps, other risk measures also supported the bullish case today, even though stimulus talks in Washington stalled. The Volatility Index (VIX) closed at another multi-month low, edging closer to the key 20 level. Interestingly, Treasury yields pulled back, especially on the long-end of the curve, while gold also hit a new all-time high despite the risk rally. This could mean that the market is already “pricing in” a massive stimulus bill, making the result of the negotiations even more important.

Disney (DIS, +0.8%) reported mixed earnings after the closing bell, as even though the company managed to beat expectations on its bottom line with a surprise quarterly profit, its revenue was well below the consensus estimate. (DIS is trading about 5% higher in after-hours trading.) The subscriber base of the company’s Disney+ streaming service topped 100 million, and that could fuel growth in the coming quarters, despite the high level of uncertainty regarding Disney’s other segments. That said, the two-sided report could hurt traditional consumer-related issues tomorrow, as it confirms the shift toward online markets.

While there are still a few big guns left to report earnings, we can already draw some early conclusions from the second-quarter reports. First, analysts were overly pessimistic regarding corporate profits. According to FactSet, the percentage of large-cap companies beating expectations stands near 85%, which would be the highest ever ratio. Second, the push toward remote work is likely even more significant than previously thought, at least judging by the blockbuster tech earnings, which could mean that the Nasdaq might remain very strong compared to its more traditionally weighted peers.

As always, have a great evening and stay tuned!!!

Joe

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