More fiscal stimulus looks likelier, and the Covid-19 vaccine outlook just got a tad brighter. Shares of online travel agency Expedia Group and gaming and lodging firm Las Vegas Sands—both beneficiaries from reopenings—were big gainers.
Stocks rose sharply Tuesday. More fiscal stimulus looks likelier, and the Covid-19 vaccine outlook just got a tad brighter.
The Dow Jones Industrial Average gained 475.57 points, or 1.57%, to close at 30,687.48. The S&P 500 rose 52.45 points, or 1.39%, to end at 3,826.31, and the Nasdaq Composite tacked on 290.38 points, or 1.56%, to close at 13,612.78. The biggest gainer on the S&P 500 was Waters (WAT), a provider of lab equipment that saw shares soar 8.4% on strong earnings. The second- and third-largest gainers—online travel agency Expedia Group (EXP) and gaming and lodging firm Las Vegas Sands (LVS)—would both benefit from reopenings.
“I’m not surprised to see the market up,” JJ Kinahan, chief market strategist at TD Ameritrade, told Barron’s. “We’re more than just up,” he added, noting that the rise in stocks has been aggressive in the past two days, with the S&P 500 up 3% in the that time.
The most important development on the day was progress on fiscal stimulus. President Joe Biden met with Republican lawmakers to discuss their proposed $618 billion stimulus plan, one that would include $1,000 direct payments to households. Some economists expect roughly $1 trillion of spending by March, and the talks indicate both that roughly that amount could be on the way and that this is a bipartisan—not Democratic-only—agenda.
Consumers and corporations have already built up excess reserves, which could be unleashed when vaccines enable reopenings, especially as small businesses will have the cash to rehire workers. But more stimulus may mean that even more pent-up demand and even higher earnings growth than currently expected.
The vaccine story also became incrementally more positive Tuesday. A vaccine produced in Russia was 92% effective, while more Americans have been vaccinated against Covid-19 than have caught the virus. In the U.S. about 10% of the population has now been inoculated.
“While the initial rollout was bumpy, it is ramping up,” wrote Peter Boockvar, chief investment officer of Bleakley Advisory Group, in a note. “The combination of what’s to come in DC and the weekly improvements in the number of jabs, the 10-year yield at 1.11% is at a three-week high,” he added, indicators that economic growth and inflation expectations are climbing on all the news. Yields rise when inflation expectations do the same, and the 10-year yield ended the day far higher than where it began. That brought bank stocks, which see higher profitability when long-dated interest rates rise, significantly higher. The SPDR S&P Bank ETF (KBE) rose 2%.
It was no surprise stocks were up, but with global markets rallying, it may seem counterintuitive at a glance that the safe haven dollar rose as well. The U.S. Dollar Index (DXY) rose 0.15%. Sure, the added dollars from stimulus puts supply pressure on the greenback’s value, but it also enables a swift recovery in the U.S. economy. Importantly, total U.S. economist stimulus—fiscal and monetary—has totaled to 39% of U.S. GDP, according to Bank of America strategists, but just 21% for the European Union. The potential economic momentum also brings U.S. bond yields higher, making them more attractive against bonds in other countries, furthering the flows into the dollar.
The most important factor for all financial assets is the progress and effectiveness of inoculations.
Write to Jacob Sonenshine at [email protected]