If at first you don’t succeed—fail again. At least that’s what happened to the S&P 500 on Wednesday, as it tried to hit a new high.
Yesterday, remember, the S&P inched ever closer to a new high, but then the bottom fell out suddenly and stocks ended the day lower. There was no repeat today, just not quite enough strength. The S&P 500 rose 1.4% to 3380.35, just 0.17% short of a record, while the Dow Jones Industrial Average rose 289.93 points or 1%, to 27976.84. The Nasdaq Composite gained 2.1% to 11012.24, putting worries about a rotation into cyclical stocks and out of tech to rest, at least for one day.
The gains came as the U.S. ordered millions of doses of Moderna’s (MRNA) Covid vaccine, which remains in Phase 3 trials, and the consumer price index rose more than expected—a good thing when lack of growth is a big concern. “Our contention that the Covid shock was more likely to prove ‘disruptive’ rather than ‘deflationary’ is starting to be born out in the official data,” writes Marketfield’s Michael Shaoul. “[We] we do not yet have a clear signal for a traditional input-cost driven inflation cycle, but we have clearly moved out of the deflationary danger zone.”
That tech bounced back from yesterday’s trouncing was ultimately a good thing. With Apple (AAPL), Microsoft (MSFT), Facebook (FB), Alphabet (GOOGL), and Amazon.com (AMZN) making up such a large part of the market, it would be hard for the S&P 500 to continue to rise if they get pounded. “Prior leadership doesn’t have to outperform but on an absolute basis they need to hold up, otherwise, the math doesn’t work,” writes MRA’s John Kolovos, who worries about the strength of the so-called big five.
Evercore ISI’s Rich Ross has no such worries. On Wednesday, he recommended buying what’s been working for the market’s push to a new high. “The imminent breakout above 3,400 will be led by large cap secular growth leaders and it is time to own more Tech on “weakness” and less cyclical laggards, financials and small caps,” he writes. “[You] never leave your secular wingman going into September.”
Which will come first: a new high or September?
Write to Ben Levisohn at Ben.Levisohn@barrons.com
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August 13, 2020 at 04:51AM
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The S&P 500 Failed to Close at a Record High Again. What Comes Next. - Barron's
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