Dow up 250 points at midday, Nasdaq under pressure as investors extend rotation into cyclical stocks – MarketWatch

Stock-market benchmarks were mostly higher on Monday as investors monitored signs that a long awaited rotation on Wall Street into more growth-sensitive cyclical stocks could be brewing, at the expense of their high-growth counterparts.

Investors focused also on President Donald Trump’s weekend signing of executive orders that aim to extend some elements of coronavirus relief. The measures face likely legal hurdles and questions about their effectiveness, however, while continued U.S.-China tensions might also cap upside for the market, analysts said.

What are major benchmarks doing?

The Dow Jones Industrial Average
DJIA,
+0.90%

traded 253 points, or 0.9%, up to 27,687. The S&P 500
SPX,
+0.17%

tread water around 3,360, after trading around 1% away from its Feb. 19 closing record of 3,386.15. The Nasdaq Composite
COMP,
-0.27%

retreated 91 points, or 0.8%, to 10,920.

Stocks scored gains last week, with the Dow advancing 3.8% to 27,433.48, and the S&P 500 posting a weekly rise of 2.5% to 3,351.28, The Nasdaq gained 2.5% to finish at 11,010.98. The Nasdaq edged lower on Friday after hitting a series of record finishes that propelled it above the 11,000 milestone. The Dow closed 7.2% below its record finish set on Feb. 12.

Read: Stock-market bull, who called market rally in March, now says S&P 500 overvalued by 5% to 10%

What’s driving the market?

Monday trading showed signs of a rotation away from high-growth stocks in the tech sector to more economically sensitive cyclical companies, a trend that has been brewing since the end of last week.

“As the summer COVID-19 spike wanes, investors are more inclined to view the economic recovery as real. That could mean the recent move toward cyclical stocks is real and sustainable for the first time since the pandemic began,” said James Meyer, chief investment officer at Tower Bridge Advisors.

Still, investors say it’s unclear how far any nascent rally in cyclical companies might run, with the coronavirus still an obstacle weighing on the U.S. economic recovery and the feasibility of new fiscal stimulus measures announced by the Trump administration in question.

Read: A ‘sharper cyclical rally’ could be in the cards, this analyst says

After the White House and Democratic lawmakers failed last week to come to an agreement on a new round of coronavirus aid, Trump on Saturday signed executive orders that aim to pause the collection of payroll taxes, provide help on rent, assist with student-loan payments and extend a portion of additional unemployment benefits that had lapsed at the end of last month. The measures are almost certain to face legal challenges and logistical hurdles.

Specifically, one order authorizes states to pay $400 a week in additional unemployment benefits, with 75% of the funding coming from the federal government, versus the $600 in additional benefits that had expired at the end of July, which has been credited with helping borrowers and lenders, thus far, avoid a wave of consumer defaults.

See:States would be on the hook for billions under Trump’s jobless-benefits plan

“Obviously this is less stimulus than was previously available, which was probably already not enough to stop the economy from slowing — regardless of the good U.S. employment news on Thursday and Friday — and kicks the can at best. However, it is mathematically better than nothing,” said Michael Every, global strategist at Rabobank, in a note.

Meanwhile, U.S.-China tensions intensified, with Beijing on Monday announcing unspecified sanctions against 11 U.S. politicians and heads of organizations promoting democratic causes, including additional measures targeting Senators Marco Rubio and Ted Cruz, who already were subject to a travel ban.

Also, Chinese jet fighters briefly crossed the midline of the Taiwan Strait on Monday, news reports said, as U.S. Health and Human Services Secretary Alex Azar visited the island. Azar would be the most senior U.S. official to visit Taiwan in around four decades.

Earnings season also further winds down this week. Through Friday, companies representing 89% of the S&P 500’s market cap had reported second-quarter results, according to Jonathan Golub, chief U.S. equity strategist at Credit Suisse Securities. In aggregate, 81% of the companies that have reported beat lowered projections.

Earnings Watch:Hot rookies and not-so-hot pot companies jump on the slowing earnings train this week

Earnings have exceeded estimates by 23.2% in aggregate, with 81% of the reported companies beating their lowered projections during the pandemic. Golub also noted that while second-quarter earnings per share have surpassed projections by over 23%, consensus 3Q estimates have been raised by only 3%, and fourth-quarter estimates remain unchanged.

In economic data, the number of job openings in the U.S. rose 518,000 to 5.8 million, climbing for a second month in a row. But the number of jobs available was running around 7 million before the pandemic.

Which companies are in focus?
  • Shares of social media platform Twitter Inc.
    TWTR,
    +2.54%

    gained 1.9% after The Wall Street Journal reported it had held preliminary talks about a potential combination with TikTok, the video-sharing app that the Trump administration has declared a national-security threat due to its Chinese ownership. Microsoft Corp.
    MSFT,
    -1.94%
    ,
    however, is still seen as the front-runner in any deal with TikTok after weeks of talks between it and TikTok’s owner, Beijing-based ByteDance Ltd., the report said.

  • Shares of Berkshire Hathaway Inc.
    BRK.A,
    +0.29%

    BRK.B,
    +0.20%

    rose 0.5% after the conglomerate run by billionaire investor Warren Buffett on Saturday reported an 87% jump in second-quarter profit thanks to the rising value of its investment portfolio, though it also took a write-down of around $10 billion on the value of its aircraft parts manufacturing business.

  • Marriott International Inc.
    MAR,
    +3.32%

    shares were up 4.1% despite the hotel operator reporting a wider-than-expected second-quarter loss and revenues that came in below Wall Street estimates.

  • Shares of Royal Caribbean Cruises Ltd.
    RCL,
    +8.44%

    climbed 11% Monday even after the cruise operator announced a bigger-than-expected second-quarter loss. But revenue fell less than forecast as cruises were suspended due to the pandemic.

  • Eastman Kodak Co.
    KODK,
    -25.47%

    Shares of  
    plummeted nearly 26% after reports the U.S. International Development Finance Corp. is withholding its planned $765 million loan after the deal came under regulatory scrutiny.

How are other markets trading?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.576%

rose 1.4 basis points to 0.574%. Bond prices move inversely to yields.

The greenback was up 0.1%, with the ICE U.S. Dollar Index
DXY,
+0.07%
,
a gauge of the buck against a half-dozen currencies, at 93.52 early Monday.

In Europe, the Stoxx Europe 600 index
SXXP,
+0.30%

finished 0.3% higher, after advancing 2% last week, and the FTSE 100
UKX,
+0.75%

also added 0.3%, following its 2.3% weekly advance.

In Asia, China’s CSI 300 index
000300,
+0.36%

ended trade up 0.4%, while Hong Kong’s Hang Seng Index
HSI,
-0.62%

closed 0.6% lower.

U.S. benchmark oil
CL.1,
+2.62%

traded 91 cents higher, or 2.2%, around $42.13 a barrel on the New York Mercantile Exchange. Gold futures for December
GCZ20,
+0.59%

added $11.80, or 0.6%, to trade at $2,039.60 an ounce.