Before The Bell - The stock market started strongly yesterday, as news of a third vaccine candidate improved sentiment. Traders bought stocks thinking this would mean a quicker recovery from the coronavirus pandemic and that an economic rebound would occur more quickly. The Dow Jones Industrial Average was up by as many as 306 points in short order, while the S&P 500 was ahead 31 points. However, the markets quickly became overbought and then turned back some. Then, near midday, news broke that President-Elect Biden picked former Fed chief Janet Yellen to be his Treasury Secretary. Traders saw this as encouraging as she is well regarded by Wall Street, has ample economic experience, and was dovish in her time as Fed Chief. This development caused the markets to reverse course and move strongly upward throughout the afternoon. The Dow ended not too far off its daily highs. All told, the blue chip index closed up about 328 points, while the S&P 500 rose 20 points.
Market breadth was very positive as advancers outpaced decliners by a 2.9-to-1.0 ratio. Energy issues were among the best performers on the day, advancing more than 7% on average. On the other hand, REITs were among the weakest.
Then after the close, the market futures continued the trend of moving upward, and this persisted throughout the evening. By around midnight, the S&P futures were up about 28 points while the Dow futures were higher by 260 points. The higher prices held up through the night, suggesting a positive start to the trading day.
In commodity news, oil prices were modestly higher yesterday, aided by improved sentiment regarding a stronger economy in the months ahead, potentially driving oil usage higher. Though U.S. Treasury bond yields were a mixed bag, long-term yields were largely higher. This steepening of the yield curve usually is positive for financial companies’ earnings. The VIX Volatility Index was lower yesterday as demand for options protection decreased.
Looking ahead, traders will be waiting for several economic reports this morning, including the Case-Shiller National Home Price and Consumer Confidence Indices. Though we are nearing the end of the third-quarter earnings season, several companies are slated to release quarterly results both before the opening bell and after the close. This includes several large software and hardware technology companies. With the Thanksgiving holiday approaching, most eyes will be looking ahead towards Black Friday. Still, with the coronavirus changing how so many retailers do business, we think early trends plus mall attendance will have a smaller effect on trading than in past years. - John E. Seibert III