Stocks rose on Wednesday for the first time in three sessions.
The S&P 500 and Dow each reversed earlier losses to trade higher. The Nasdaq also rose even as shares of Netflix (NFLX) weighed on the index. Netflix sank 7% after the company reported first-quarter subscriber growth that sharply missed expectations, suggesting the boost the tech company received while people were at home during the pandemic was rapidly unwinding.
But Netflix aside, the majority of other major companies reporting earnings reports over the past two weeks have topped consensus expectations. Still, the three major stock indexes have languished in recent days even given the stream of positive reports. Concerns over a near-term peak in growth in the early innings of the COVID-19 recovery have risen and conflated with fears over an impending rise in input costs for companies and prices for consumers.
“We’ve moved along from being driven by sentiment and momentum, and now investors are starting to focus more on fundamentals,” Ryan Nauman, market strategist at Informa Financial Intelligence, told Yahoo Finance. “We’ve had this fantastic rally … and I think investors are just pausing right now to digest more fundamentals, more of the earnings releases that are going to start coming out over the next couple weeks.”
“One of the reasons why we have seen markets pull back the last couple days and trading volume has been light over the past couple weeks are, investors are starting to realize, I think, that there is a lot of froth.” Nauman added. “There is excessive exuberance out there.”
Other strategists echoed similar sentiments, noting that investors have had to work harder to find reasons to continue piling into stocks given that upbeat prospects of a post-pandemic recovery and an economic growth acceleration already well-known.
Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said there were two data points specifically that gave her firm pause about the the near-term potential for the stock market to rally further into the second half of 2021. The S&P 500 has so far risen 10% in 2021.
“The first is 52% — that’s the growth rate anticipated in 2Q21, which consensus numbers imply will be the peak (in terms of the growth rate, not the dollar value),” Calvasina wrote in a note Tuesday. “This isn’t a great data point for the bulls, though it isn’t a great one for the bears either. Over the past few decades, when the S&P 500 EPS growth rate has made an early cycle peak, performance has been down 6 months later.”
“The second data point that gives us pause is 66%. That’s the percent of sell-side EPS [earnings per share] estimate revisions that have been to the upside over the past four weeks,” she added. “While still reflecting the fact that there have been more upward revisions than downward revisions recently, this stat is down from 71% last…
Go to the news source: Stocks rise for the first time in three days; Dow gains 317 points, or 0.9%