Closing: C-O-V-I-D spells relief for the broader market

The S&P 500 gained 1.5% on Wednesday, as investors were encouraged about the COVID-19 outlook and the ability for the market to hold onto early gains. The Nasdaq Composite (+2.1%) and Russell 2000 (+1.9%) each rose about 2.0% while the Dow Jones Industrial Average rose 0.9%.

Briefly, a growing list of U.S. states included plans to relax mask mandates amid improving COVID-19 trends and an observation from Dr. Fauci that the U.S. is heading out of the “full blown” pandemic phase. These developments benefited the cyclical stocks, but buying interest was really broad-based in a sideways-trading session.

All 11 S&P 500 sectors closed higher after registering most, if not all, of their gains at the open. The communication services (+2.5%), real estate (+2.4%), information technology (+2.3%), and materials (+2.1%) sectors gained more than 2.0%. The consumer staples sector (+0.02%) closed fractionally higher.

Growth stocks appeared to benefit from a decline in long-term interest rates, although they outperformed yesterday even when rates pushed higher. The 10-yr yield decreased three basis points to 1.93% amid a strong $37 billion 10-yr note auction and hopeful-sounding commentary from Fed officials that inflation pressures could ease this year.

Atlanta Fed President Bostic (not an FOMC voter) told CNBC that there’s some evidence that inflation isn’t getting worse. Cleveland Fed President Mester (FOMC voter) said in a speech that she expects inflation to moderate this year on the condition that the FOMC takes appropriate action.

The 2-yr yield settled unchanged at 1.34%, as the market continued to expect five rate hikes from the Fed despite Mr. Bostic’s expectations for three to four rate hikes this year. The U.S. Dollar Index declined 0.1% to 95.54. WTI crude futures increased 0.3%, or $0.22, to $89.65/bbl.

Separately, the Nasdaq 100 (+2.1%) closed above its 200-day moving average (15,048) after seeing technical resistance at that level earlier in the day.

In earnings news, Lyft (LYFT 44.00, +2.80, +6.8%) issued downside Q1 revenue guidance, but investors overlooked the guidance in favor of the improved COVID-19 perspective. Shares of CVS Health (CVS 104.79, -6.04, -5.5%) fell 5.5% after reducing the low end of its FY22 cash flow from operations guidance.

Reviewing Wednesday’s economic data:

  • Wholesale inventories increased 2.2% m/m in December ( consensus 2.0%) following a revised 1.7% increase (from 1.4%) in November.
  • The weekly MBA Mortgage Applications Index fell 8.1% following a 12.0% increase in the prior week.

Looking ahead, investors will receive the Consumer Price Index for January, the weekly MBA Mortgage Applications Index, and the Treasury Budget for January on Thursday.

  • Dow Jones Industrial Average -1.6% YTD
  • S&P 500 -3.8% YTD
  • Russell 2000 -7.2% YTD
  • Nasdaq Composite -7.4% YTD


  • Europe: DAX +1.6%, FTSE +1.0%, CAC +1.5%
  • Asia: Nikkei +1.1%, Hang Seng +2.1%, Shanghai +0.8%


  • Crude Oil +0.16 @ 89.48
  • Nat Gas -0.24 @ 3.99
  • Gold +4.00 @ 1833.60
  • Silver +0.02 @ 23.27
  • Copper +0.16 @ 4.63
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