Stocks gave back a big chunk of their earlier gains Wednesday as a drop in tech shares offset optimism about the reopening of the economy.
The S&P 500 traded marginally lower around 10:35 a.m. after rallying 1.5% to start the session. Earlier in the day, the broader-market index broke above its 200-day moving average — a key level watched by traders — and briefly traded over 3,000. The S&P 500 has not closed above 3,000 since March.
The Nasdaq Composite dropped 1.2% as Facebook, Amazon, Apple, Netflix and Google-parent Alphabet all slid at least 0.5%. The Dow Jones Industrial Average remained up by 175 points, but was well off its session high.
Stocks that benefited from people staying at home struggled on Wednesday as investors rotated out of those names. Zoom Video and Netflix dropped 8.1% and 3.3%, respectively. Shopify, Amazon and Teladoc Health fell 9.6%, 3.2% and 8.9%, respectively.
Bank stocks were broadly higher as investors cheered the prospects of the economy reopening. JPMorgan Chase was up 3.6% while Citigroup advanced 4.9%. The SPDR S&P Bank ETF (KBE) gained 3% along with the SPDR S&P Regional Banking ETF (KRE). Both ETFs were on pace for their best weekly performances since April.
“This is a rotation that we should get used to,” said Art Hogan, chief market strategist at National Securities. He noted the broader indexes could be under pressure at the start of it since some of the stay-at-home names make up a big chunk of the S&P 500’s market cap.
“It’s not necessarily index positive when that mean reversion happens, but it’s certainly much better to have this rally broaden out,” Hogan said.
Despite Wednesday’s choppy trading, the S&P 500 was up more than 35% from an intraday low reached on March 23 as news around the economy and a potential coronavirus vaccine improve.
All 50 states in the U.S. have reopened their economies to some extent. On Tuesday, New Jersey Gov. Phil Murphy said the state would allow professional sports teams to resume practice and competitions.
“The market has been making a V-pattern upward and there’s been a tremendous amount of skepticism around that but we are just starting now to see some evidence in the data turning,” said Michael Darda, MKM Partners chief market strategist and chief economist. “Some better than expected housing numbers. As reopening gets underway, virtually all states now we are starting to see activity bounce off of very low levels.”
On Wednesday, the Mortgage Bankers Association reported a sixth straight weekly rise in mortgage applications. Data released Tuesday showed new home sales in April topped estimates. Sales of new U.S. single-family homes increased by 623,000 last month, beating estimates of 490,000, according to Dow Jones.
Meanwhile, biotech company Novavax said Monday it started the first human study of its experimental coronavirus vaccine.
“For the first time in this crisis, we are being bombarded by good news,” Jim Paulsen, chief investment strategist at the Leuthold Group told CNBC.
However, stocks’ recent strength — last week the Dow has its best week since early April — still leaves the Dow down more than 12% in 2020. The S&P 500 is off 7.4% for the year and the tech-heavy Nasdaq is up more than 4%.
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