Midday Market Update: Why Stocks Are Up as Oil Outlook Falls

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Stock gains held strong Monday by midday, even as the IEA’s oil demand forecast decreased. 

The S&P 500 rose 0.85%, aided by tech gains from stocks on the Nasdaq, which rose 1.45%. The 10-year Treasury yield was flat, at 0.68%. Yields and prices move inversely to each other. Even with the economic recovery looking speedy so far, inflation expectations are still relatively muted and the Federal Reserve has made it clear long-term interest rates won’t rise considerably even when inflation begins to inflect positively. 

Tech lead the gains and the more than $2.5 trillion by market cap, Apple  (AAPL) – Get Report rose 1.7% Monday, the day it announces new products in wearables and iPads. 

The IEA dropped its oil demand forecast for 2020 to 92 million barrels per day and also issued a lowered 2021 forecast, citing a slow economic recovery.

For 2020, the organization only lower its demand forecast by a bit less than 1 million barrels per day. Still, the forecast challenges the narrative that the currently fast pace of the recovery will continue, though crude oil prices rose 2% to $38 a barrel. The Energy Select SPDR ETF  (XLE) – Get Report rose 0.5%.

Recent economic data, while painting a mixed picture of the speed of the economic recovery, haven’t been enough to dissuade investors from the broader narrative of the V-shaped recovery and the IEA is making a small adjustment, although its words are damning. 

But “Today’s key economic releases leaned bullish again, both domestically and from a global perspective, boosting investor sentiment,” wrote Ken Berman, strategist at Gorilla Trades, in emailed remarks to reporters. Chinese industrial production rose more than 5% year-over-year. Other European consumer and employment data was strong. This is all supportive of oil prices and, more broadly, the global economic recovery, which is key for the highly globalized S&P 500. 

Other cyclical sectors like industrials and materials, while beginning to look richly valued against interest rates, rose. Banks, struggling as the yield curve barely expands of late, fell more than 1%. Consumer discretionary, trading at incredibly expensive earnings multiples, were flat-to-down. 

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