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Reopening Stocks Gain in May, Weakness Amid Tech Sector

Apple revenue up 54% to a new March quarter record. Facebook shares rise 6% to a new all-time high in pre-market trading.

SageFX - May, 04, 21

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Principal Points

  • Futures turn negative ahead of Tuesday’s trading
  • Real-economy stocks gain traction in a strong start to May

Stock futures slip in early morning pre-market hours on Tuesday after a solid start to May, defined by a strong move into reopening trades, poised to benefit from an economic recovery. Futures on the Dow Jones Industrial Average, S&P500, and Nasdaq Composite are all marginally lower.

The lack of momentum in futures trading comes after Monday’s strong performance for the Dow Jones and the S&P500. Investors piled into real-economy stocks and pushed aside technology shares as the US economy is gradually reopening across the states. The divergence in stock preferences resulted in a 200-point gain for the Dow, while the Nasdaq Composite slipped half a percent.

The 30-stock benchmark climbed 238.38 points, or 0.70%, in the first trades of May to finish the session at 34,113.23. The S&P500 advanced modestly by 11.49 points, or 0.27%, to end at 4,192.66. The tech-centred Nasdaq Composite dropped 67.56 points, or 0.48%, to close at 13,895.12.

Shares of cyclical stocks stole the limelight during Monday’s trading. Chevron and Home Depot rallied by more than 2%, while Facebook, Netflix weighed on the Nasdaq Composite. Amazon slipped over 2% and Tesla shares tumbled nearly 3.5%.

Investors Eye Portfolio Opport

On the individual stocks front, Verizon Communications has agreed to sell Yahoo and AOL to Apollo Global Management. The deal carries a price tag of about $5bn, of which the private equity firm is paying $4.25bn to own a 90% share of the media assets. Verizon, which will be rebranded to a new company called Yahoo, will keep the other 10% and will be paid $750mn in additional preferred stock in the new company.

Investors are once again seeking the best portfolio diversification to meet the reopening economy. Recent signs show that economic growth is picking up. From consumer spending to jobless claims, data indicates the US economic recovery is accelerating at a rapid pace. Moreover, the current earnings reports season produced record financial results for companies ranging from the banking sector to technology.

While investors are rotating to shares of economically sensitive companies, at the same time, the continued spread of Covid-19 and the negative outlook for inflation remain key elements that could erode the economic recovery. High-growth tech companies are particularly vulnerable to rising inflation as higher prices could reduce the value of profits expected to come further in the future.

Market participants this week will look toward the continued rollout of earnings and US economic updates. Companies from various sectors, including Pfizer, T-Mobile, American Express, General Electric, PayPal, will report their first-quarter results. Highly anticipated is also the April jobs report scheduled to arrive on Friday, 08:30 am EST. In March, the US economy added 916,000 jobs.

Meanwhile, the US continues to relax the pandemic restrictions. Amid a strong vaccination rollout campaign, states are increasingly lifting restrictions. New York Gov. Andrew Cuomo said most capacity restrictions in New York, New Jersey, and Connecticut will be lifted as soon as next week, while the NYC subway will return to a 24-hour service later this month.