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Wall Street shakes off COVID blues, aim for 2nd day of gains

Shares rose on Wednesday, targeting a second day of gains after a session in which investors temporarily put aside fears that a resurgence in COVID-19 cases could derail a glowing economic recovery.

Strong gains ballasted down markets, and industry experts Coca-Cola (KO), Johnson & Johnson (JNJ) and Verizon (VZ) gave investors reason to focus on the fundamentals. All three companies beat market expectations and matched the sentiment fueled by Tuesday’s rally in a market that has seen very few downside points in recent months.

“The truth is that investors have been very spoiled by the recent stock market performance,” LPL Financial chief strategist Ryan Detrick wrote on Wednesday.

“Unbelievably, we haven’t seen more than a 5% drop since October. While we firmly believe that this bull market is alive and well, let’s not fool ourselves into thinking that trees grow forever. The risk will undoubtedly increase as we enter the difficult months of August and September,” he added.

JNJ exceeded estimates, but forecast a small $2.5 billion sale in 2021 of its COVID-19 vaccine, which has been stalled by safety and manufacturing issues.

In addition, Netflix (NFLX) and Chipotle (CMG) both posted strong Q2 results. The streaming giant beat analysts’ expectations for new subscribers in the quarter, but fell short of its third-quarter estimates target. Netflix also revealed more plans to break into the gaming market, but the stock had its worst day in three months as markets expressed disapproval of the mixed earnings results.

Chipotle also impressed Wall Street by crushing estimates during the quarter, thanks to the massive return of customers after COVID-19 restrictions and continued strength in digital sales.

The week started with major benchmarks experiencing the worst declines of 2021, which came in the spotlight of quarterly results that almost uniformly reflected a strong recovery. The rising number of cases caused by the Delta variant – a more transmissible form of COVID-19 – pushed the Dow (^DJI), Nasdaq (^IXIC) and S&P 500 (^GSPC) to their biggest drop in months.

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However, investors are rethinking some of that pessimism, with some analysts pointing out that hospitalizations and deaths haven’t risen as dramatically — and are well below the levels they were during the worst days of the COVID-19 outbreak.

Major indices rose Tuesday, with the Dow backing off nearly 2% on the day as investors bought into the dip. Futures suggest that markets are ready to add to that gain when trading resumes on Wall Street on Wednesday.

“While a 700-point drop might take a few days to come back, we’ll see it in 24 hours,” Marketgauge.com partner Michele Schneider told Yahoo Finance Live. “That’s just the nature of the fact that the retail investors are so hungry and trained, educated to buy any dip.”

At the same time, bond yields are falling, suggesting that investors are less concerned about inflation, but probably more concerned about growth and the threat of COVID-19. More specifically, analysts say the threat of new restrictions cannot be completely ruled out.

“Bond investors are increasingly concerned about the threat of renewed lockdowns due to the proliferation of COVID variants. We have seen at least one U.S. county return to a mask mandate” in Los Angeles, noted Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.

“Other countries such as South Africa, Australia and Indonesia are re-instituting lockdowns. As a result, investors seek the security of Treasuries if lockdowns threaten growth,” she added.

12:10 pm Stocks hold gains in quiet session

Here’s where the key benchmarks stood as of noon ET:

S&P500 (^ GSPC): 4,351.97, +28.91 (+0.67%)

dow (^DJI): 34,778.44, +266.45 (+0.77%)

Nasdaq (^IXIC): 14.586.72, +87.84(+0.61%)

12:00 p.m. ET: ‘COVID is spreading everywhere again’

A chart showing coronavirus cases, with certain states seeing higher numbers than others depending on vaccination rates.

The most sobering read of the day comes to us through JPMorgan’s economics team, which quantifies what most of us already knew: The Delta variant leads to a significant increase in new cases – even in highly vaccinated states.

One necessary caveat: Hospital admissions and deaths are well contained right now, and certainly well below last year’s levels. That said, Jesse Edgerton cautions that:

It seems only a matter of time before the US could see another wave of COVID such as is currently occurring in the UK. The second and third wave of COVID in the US resulted in relatively modest declines in travel and entertainment spending, although it could potentially be worse this time.

And there is cause for concern as even highly vaccinated states are seeing their numbers rise, all of which suggests there is a non-zero chance of more lockdowns/restrictions being revived in the fall:

In Vermont, where nearly 75% of residents have received at least one vaccine dose, the number of new cases has more than doubled in the past three weeks. In Massachusetts, where 71% of residents have been vaccinated, the number of new cases has increased more than fivefold. If the growth in cases close to this continues, a significant national wave of cases will result, as is currently happening in the UK.

So what does that mean for the economy? Edgerton says Britain’s experience can be instructive:

The UK experience suggests that the Delta variant combined with high vaccination rates will cause a rapid increase in cases, with a much more moderate increase in hospitalizations and deaths. Thus, US consumers and governments may be less inclined to withdraw or curtail spending and activities than in response to previous waves of virus. And in fact, the decline in spending in response to previous waves was not dramatic. Even the massive winter wave caused a relatively modest slump in travel and entertainment spending before it peaked. On the other hand, with spending levels closer to normal at this point, another wave could trigger a bigger dip.

10:33 a.m. ET: Has the US boom already peaked?

In the latest issue of Yahoo Finance’s Morning Brief, Myles Udland broke out a chart suggesting, among other things, that reflation trading is starting to pick up. All of this could mean the US economy is in the final throes of its boom – and while it’s certainly not on the brink of bankruptcy, markets can already price in modest growth.

Morgan Stanley’s chief US economist Ellen Zentner, however, has a more moderate view. “I think post-peak doesn’t have to be a bad thing,” she told Yahoo Finance Live on Wednesday.

“There are several turning points within a business cycle and we’ve come out of a very, very rapid phase of recovery and expansion, so it’s only natural that we’re going into the moderate phase.”

9:30 a.m. ET: Stocks Open Higher, But Technical Slows

Here are the main moves in the markets as of 9:30 a.m. ET:

S&P500 (^ GSPC): 4,341.93, +18.87 (+0.44%)

dow (^DJI): 34,700.93, +188.94 (+0.55%)

Nasdaq (^IXIC): 14.541.53, +42.65 (+0.29%)

rough (CL=F): $68.64, +1.44 (+2.14%)

Gold (GC=F): $1,799.50, -$11.90 (-0.66%)

10-year treasury (^TNX): flat to yield 1.2680%

7:30 a.m. ET: Wednesday: Mixed Equity Futures

These were the main movements in the markets as of 7.30am:

Dow futures (YM=F): 34,534.00, +134.00 (+0.39%)

Nasdaq futures (NQ = F): 14,706.75, -16.00 (-0.11%)

S&P 500 futures (ES = F): 4,325.50, +10.00 (+0.23%)

6:20 p.m. ET Monday Night: Stock Futures Gains

Here are the main moves in the markets, as of 6:20 PM ET:

Dow futures (YM=F): 34.226, +29

Nasdaq futures (NQ = F): 14,727, +5

S&P 500 futures (ES = F): 4.319, +3.50

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Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek

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