The Winds Shift

By Alex Eule |  Tuesday, May 12

Reality Check. As more states talked about reopening their economies in recent weeks, stocks have had a tailwind. Today, those winds shifted direction. 

Speaking via video,  Dr. Anthony Fauci, told a Senate hearing that the country could face "needless suffering and death" if businesses and schools reopened too quickly. "The consequences could be really serious," said Fauci, head of the National Institute of Allergy and Infectious Diseases. 

After trading flat for the first half of the day, stocks began losing ground in the afternoon, falling into the close. The S&P 500 finished the day down 2.1%. The decline snapped a three-day winning streak. The turn in sentiment even weighed on tech stocks. The tech-heavy Nasdaq Composite fell 2.1%, after six straight days of gains.

On the risk-off day, investors preferred consumer staples, which was the S&P 500's best-performing sector, down 0.8%. 

Shortly after trading ended, California State University, said its 23 campuses would remain closed through the fall semester. The decision could pour more cold water on stocks' recent rally. Other schools are sure to follow suit, further postponing any return to normalcy.

One constant for stock bulls in recent months has been monetary support from the Federal Reserve. That has put increased pressure on Fed Chairman Jerome Powell every time he speaks. Powell's next remarks are at 9 a.m. tomorrow when he addresses a virtual event hosted by the Peterson Institute for International Economics.

Investors have begun to bet that interest rates could turn negative by next spring. Barron's Alexandra Scaggs notes today that U.S. central bankers have continually said they won't let rates go negative before trying every other option to support the economy. Powell will be on the hook to explain those options first thing tomorrow. 

There was still some good news on the virus front: The U.S. Food and Drug Administration granted a fast-track review to a promising Covid-19 vaccine candidate from Moderna. "Fast-track designation by the FDA means that agency personnel will communicate regularly with the vaccine’s developer and allow Moderna to make a rolling submission of its application to market the vaccine," Bill Alpert explained on Barrons.com.

Moderna's stock, which has soared 219% in 2020, sold off a bit on the news. It finished the day down 6.8%.