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  • It was a mixed day in the US stocks market, with value stocks performing well and growth stocks lagging.
  • That meant the Dow outperformed and hit all-time highs, while the Nasdaq 100 suffered.

It was a mixed day for US equity markets; the Dow surged 1.5% to finish at an all-time record close just shy of the 32,300 mark, the S&P 500 rallied 0.6% but and just failed to reclaim the 3900 level, while the Nasdaq 100 dropped 0.3%. The Russell 2K rose 1.8% and the CBOE Volatility Index dropped 1.5 points back into the mid-22.0s.

Rotation from “growth” stocks (i.e. stocks that have low price-to-earnings ratios given investors betting on future earnings growth) into “value” stocks (i.e. stocks that have high price-to-earnings ratios) continued on Wednesday, with the S&P 500 energy index topping the GICS sector performance table and rising 2.6%, despite a comparatively modest rally in crude oil prices. Financials (+1.9%), materials (+1.6%) and industrials (+1.4%) also did well – the Dow’s greater exposure to these sectors versus its exposure to Tech explains its outperformance. The S&P 500 information technology sector was the worst performer, dropping 0.4% amid underperformance in Apple (-0.9%), Microsoft (-0.6%) and Facebook (-0.3%).

Driving the day

Outperformance in smaller cap/value stocks versus Big Tech and growth stocks continued on Wednesday as markets continue to bet that the reopening of the US economy will disproportionately benefit the earnings of these stocks. Indeed, there were a number of positive “reopening” headlines on Wednesday to drive this trend; the US CDC said that Covid-19 cases may be beginning to fall again, New Jersey announced that it is to raise indoor restaurant, gyms, and barbershop capacity to 50% on 19 March, while New York Governor Andrew Cuomo said that NY restaurants will likely expand to 50% capacity on the same date.

Fiscal stimulus is also seen as disproportionately helping smaller cap/value stocks versus Big Tech and growth stocks and there were also positive developments on this front; the US House passed US President Joe Biden’s $1.9T stimulus package. Biden said he would sign the package into law on Friday.

Meanwhile, there have also been a bunch of headlines regarding the next US fiscal stimulus bill. According to the Washington Post, Biden’s next bill (the “recovery package”, which he will speak about on Friday) may be a package of “China” related measures (i.e. to address competitiveness with China) and could include action on semiconductors, supply chains, US manufacturing and 5G. According to the report, the timing of such a bill remains unclear. Separately, Fox Business News reporter Charlie Gasparino tweeted out that Biden’s “recovery package” could be worth as much as $2.5T over the next 4 years and could include some public-private partnerships that would aim to leverage government spending. Gasparino suggested that further details could start to leak in the coming days.

Elsewhere, and also contributing to the upbeat tone of the market on Wednesday was a softer than anticipated US CPI report; headline inflation jumped from 1.4% to 1.7% in February, as expected, but Core CPI was a little softer than expected and seems to have eased some of the “overheating” fears that had been driving US bond yields higher and weighing on equities in recent weeks.

USD/China Update

Finally, there have also been plenty of headlines pertaining to the US and China, though this theme seems to have played second fiddle. Confirming earlier reports, a WSJ article detailed that top US and Chinese officials will meet for a two-day summit next week in Alaska, which, notes the report, will be the first in-person meeting between senior representatives of the two sides since the Biden administration took control. An official said that “the goal (of the meeting) will be to compare notes on what each of our hopes and plans are for domestic politics, what our goals are internationally, regionally and globally”. Reportedly, topics including the Covid-19 pandemic and climate change could be on the agenda, as well as touchy issues like China’s recent actions in Hong Kong, pressure towards Taiwan and on Chinese trade actions that has been taken against Australia.