Opening Bell: Cyclical Rotation Reverses On Lockdowns, Tesla S&P 500 Listing

• Tesla to join S&P 500 Index, gaining blue chip status
• Lockdowns overshadow progress on second vaccine

Key Events

The much-lauded, cyclical rotation out of the technology sector appears to have reversed during Tuesday's late Asian session. US contracts for the S&P 500, Dow Jones and the Russell 2000 are all down, with only NASDAQ futures in the green at time of writing.

The move appears to have been spurred by yesterday's announcement that as of Dec. 21, electric carmaker Tesla (NASDAQ:TSLA) will be included in the S&P 500 Index. Shares of Tesla surged over 10% in after-hours trade.

New lockdowns and restrictions hitting the economies of both Europe and the US because of escalating coronavirus cases may also be playing a role in pressuring small caps and value stocks.

Global Financial Affairs

Just one day after Moderna (NASDAQ:MRNA) dazzled markets with its vaccine's 94.5% efficacy rate—while also stealing Pfizer's (NYSE:PFE) thunder—Monday's rally into industries sensitive to a re-opening economy that would thrive as social restrictions ended, has come to a halt even as markets digest the possibility of two viable vaccines in the months ahead.

Nonetheless, it remains unclear if the news about the virus, with the US heading toward 12 million cases, gaining about a thousand new COVID cases a day while having already seen over a quarter of a million deaths, is the impetus for the reversed course of the rotation. The driver could be generated by investors' profit-taking.

Still, tech valuations are stretched, and stocks investors ignored or sold off during the pandemic continue to provide excellent value.

This morning, after a struggle at the open, bears pushed the STOXX Europe 600 Index lower from an eight-month high. Bank shares retreated after gaining on Monday with the Stoxx 600 Banks Index falling more than 3%, bringing its weekly rally to just shy of 20%.

Stoxx 600 Banks Daily

Technically, the selloff in banks also confirmed the June 5 peak. If bulls manage to break through, they will have completed a bottom.

Earlier, Asian indices were mixed. Japan’s Nikkei 225 outperformed, (+0.4), while China’s Shanghai Composite lagged, (-0.2%).

On Wall Street yesterday, during the New York session, US stocks climbed after Moderna’s announcement. The country's premier pandemic authority, Dr. Anthony Fauci, characterized Moderna’s results as “impressive.”

The S&P 500 and the Dow Jones Industrial Average both closed at all-time highs. Lockdown darling Zoom Video Communications (NASDAQ:ZM) continue plummeting, something we expect hasn't finished yet. We anticipate other stocks that have done well during the stay-at-home period will also now be sold off.

However, now that lockdowns are, in fact, being mandated in states across the US, could these tech stocks receive another boost? On the other hand, companies poised to benefit from reopenings, such as cruise lines, hospitality companies and air carriers, which were all among yesterday’s best performers, could return to the bottom of the list.

Treasuries, including the benchmark 10-year note, declined for a third day.

UST 10Y Daily

Today’s descent was so slight, however, if anything, it showed the slide is losing momentum, especially after yesterday’s high wave candle.

After a valiant bullish effort, the dollar gave way, falling for a fourth straight day.

DXY Daily

The USD has been trading at the bottom of the session, confirming the H&S continuation pattern.

In a mirror image, gold climbed for a fourth day.

Gold Daily

For the yellow metal to turn bullish, it would have to break the topside of the falling wedge.

Oil fluctuated, but kept its higher opening price of around $41.40 on vaccine progress and the outlook of OPEC+ delaying a planned easing of output cuts.

Oil Daily

Technically, the onus is on oil bulls to overcome a three-day slide that confirmed Wednesday’s powerful shooting star. This established that bears dominate the market after a bearish wedge completion. We consider this rally a shorting opportunity.

Bitcoin, currently trading above $16,700, was little changed.

Up Ahead

• Brexit talks look set to continue as the U.K. and EU approach the latest deadline.
• OPEC+'s Joint Ministerial Monitoring Committee meets Tuesday.
• US Retail Sales figures for October are due Tuesday.
• Bank Indonesia's latest rate decision will be announced on Thursday.

Market Moves

Stocks

• Futures on the S&P 500 Index fell 0.2%.
• The Stoxx Europe 600 Index was little changed.
• The MSCI Asia Pacific Index gained 0.2%.
• The MSCI Emerging Markets Index fell 0.1%.

Currencies

• The Dollar Index fell 0.25% to 92.40.
• The euro was little changed at $1.1857.
• The British pound held steady at $1.3205.
• The onshore yuan strengthened 0.3% to 6.562 per dollar.
• The Japanese yen moved up 0.2% to 104.41 per dollar.

Bonds

• The yield on 10-year Treasuries sank less than one basis point to 0.90%.
• The yield on two-year Treasuries dipped less than one basis point to 0.18%.
• Germany’s 10-year yield was unchanged at -0.55%.
• Britain’s 10-year yield gained less than one basis point to 0.351%.
• Japan’s 10-year yield jumped less than one basis point to 0.025%.

Commodities

• West Texas Intermediate crude increased 0.3% to $41.45 a barrel.
• Brent crude gained 0.5% to $44.02 a barrel.
• Gold weakened 0.1% to $1,886.82 an ounce.