Stocks Move Up as Biden Nominates Powell For Second Fed Term

Wall Street stocks diverged on Monday as traders reacted to the news that Joe Biden had nominated Jay Powell as chair of the Federal Reserve for a second term, with Lael Brainard selected as nominee for vice-chair.

Despite the intraday retracement, nine of the 11 S&P 500 sectors are still trading higher, led by energy (+2.2%) and financials (+2.0%) with 2% gains. The communication services sector (-0.7%) and information technology (-0.1%) sectors are the two sectors trading lower.

The early rally was rooted in relief that the president didn’t surprise the market and will renominate a Fed Chair who the market is very familiar with. At the same time, though, there are some expectations that the Fed could speed up its taper plan under Fed Chair Powell and that Lael Brainard could support tighter banking regulations.

The fed-funds-sensitive 2-yr yield is up six basis points to 0.57% after trading at 0.53% prior to the Fed news. The 10-yr yield is up six basis points to 1.60% after trading at 1.58% prior to the news. The U.S. Dollar Index is up 0.4% to 96.41.

The rise in long-term interest rates is presumably being used as an excuse for investors to take profits in the large growth stocks and to rotate the money into value/cyclical stocks, which have underperformed recently. The Russell 1000 Value Index is up 0.6%, while the Russell 1000 Growth Index is down 0.5%.

Apple (AAPL) and Tesla (TSLA), meanwhile, are two mega-caps still making their weights felt in a positive way. Amazon.com (AMZN) was down 2% while Facebook (FB) has coughed up a 2.5% gain.

Fintech companies like PayPal (PYPL) and Square (SQ) have been weak all day, while the traditional banks continue to key off the higher interest rates. The SPDR S&P Bank ETF (KBE) is up 2%.

Existing Home Sales, which increased 0.8% m/m in October to a seasonally adjusted annual rate of 6.34 million (consensus 6.20 million). Total sales in October were down 5.8% from a year ago.