These 3 sectors are set to boom on the back of Biden’s massive infrastructure spending plan, Morgan Stanley says

Biden
President Joe Biden has framed his infrastructure plan as a means of strengthening democracy and undermining autocracy.

  • President Biden has proposed around $4 trillion in infrastructure spending in two separate plans.
  • Morgan Stanley laid out three sectors set to benefit from the spending in the “Thoughts on the Market Podcast.”
  • The healthcare, clean energy, and cement/steel sectors were the investment bank’s top picks.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Morgan Stanley highlighted three sectors set to benefit from President Biden’s infrastructure plan in the “Thoughts on the Market Podcast” with Michael Zezas on Wednesday.

President Biden unveiled his $2.3 trillion American Jobs Plan in late March and is reportedly readying another spending package that would bring the administration’s total infrastructure spend to roughly $4 trillion.

Morgan Stanley said the cement and steel, clean energy, and healthcare sectors will be the top three beneficiaries of the historic cash infusion.

This isn’t the first time the investment bank has recommended a group of stocks based on the recent rise in infrastructure spending.

In an early April note to clients, Michael Wilson, Morgan Stanley’s Chief Investment Officer, said he believes “investors should consider a mix of traditional cyclicals and new beneficiaries that will gain from the combination of strong economic growth, as well as federal initiatives to bring US infrastructure into the 21st century.”

Clean Energy

The extension of key green energy tax credits coupled with potential new tax credits from Biden’s spending plan are set to buoy the clean energy sector moving forward, according to Morgan Stanley.

The president’s plan also contains over $170 billion for electric vehicle technology, which Morgan Stanley says will help to bolster the sector despite high valuations.

In a note to clients on April 9, Wedbush’s Dan Ives echoed similar sentiments to the investment bank, saying that he believes Biden’s plan will bring about a “green title wave” for electric vehicles.

“The lifting of the 200k EV tax credit ceiling (restored to Tesla and GM) and a likely $10k+ EV tax rebate will be a major catalyst for EV growth in the US,” Ives said.

Cement and Steel

Morgan Stanley also highlighted the obvious beneficiaries of the infrastructure spending, cement and steel companies.

With $1 trillion set to be spent on transportation, water, and affordable housing, analysts at Morgan Stanley believe we are headed for an “infrastructure supercycle.”

The investment bank said over 200 million tons of cement will be used due to the infrastructure spending alone.

However, some market commentators question how much of the spending package has already been priced in.

When asked about which sectors may benefit from infrastructure spending, Burton Hollifield, a professor of finance at Carnegie Mellon University, told Insider that he believes much of the infrastructure spending bill has already been priced into equities.

Stock prices in the sector appear to back up Hollifield’s belief. Shares of US Concrete have already jumped 62% in 2021, and US Steel has followed suit, with shares rising 33% year-to-date.

Healthcare

Finally, Morgan Stanley analysts said they believe the healthcare sector will get a boost from President Biden’s new “human infrastructure” spending.

These “human infrastructure” measures include the expansion of affordable care act subsidies and a possible lowering of the medicare age.

Morgan Stanley says these changes would be a “fundamental positive for larger healthcare providers” as there will be more healthcare business to do overall, and larger healthcare companies would have the “scale to engage profitably.”

Read the original article on Business Insider

Regulators need to look at leverage in the prime brokerage business at the center of the Archegos meltdown, Guggenheim’s Millstein says

Jim Millstein
  • Jim Millstein of Guggenheim Securities said regulators should look into the prime brokerage business.
  • The co-chairman noted that lenders face increased risk when hedge funds use excessive leverage.
  • Millstein doesn’t believe the Archegos collapse presents a “risk to the financial system,” however.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Guggenheim’s co-chairman Jim Millstein believes regulators should keep an eye on leverage in the prime brokerage business at the center of the Archegos meltdown.

In an interview with Bloomberg on Tuesday, Millstein said that the Financial Stability Oversight Council, which was formed under the Dodd-Frank Act of 2010, should “take another look at the prime brokerage business and the kinds of leverage that’s being extended both through the derivatives markets and directly.”

The prime brokerage business is a bundled package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds that allows them to borrow securities and cash.

Millstein discussed how “regulation T,” a collection of provisions that govern margin requirements for retail investors, doesn’t apply to family offices and hedge funds.

“Clearly family offices, hedge funds, other institutional investors clients of the prime brokerage business have been able to obtain much more significant leverage than the average investor, and so, and obviously there are risks associated with it,” Millstein said.

The co-chairman added that “when you’re highly levered against individual names and not terribly diversified you do run a significant risk of an effective margin call.”

Millstein said that this type of leverage not only puts hedge funds at risk, but lenders as well. If lenders are unable to liquidate collateral positions or cover derivate exposures fast enough there can be significant losses.

What Millstein is describing is exactly what happened to Credit Suisse, among others, after the recent Archegos collapse.

Credit Suisse said it will have to absorb a $4.7 billion write down due to its Archegos exposure. For reference, the investment bank’s total net income for 2020 was roughly $2.9 billion.

The firm has faced significant fallout after its Archegos losses with numerous top execs stepping down including the head of investment banking Brian Chin and the chief risk and compliance officer Lara Warner, as well as Paul Galietto, the head of equities sales and trading.

Millstein also agreed with his colleague Scott Minerd who said that another Archegos-like implosion is “highly likely” moving forward.

When asked if the Archegos blow-up might lead to reverberations for the markets as a whole, Millstein pointed out that there is still “an enormous amount of monetary and fiscal stimulus” in the system and more could be on its way with President Biden’s Infrastructure bill.

The co-chairman said he doesn’t believe the Archegos collapse represents a “risk to financial stability” based on the relative size of the hedge fund and current market conditions.

Read the original article on Business Insider

Stocks were the only major asset class that gained in the first quarter, but Bank of America says ‘anemic’ returns may be on the horizon

Bank of America trader NYSE
A trader with Bank of America/Merrill Lynch works on the floor of the New York Stock Exchange in New York, on May 10, 2011

Stocks were the only major asset class (not including cryptocurrencies) that saw gains in the first quarter of 2021, but according to Bank of America’s sentiment indicators, “anemic” returns may be on the horizon.

In a note to clients last week Bank of America analysts reviewed the performance of all major asset classes in the first quarter.

The analysts found that stocks were the lone bright spot so far this year. All 11 equity sectors posted gains through the end of March, with cyclicals leading the charge.

The energy (+29.3%), financial (+15.4%), and industrial (+11.0%) sectors were the best performing groups, posting double-digit gains in the period, while the utilities (+1.9%), tech (+1.7%), and consumer staples (0.5%) sectors performed the worst.

The S&P 500 rose 6.2% in the quarter to record highs of over 4,000.

Bank of America said the rise in stocks was mainly due to “unprecedented monetary and fiscal stimulus,” which allowed “low-quality” stocks (those rated “B” or lower in S&P quality rankings) to outperform “high quality” stocks (those rated “B” or better).

The stimulus also led to a rotation away from highly valued tech names and into value plays. According to Bank of America, the first quarter “marked the biggest rotation into Value since 2001.”

Despite the strong performance from equities, Bank of America warned of dangerous “euphoric sentiment” in the markets.

Read more: BANK OF AMERICA: Buy these 14 semiconductor stocks poised to benefit from Biden’s multitrillion-dollar infrastructure plan – including one set to surge 39%

According to the firm’s Sell Side Indicator, a contrarian gauge of Wall Street sentiment, optimism over the past twelve months has risen three times the typical rate following bear markets since 1985.

Bank of America’s sentiment indicator is now at a 10-year high and the closest it’s been to a contrarian “sell” signal since May 2007.

When the “sell” signal flashed over a decade ago, the S&P declined 13% in the following 12 months.

Bank of America recommended clients stay invested, but “go up in quality” to names with stronger balance sheets and less debt.

The investment bank said clients should focus on investments in areas sensitive to “the real economy” like cyclicals, industrials, and small caps stocks amid record fiscal stimulus and President Biden’s new infrastructure plan.

Read the original article on Business Insider

Mohamed El-Erian says the Archegos blow up is a ‘one-off’ but it may lead to tightening financial conditions as banks become more cautious

Mohamed El-Erian
Mohamed El-Erian, Chief Economic Advisor of Allianz and Former Chairman of President Obama’s Global Development Council, speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., May 1, 2017.

  • Mohamed El-Erian said the Archegos blow-up is a “one-off” in a CNBC interview Monday.
  • The Allianz chief economic adviser added he doesn’t believe it will lead to a “fast-moving contagion” in the markets.
  • El-Erian did warn investors about “tightening financial conditions” if banks become more cautious as a result.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Mohamed El-Erian says the Archegos blow-up is a “one-off,” but it may lead to a tightening of financial conditions as banks become more cautious.

Over the weekend reports came out that showed Archegos Capital Management had been behind roughly $20 billion worth of block sales of companies like ViacomCBS and several Chinese tech stocks including Tencent and Baidu.

The sales came after the hedge fund failed to meet margin calls from Credit Suisse, Nomura, and Goldman Sachs.

Queen’s College President and Allianz chief economic advisor told CNBC on Monday that he believes the incident was a “one-off,” caused by Archegos’ “highly concentrated positions”, “massive leverage”, and “derivative overlay on top of that.”

El-Erian said that he doesn’t see a “fast-moving contagion” spilling over and creating a significant market sell-off, adding that “for now it looks contained.”

The Allianz chief economist did say investors should be keeping an eye on “slower-moving contagion forces” which might cause a “tightening in financial conditions” forcing banks to become more cautious.

“There’s been so much liquidity sloshing around the system that there has been excesses and we’ll get fender benders like this one, but what we don’t want is a pile-up, and that’s why it’s really important to look at these slow-moving contagions,” El-Erian said.

El-Erian said he hoped the Archegos blow-up would lead to “better discipline in the marketplace because we’ve lost a lot of discipline.”

He added that Archegos’ positions, overall, are a “small” portion of the market, but said it could cause banks to make changes.

“I can tell you that in a lot of investment houses right now, and banks, people are being asked look how we are positioned, who are we exposed to, do we have enough margin, is the collateral moving or not, and all that causes somewhat of a slowdown in the system,” El-Erian said.

When asked what caused Goldman Sachs to force the liquidation when it did, the Queen’s College President said that “price action”, “how big was the margin overall”, and desire to move first and catch other banks “offsides” was the reason Goldman made its liquidation call.

Goldman Sachs told Bloomberg that its losses from the Archegos liquidation were “immaterial” while Nomura and Credit Suisse both face “significant” losses after the blow-up.

Read the original article on Business Insider

Guggenheim’s Minerd says the 10-year Treasury yield could be negative next year and opposes consensus view that rates are on ‘uninterrupted trajectory higher’

Scott Minerd guggenheim

Guggenheim’s Scott Minerd squashed the consensus narrative that rates are on an “uninterrupted trajectory higher” and said the 10-year Treasury yield could be negative in 2022.

In his latest investment outlook letter published Tuesday, the global chief investment officer said rising rates are not a foregone conclusion and explained that throughout history, every recession has been followed by a trough in interest rates several quarters later. 

“Now, similar fears grip markets that reflationary pressures are paving the way to higher rates. No doubt, prices will rebound from post pandemic lows but given the surplus capacity throughout most of the economy and high levels of unemployment, any increase in the rate of inflation is likely transient,” Minerd said.

He explained that the flood of cash from the stimulus has driven short rates lower, as money continues to flood into the private sector, stock and bond prices continue to rise.

 “Over time, as stimulus payments and tax refunds are distributed and more money looks to be put to work, investors will extend maturities on their bond portfolios in a ‘reach for yield,'” he added. 

Against this backdrop, two-year Treasury note yields could go to 1 basis point or lower and 5-year Treasury notes could easily reach 10 basis points. 

“These levels would put downward pressure on 10-year Treasury rates, likely rendering the current yield unsustainable,” said Minerd.

In a chart, Guggenheim models the 10-year yield at -0.5% in January 2022, but that number is bounded by a two-standard deviation  range of a high of 1 percent and a low of -2.0 percent.

 

Read the original article on Business Insider

Wall Street’s favorite volatility index is the latest stock-market bubble, JPMorgan’s quant guru says

trader worried
  • The Cboe Volatility index – or VIX, commonly known as the stock market’s fear gauge – is the latest bubble to form, JPMorgan’s Marko Kolanovic said.
  • The forward-looking gauge of expected price swings currently trades with an 18-point spread to S&P 500 realized volatility, a historically high reading.
  • Precedent suggests the gap will lead to weaker volatility and rising stock prices, Kolanovic said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The latest bubble in the stock market isn’t a stock at all, but Wall Street’s favorite volatility metric, Marko Kolanovic, global head of macro quantitative and derivatives strategy at JPMorgan, said Wednesday.

Stocks’ climb to record highs earlier in February triggered speculation around whether some sectors had grown overstretched. Elation over tech stocks, SPACs, and cryptocurrencies all prompted calls that the market was rife with bubbles.

Such concerns are largely overblown, Kolanovic said in a note to clients. The FANG coalition – Facebook, Apple, Netflix, and Google-parent Alphabet – has mostly traded flat for six months despite recovery optimism. The energy and financial names that have ticked higher in recent sessions still trade well below record highs.

However, the Cboe Volatility Index – or VIX, which is a reading of 30-day expected stock volatility – sits squarely in bubble territory, the quant expert said. The index provides an implied reading of future S&P 500 price swings calculated from options contracts. Yet the VIX is now decoupled from S&P 500’s underlying volatility, “indicating a bubble of fear and demand from investors looking to hedge or profit” from a potential sell-off, Kolanovic said.

The so-called fear gauge currently trades at a roughly 18-point spread with S&P 500’s two-week realized volatility, according to JPMorgan. That gap is in the 99.6 percentile over the past three decades, implying a historic disconnect between the VIX and the volatility it’s meant to measure.

Such instances typically happen after massive shocks in the VIX and give way to a decline in volatility, Kolanovic said. Historical data also suggests the S&P 500 will rise as the volatility index course-corrects, he added.

JPMorgan recommended investors sell the “VIX bubble” until such a correction takes place. The potential for new fiscal stimulus and ultra-loose monetary conditions make for strong macro fundamentals, and falling daily case counts suggest the US can soon recover from the pandemic. Additionally, the rotation from growth to value stocks is keeping the correlation between stocks low. While some continue to warn of growing risk in the market, funds are piling into stocks as price swings moderate, Kolanovic said.

“Low volatility drives inflows, triggering a positive feedback loop of a rising market and declining volatility,” he added.

Read the original article on Business Insider

What you need to know about markets this week: Biden’s spending plans, bitcoin’s blues and an unloved dollar vye with the first Fed meeting and a look at US GDP

Twitter account of the President of the USA Joe Biden is seen displayed on a phone screen
President Biden’s Twitter page. He wasted no time in revealing his spending plans.

  • Joe Biden has been sworn in as the 46th president and wasted no time in unveiling his spending plans.
  • Stocks hit record highs thanks to the prospect of $1.9 trillion in stimulus, but bitcoin has tumbled.
  • Investors will get a first look at 4th quarter US GDP and the Federal Reserve meets for the first time in 2021.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Here are the big themes we’re looking at in the coming week, plus a chart of Big Tech performance around the world.

Joe Biden takes office with a $1.9-trillion bang

With Wednesday’s swearing-in, Biden becomes the 46th president of the United States and has not delayed kicking off his agenda. His proposed $1.9 trillion stimulus package was enough to coax more all-time highs from the global equity markets, with records in the S&P 500, the MSCI Asia ex-Japan index and Europe’s STOXX 600 close to where it was when the pandemic hit last year, despite an alarming rise in cases of COVID-19 and new lockdowns. 

Janet Yellen, Biden’s pick for treasury secretary, is urging the incoming government to spend big and worry about all the debt that will inevitably create later. 

How much the final package is, how those proceeds will be distributed, and what direct impact that will have on growth all remain to be seen. It’s enough, however, for the stock market to be looking past inconvenient economic truths like nearly one million Americans still filing for unemployment benefits a week. A number of other indicators have shown there is resilience to the recovery, with housing starts hitting 14-year highs and manufacturing activity in the mid-Atlantic region picking up to three-month highs.

How did the US economy finish 2020? 

This coming week, the markets will get the first look at US economic growth in the turbulent fourth quarter of 2020. After having contracted by a record 31% in the second quarter, when coronavirus lockdowns were at their harshest, the economy has since largely bounced back. At the last count, it was still 3.5% smaller than it was before the pandemic struck. The forecast is for growth of 4.4%.

The data won’t reflect the impact of the $892 billion aid package that was agreed in late December after months of torturous stand-off in Washington DC. But the prospect of Biden’s $1.9 trillion bazooka has given Wall Street’s big banks cause for optimism. Goldman Sachs raised its forecast for 2021 growth to 6.6% from 6.4% previously, while JPMorgan’s chief global strategist David Kelly believes nominal GDP could expand by 11.4% year-on-year by the end of December.

“Extended, expanded and enhanced unemployment benefits through September should significantly reduce poverty until the pandemic winds down,” Kelly said.

Bitcoin gets the blues

It was a bad week for bitcoin bulls last week. The price fell by 12%, marking its biggest one-week fall since late August. It’s still up nearly 270% in the last 12 months, so it’s not all doom and gloom. But the chorus of voices of those calling for greater scrutiny of cryptocurrencies generally is growing. This past week, Yellen said bitcoin and its ilk were “mainly” used in illegal financing and should be “curtailed.” 

“Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing,” she said.

Bitcoin is the most crowded trade at the moment, according to a recent survey of asset managers by Bank of America, and it feels like the most likely direction for the price is lower in the coming week.

“I expect the need to see a further pullback before we see significant bullish momentum build, which would then be a good time for new buyers to enter the market and push prices higher again,” DailyFX analyst Daniela Sabin Hathorn said.

Ditch the dollar and buy everything (and anything)

With another almost $2 trillion in stimulus coming that will boost growth and help keep borrowing rates low, the dollar can’t cut a break. Money managers are sitting on top of their biggest short position in almost a decade and even with the back-up in 10-year Treasury yields above 1.1%, risk appetite and Biden-based euphoria are running high and investors are back to the “buy everything” trade, largely at the dollar’s expense.

Junk bond yields have hit record lows, a basket of unprofitable tech companies has gone parabolic and the sovereign debt of Italy – where the government has just narrowly avoided total meltdown – is more expensive than that of the US. The dollar index is around its highest in six weeks, but just two weeks ago, it was at its lowest since early 2018 and the bears are firmly in control right now.

Can the Fed taper the tantrum?

With the prospect of swifter economic recovery, comes a rise in Treasury yields that for many is reminiscent of 2013’s “Taper Tantrum” – the sharp spike higher in yields that ensued after the Fed indicated it would start to wind down its asset-purchasing program that started with the great financial crisis of 2008/2009.

The Fed’s roster of officials are in pre-meeting blackout until the first monetary policy meeting of the year takes place on Wednesday, followed by a press conference hosted by chair Jerome Powell. But a host of central bankers, including Fed board members Lael Brainard and Richard Clarida, have signaled the Fed isn’t in any rush to wind down its current program, under which it buys $120 billion a month in Treasuries and mortgage-backed securities. 

“Market anticipation of Fed tapering picked up sharply in early 2021, but we think a reduced pace of asset purchases could still be a year away, depending on the evolution of US growth and inflation. This likely means no taper announcement before 2H at the earliest,” Bank of America rate strategists Ben Randol and Ralph Axel Bofa said in a note last week.

Chart of the Week – There’s more to Big Tech than FAANGs

Big Tech is all the rage. The Apples, Amazons, Teslas, and Microsofts are among the best-performing stocks, not just of 2020, but of the past few years. However, valuations are high and the FAANGs aren’t the only way for investors to sink their teeth into this sector. Asia’s tech giants perform just as strongly and, with valuations that are almost half those of their New York-listed counterparts, are far less pricey.

Big Tech index performance since January 2018 rebased to 0
Big Tech index performance since January 2018 rebased to 0

Next week’s events:

Earnings

January 26 Microsoft, J&J, Visa, LVMH, NextEra, Starbucks, 3M

January 27 Apple, Tesla, Facebook, Boeing

January 28 McDonald’s

January 29 Caterpillar

 

Economic data

January 26 UK employment

January 27 Federal Reserve rate decision and press conference

January 28 Euro zone consumer confidence; US GDP – Q4 advanced

January 29 US core PCE

Read the original article on Business Insider

What you need to know on the markets this week: Biden’s spending plans, bitcoin’s blues and an unloved dollar vye with the first Fed meeting and a look at US GDP

Twitter account of the President of the USA Joe Biden is seen displayed on a phone screen
President Biden’s Twitter page. He wasted no time in revealing his spending plans.

  • Joe Biden has been sworn in as the 46th president and wasted no time in unveiling his spending plans.
  • Stocks hit record highs thanks to the prospect of $1.9 trillion in stimulus, but bitcoin has tumbled.
  • Investors will get a first look at 4th quarter US GDP and the Federal Reserve meets for the first time in 2021.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Here are the big themes we’re looking at in the coming week, plus a chart of Big Tech performance around the world.

Joe Biden takes office with a $1.9-trillion bang

With Wednesday’s swearing-in, Biden becomes the 46th president of the United States and has not delayed kicking off his agenda. His proposed $1.9 trillion stimulus package was enough to coax more all-time highs from the global equity markets, with records in the S&P 500, the MSCI Asia ex-Japan index and Europe’s STOXX 600 close to where it was when the pandemic hit last year, despite an alarming rise in cases of COVID-19 and new lockdowns. 

Janet Yellen, Biden’s pick for treasury secretary, is urging the incoming government to spend big and worry about all the debt that will inevitably create later. 

How much the final package is, how those proceeds will be distributed, and what direct impact that will have on growth all remain to be seen. It’s enough, however, for the stock market to be looking past inconvenient economic truths like nearly one million Americans still filing for unemployment benefits a week. A number of other indicators have shown there is resilience to the recovery, with housing starts hitting 14-year highs and manufacturing activity in the mid-Atlantic region picking up to three-month highs.

How did the US economy finish 2020? 

This coming week, the markets will get the first look at US economic growth in the turbulent fourth quarter of 2020. After having contracted by a record 31% in the second quarter, when coronavirus lockdowns were at their harshest, the economy has since largely bounced back. At the last count, it was still 3.5% smaller than it was before the pandemic struck. The forecast is for growth of 4.4%.

The data won’t reflect the impact of the $892 billion aid package that was agreed in late December after months of torturous stand-off in Washington DC. But the prospect of Biden’s $1.9 trillion bazooka has given Wall Street’s big banks cause for optimism. Goldman Sachs raised its forecast for 2021 growth to 6.6% from 6.4% previously, while JPMorgan’s chief global strategist David Kelly believes nominal GDP could expand by 11.4% year-on-year by the end of December.

“Extended, expanded and enhanced unemployment benefits through September should significantly reduce poverty until the pandemic winds down,” Kelly said.

Bitcoin gets the blues

It was a bad week for bitcoin bulls last week. The price fell by 12%, marking its biggest one-week fall since late August. It’s still up nearly 270% in the last 12 months, so it’s not all doom and gloom. But the chorus of voices of those calling for greater scrutiny of cryptocurrencies generally is growing. This past week, Yellen said bitcoin and its ilk were “mainly” used in illegal financing and should be “curtailed.” 

“Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing,” she said.

Bitcoin is the most crowded trade at the moment, according to a recent survey of asset managers by Bank of America, and it feels like the most likely direction for the price is lower in the coming week.

“I expect the need to see a further pullback before we see significant bullish momentum build, which would then be a good time for new buyers to enter the market and push prices higher again,” DailyFX analyst Daniela Sabin Hathorn said.

Ditch the dollar and buy everything (and anything)

With another almost $2 trillion in stimulus coming that will boost growth and help keep borrowing rates low, the dollar can’t cut a break. Money managers are sitting on top of their biggest short position in almost a decade and even with the back-up in 10-year Treasury yields above 1.1%, risk appetite and Biden-based euphoria are running high and investors are back to the “buy everything” trade, largely at the dollar’s expense.

Junk bond yields have hit record lows, a basket of unprofitable tech companies has gone parabolic and the sovereign debt of Italy – where the government has just narrowly avoided total meltdown – is more expensive than that of the US. The dollar index is around its highest in six weeks, but just two weeks ago, it was at its lowest since early 2018 and the bears are firmly in control right now.

Can the Fed taper the tantrum?

With the prospect of swifter economic recovery, comes a rise in Treasury yields that for many is reminiscent of 2013’s “Taper Tantrum” – the sharp spike higher in yields that ensued after the Fed indicated it would start to wind down its asset-purchasing program that started with the great financial crisis of 2008/2009.

The Fed’s roster of officials are in pre-meeting blackout until the first monetary policy meeting of the year takes place on Wednesday, followed by a press conference hosted by chair Jerome Powell. But a host of central bankers, including Fed board members Lael Brainard and Richard Clarida, have signaled the Fed isn’t in any rush to wind down its current program, under which it buys $120 billion a month in Treasuries and mortgage-backed securities. 

“Market anticipation of Fed tapering picked up sharply in early 2021, but we think a reduced pace of asset purchases could still be a year away, depending on the evolution of US growth and inflation. This likely means no taper announcement before 2H at the earliest,” Bank of America rate strategists Ben Randol and Ralph Axel Bofa said in a note last week.

Chart of the Week – There’s more to Big Tech than FAANGs

Big Tech is all the rage. The Apples, Amazons, Teslas, and Microsofts are among the best-performing stocks, not just of 2020, but of the past few years. However, valuations are high and the FAANGs aren’t the only way for investors to sink their teeth into this sector. Asia’s tech giants perform just as strongly and, with valuations that are almost half those of their New York-listed counterparts, are far less pricey.

Big Tech index performance since January 2018 rebased to 0
Big Tech index performance since January 2018 rebased to 0

Next week’s events:

Earnings

January 26 Microsoft, J&J, Visa, LVMH, NextEra, Starbucks, 3M

January 27 Apple, Tesla, Facebook, Boeing

January 28 McDonald’s

January 29 Caterpillar

 

Economic data

January 26 UK employment

January 27 Federal Reserve rate decision and press conference

January 28 Euro zone consumer confidence; US GDP – Q4 advanced

January 29 US core PCE

Read the original article on Business Insider

Bitcoin has fallen below $35,000 to key technical levels that analysts say could be make or break for the next move higher

A visual representation of the digital Cryptocurrency, Bitcoin is on display in front of the Bitcoin course's graph
A visual representation of the digital Cryptocurrency, Bitcoin.

  • The Bitcoin price hovered around $35,000 and technical analysts said this point was a pivotal one on the daily charts.
  • A break above this level could push Bitcoin back towards all-time highs around $41,000, while a marked drop below could trigger a fall towards key support at $30,000, they said.
  • Although the longer-term outlook for both cryptocurrencies remains skewed to the topside, further losses look likely in the coming days,” DailyFX strategist Daniel Moss said in a note.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Bitcoin fell on Wednesday, heading for its largest weekly fall since late August, as a combination of a stronger dollar and a bout of profit-taking swept $172 billion in value from the cryptocurrency market since the start of the week, leaving the price at a pivotal point on the charts. 

Rival coins such as Ethereum and Ripple Labs’ XRP, along with smaller alt-coins Litecoin and Cardano, sagged after several days of heightened volatility. 

Trade in cryptocurrencies has been booming for the last five months in particular. Bitcoin has risen by 230% in that time, hitting a record above $41,000 on January 8, while Ethereum has gained 217%, prompting a number of prominent investors to warn about the dangers of speculative bubbles. 

Shark Tank star investor Mark Cuban on Tuesday compared the crypto trade to the dot-com bubble of the 1990s in a series of tweets, and like the crash that ensued in early 2000, said any bursting would see some coins survive, and others fail. 

“The cryptocurrency market has come under fire in recent days, with Bitcoin and Ethereum both sinking lower as a wave of risk aversion sweeps across global financial markets. Although the longer-term outlook for both cryptocurrencies remains skewed to the topside, further losses look likely in the coming days,” DailyFX strategist Daniel Moss said in a note.

Bitcoin was last trading around $34,580, up around 1.65% on the day on the Coinbase exchange.

With the retreat to $35,000, the Bitcoin price is hovering around key technical levels on the charts, and a break above, or below, those levels could pave the way for the next burst towards record highs, or a more protracted decline, analysts said.

“Failing to gain a firm foothold above last week’s close ($38,200) would probably open the door for sellers to drive prices back towards psychological support at $30,000. Clearing that may pave the way for a push back towards former resistance-turned-support at the 2017 high ($19,891), Moss said.

Read more: GOLDMAN SACHS: Buy these 50 under-owned stocks that will roar higher as growth and inflation lift off in 2021

Bitcoin is still a full 95% above where it was a month ago, but the technical charts show that this latest retracement in price this week has brought a number of support levels – a level at which the price should hold in the event of a more aggressive sell-off – into play. 

The Bitcoin price is nearing a key Fibonacci retracement level. Fibonacci retracements are a series of horizontal lines on a chart that show where support and resistance are likely to emerge based on an asset price’s recent highs and lows and a breach of a key line can often trigger a swift move higher, or lower. 

Chris Svorcik, a technical analyst who writes for FXEmpire, said Bitcoin needed to stay above $29,762, which is the half-way point between the low of December 11 and the high on January 12, or 50% retracement, to avoid a drop towards $26,000.

4-hour technical chart of BTC/USD
4-hour technical chart of BTC/USD

“As long as price stays above the 50-61.8% Fibonacci support zone, an uptrend has the best chance of continuing higher (blue arrow) for new high. Only a break below the deep Fibonacci levels would change and invalidate that view,” he said.

Ethereum, which on Wednesday was trading up 2.8% on the day around $1,079 on the Kraken exchange, also finds itself at a tipping point on the technical charts. The price rattled to a three-year high at $1,350 late on Sunday, but its decline since then means it has now surrendered over half of the gains made since the start of 2021, leaving it hovering at a key Fibonacci retracement level.

“Ethereum would need to move through the 23.6% FIB and the pivot level at $1,069 to support a run at the first major resistance level at $1,131,” Bob Mason, a technical analyst who writes for FXEmpire, said. 

“Support from the broader market would be needed, however, for Ethereum to break back through to $1,100 levels,” he said, adding: “In the event of an extended crypto rally, Ethereum could test resistance at $1,250 before any pullback. The second major resistance level sits at $1,212.”

4-hour ETH/USD technical chart
4-hour ETH/USD technical chart

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The S&P 500 will climb another 10% as the Democrat-controlled government passes new stimulus, Credit Suisse says

US capitol
  • Credit Suisse analysts lifted their S&P 500 target to 4,200 from 4,050 on Thursday, citing Democrats’ victories in Georgia Senate runoff elections as key to ushering in additional fiscal stimulus.
  • The new target implies a roughly 10% climb from current levels.
  • The bank expects President-elect Biden to pass fresh fiscal support that includes another round of direct payments for Americans.
  • New stimulus “will further fan these flames” of pent-up consumer demand as the economy reopens, the team added.
  • Visit the Business Insider homepage for more stories.

Democrats’ upcoming control of the US Senate paves the way for a new fiscal stimulus and healthy stock-market returns throughout 2021, Credit Suisse analysts said Thursday.

The team led by Jonathan Golub lifted its 2021 S&P 500 price target to 4,200 from 4,050 in a note to clients, implying a roughly 10% rally from current levels. The bank expects the index’s earnings-per-share to climb to $175 this year and reach $200 by the end of 2022.

Jon Ossoff and Raphael Warnock’s victories in Georgia Senate runoff elections bring Democrats’ seat count in the legislative body to 50, meaning any ties will be broken by Vice President-elect Kamala Harris. The shift in power gives Democrats unified control of the government for the first time since 2011 and gives Biden a far easier path for passing progressive policy.

Fresh fiscal support is likely among the President-elect’s first initiatives when he takes office later this month, Credit Suisse said. Democrats are poised to push for another round of direct payments, an extension to unemployment benefits, state and local government aid, and relief for healthcare workers.

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A stronger stimulus response, when combined with a swift reopening, can accelerate the country’s economic rebound, the team of analysts said.

“While the timeline for vaccination rollouts has proven underwhelming, the likely avalanche of pent-up consumer demand cannot be ignored. Any additional stimulus will further fan these flames,” they added.

The bank upgraded several cyclical sectors to “overweight” from “market weight,” including industrials, materials, and consumer discretionary stocks. The groups are among those best positioned to benefit from the start of a new economic expansion and a return to pre-pandemic levels of activity, according to the bank.

The team downgraded the tech, consumer services, and internet retail sectors to “market weight” from “overweight.” Health care and financial stocks remain the bank’s “highest conviction overweights.”

Several other Wall Street giants similarly upgraded their outlooks for stocks and the US economy following Georgia’s elections. Bank of America economists said Wednesday that another $1 trillion in stimulus can “easily” boost US economic growth by one point to 6% in 2021.

Goldman Sachs lifted its 2021 growth estimate to 6.4% from 5.9% on Thursday, citing its expectation for a $750 stimulus package being passed in the first quarter.

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Read the original article on Business Insider