The Instagram effect is pushing up the prices of ‘grammable activities like meals out and vacations – creating opportunities for investors

US reopening concert phone picture Instagram
Consumers are rushing out to spend as economies reopen.

Locked down during the pandemic, Americans and consumers around the world spent big on things like gadgets and gym equipment to make their time at home more bearable.

But as economies reopen, people are splurging their cash on vacations, new clothes, and meals out.

Paul Donovan, chief economist at UBS Wealth Management, calls it the Instagram effect.

He says people want to show off again after months of lockdown, leading them to splurge on things they can post on the ‘gram.

Donovan says the shift in spending patterns is pushing up inflation in some areas but helping bring it down in red-hot sectors like lumber. He expects the change to continue and argues it will be a good thing for markets and investors by lowering price pressures overall.

“In the next few months people will only spend money on things they can post about on Instagram afterwards,” Donovan told Insider. “So that’s going out and new clothes, essentially.”

Clothing and meals out have become dearer

In the US, inflation has hit a 13-year high, driven in large part by a sharp rebound in energy prices.

But prices in Instagrammable categories have also risen sharply, official data shows. The price of food bought away from home – i.e. at restaurants or hotels – rose 0.6% month-on-month in May, from 0.3% in April.

Clothing prices rose 1.2% compared to 0.3% in April. And airline fares jumped 7% after surging 10.2% a month earlier as vacations picked up again.

In the UK, the head of the Bank of England noted that the price of haircuts had jumped, suggesting people were trying to recreate “the early 1990s David Beckham look.”

Read more: The Fed has left rates steady while signaling 2 potential hikes by the end of 2023. Here is what to do with your stocks, bonds, and digital assets, according to top Wall Street and crypto investors.

The shift to Instagrammable spending could cool inflation

Markets have been worried about inflation in 2021, as strong price rises eat away at the earnings on stocks and bonds.

But Donovan thinks the Instagram effect is one reason that strong inflation will prove transitory, as the Federal Reserve has argued.

He said service businesses like restaurants are better placed than goods providers to adapt to strong demand, making the sort of supply bottlenecks that have driven up the prices of products like lumber and microchips less likely.

Bank of England governor Andrew Bailey made a similar point on Thursday, saying inflation should ease “as spending is redirected towards sectors with more spare capacity.”

Donovan said the outlook is good for stocks: “I think markets will be content to almost ignore the inflation story.”

Hugh Gimber, global market strategist at JPMorgan Asset Management, said spending on things like luxury goods and meals out could well boost the shares of companies in those sectors.

But risks remain and could rattle markets

Yet he also warned that inflation could yet stick around longer than a lot of people expect. He said rising wages, as sectors reopen and look for workers, could create price pressures across economies.

Stronger-than-expected inflation could yet rattle markets, Gimber told Insider. Fears over price rises did exactly that in early May, when the S&P 500 lost 2% in a day after inflation data came in hotter than expected.

Donovan also said there were risks to his view that inflation would fall back as the Instagram effect picked up speed. “If we don’t start to see the deceleration of inflation in the States that I expect to see, that would worry markets about the timing of rate moves,” he said.

But for now, investors are feeling much less worried about inflation, helping stocks rebound to record highs. Coincidentally, Instagram-owner Facebook is up more than 7% over the last month.

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The rotation into value stocks will get a new lease of life as the US economy booms, JPMorgan strategist says

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The US economy is booming as Americans spend built-up savings.

  • The rotation into value stocks should pick up pace again as the US economy roars, a JPMorgan strategist said.
  • Hugh Gimber said Americans with built-up savings should benefit banks and consumer-focused companies.
  • The so-called reflation trade has paused in recent days after the Fed appeared to shift its stance.
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The rotation into so-called value stocks in the US has further to run as rapid economic growth pushes up bond yields, a JPMorgan strategist has said, despite signs that the trade has cooled in recent days.

Hugh Gimber, JPMorgan Asset Management’s global market strategist, told Insider that companies in the financial and consumer-focused sectors stand to gain, thanks to Americans unleashing pent-up savings and wages rising as the economy bounces back.

“I do expect US value to outperform US growth,” Gimber said. “It’s about the laggards from last year having more scope to catch up to the rest of the pack because of the environment that we’re in.”

The first half of 2021 in financial markets has been marked by a “reflation trade“. It has seen investors pivot away from the fast-growing tech stocks that did so well in 2020, toward sectors such as energy and financials that are likely to perform better as growth and inflation pick up.

However, recent signs that the US Federal Reserve may be more concerned about inflation than previously thought have knocked the trade’s popularity. The tech-heavy Nasdaq index is up more than 5% over the last month, while the more industry-heavy Dow Jones is down around 1%.

Yet Gimber said he expects strong growth and higher inflation to push up bond yields in the second half of the year.

“You have consumers with pent-up demand, cash in their pockets, that can now get out and spend, driving a very strong outturn for growth.”

Higher market interest rates would likely make the earnings of so-called growth companies – whose full potential is often far in the future – look less attractive to investors.

The JPMorgan Asset Management strategist said rising wages would boost Americans’ spending power, benefitting companies in consumer-discretionary sectors such as luxury goods, vacations, and cars.

He said: “A healthy consumer tends to be helpful for financials, coupled with the latest news on buyback prospects for the financials and the rising yield environment, all of which bodes well for that sector.”

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JPMorgan dismisses correction fears and says investors should buy any dips in stocks

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JPMorgan thinks stocks should keep climbing as economies reopen.

  • JPMorgan said fears about a correction in stock markets are overblown, despite the stellar rally.
  • The bank’s analysts said equities should keep climbing and investors should buy any dips.
  • They said vaccine rollouts, supportive central banks, and consumer savings were all positives.
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Investment bank JPMorgan has said it remains positive about global stocks and recommended that investors buy any price dips over the coming months, despite some fears about high valuations.

Although there are a few signs that equities could be due a fall, the rollout of coronavirus vaccines and recoveries in service sectors should keep boosting the market, JPMorgan said in a note Monday.

Global stocks have rallied sharply in 2021, despite some bouts of volatility, as investors have looked forward to the reopening of economies from strict coronavirus lockdowns.

The S&P 500 closed at a record high of 4,185 on Friday. Europe’s region-wide Stoxx 600 was also trading at around record highs, while the UK’s FTSE 100 has risen around 8% so far in 2021.

Some commentators have suggested that stocks could be due a correction, which is technically a fall of 10% from recent highs.

Yet JPMorgan’s analysts, led by Mislav Matejka, said they were still confident about equities due to the growing pace of vaccine rollouts, large amounts of consumer savings, and supportive central banks.

“We would not be cutting stocks exposure on a 6-9 months horizon, and continue to see any dips as buying opportunities,” they wrote, adding: “We would not expect to see a more sustained pullback before Q4.”

Despite their bullishness, the analysts said there were some signs that markets are becoming overstretched. In particular, they pointed to the gold-copper ratio being at the bottom of a 10-year range.

As investors traditionally buy gold when they’re feeling nervous and copper when they’re feeling confident, the higher copper price compared to the lower gold price suggests markets are “complacent”, JPMorgan said.

But the analysts said the outlook for economies looks bright and predicted that a renewed tightening of COVID-19 restrictions is unlikely. They said services sectors – which are dominant in most advanced economies – are only just starting to pick up.

Crucially, the analysts said the ultra-supportive monetary policy from central banks, which has driven up stocks over the last year, is unlikely to end any time soon.

“Our economists expect G5 central bank balance sheets to continue growing faster than nominal GDP until at least the end of 2022,” they said. “In other words, cumulative excess liquidity will not roll over for a while yet.”

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JPMorgan pinpoints the exact trigger for when investors should start buying tech again at the expense of value stocks

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  • A rise in interest rates has helped fuel an extreme rotation into reopening stocks at the expense of high-growth technology stocks.
  • According to JPMorgan, valuations in cyclical stocks have become stretched, suggesting that the bulk of the rally “might be behind us.”
  • These are the factors that will tell investors when to start buying tech stocks at the expense of value stocks, according to JPMorgan.
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A violent rotation out of technology stocks and into cyclical stocks poised to benefit from a full reopening of the US economy has some investors asking when to take profits in value and pile back into growth, according to a Monday note from JPMorgan.

The bank outlined factors investors should monitor to signal the optimal point of buying tech stocks at the expense of the value stocks that have worked so well recently.

Driving the reopening trade higher has been a surge in interest rates, with the 10-year US Treasury note hitting a 13-month high on Friday of 1.64%. JPMorgan thinks the move higher in yields is not yet exhausted, even as the Fed is likely to push back on rising rates. Until interest rates begin to turn lower, the reopening trade should continue to work.

From an economic standpoint, the outperformance of growth stocks relative to value stocks will likely resume once again when country Purchasers Managers Index, or PMI, peak. According to JPMorgan, China momentum is “potentially peaking,” while the US is approaching highs.

“The general growth backdrop is likely to be firm into summer,” JPMorgan said.

Also helping cyclical stocks maintain its momentum over growth stocks is the acceleration of earnings, which should continue over the next few quarters. “As long as cyclicals EPS is faster than for defensives [and tech], they tended to hold onto their gains,” JPMorgan explained.

“Put together, the size of the cyclicals run, and their stretched valuations, likely suggest that the bulk of the move might be behind us,” JPMorgan said before adding, “Still, we think it is premature to position for an actual reversal.”

Investors should position for a reversal out of cyclical stocks and into high-growth tech stocks once country PMIs begin to peak, relative earnings begins to fade, and as interest rates stop rising and instead begin falling, according to JPMorgan.

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Tech stocks’ market leadership may be over and investors aren’t ‘bullish enough about the reopening’, says Fundstrat’s Tom Lee

Tom Lee
Thomas Lee Managing Director and Head of Research at Fundstrat

  • Fundstrat’s Tom Lee says tech stock’s market leadership is fading as energy, financials, and cyclicals takeover.
  • The Head of Research at Fundstrat argued investors aren’t “bullish enough about the reopening.”
  • Lee sees the reopening of the US economy post-pandemic as akin to a “post-war reconstruction period with government stimulus.”
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Tech stocks’ market leadership may be fading and investors aren’t “bullish enough about the reopening,” according to Fundstrat’s Tom Lee.

Lee made an appearance on CNBC’s “Fast Money” on Wednesday. In the interview, he said he sees tech stocks’ market leadership fading as the post-pandemic reopening gets underway.

“I think tech’s leadership, which was so astounding for the past decade, I think we’re seeing a new leadership emerge,” Lee said.

The managing partner and head of research at Fundstrat Global Advisors argued energy, financials, and cyclicals are leading the way now. And according to Lee, that means “a vigorous economic recovery is underway.”

Lee argued that the leadership of cyclicals will hurt tech and growth focused stocks going forward as well.

“These cyclicals could turn into growth stocks which means traditional growth stocks aren’t as shiny and interesting,” he said.

Lee also expects a faster reopening than other observers, arguing “people aren’t bullish enough about the reopening,” although he noted that “nobody can say COVID has been vanquished.”

Lee said although his reopening bullishness might be looked at as a “contrarian view” he sees the current era as a type of “post-war reconstruction period with government stimulus.”

He added that is “extremely boomy for real investment spending which is the biggest multiplier to GDP.”

Lee isn’t alone in the crowded reopening trade, but his somewhat bearish view on tech stocks is a shift from the norm. Lee has been a fan of tech stocks, and in particular Big Tech, for some time.

The head of research at Fundstrat even called big tech companies “unkillable businesses” in an interview in June of last year. For now though, Lee recommends avoiding the names.

His view isn’t shared by all, though. 

Analyst Dan Ives from Wedbush Securities said in a note to clients on Wednesday that he believes “tech stocks have another 25%+ upward move in the cards over the coming year led by FAANG, cloud, and cybersecurity names despite this risk-off moment on the Street.”

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AMC rips 8% higher as Reddit traders stick to their favorite meme stocks

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  • AMC gained as much as 8% on Tuesday as Reddit traders piled into the theater chain’s shares.
  • While the day-trading phenomenon died out earlier this month, Tuesday’s climb suggests the crowd still holds some sway in the market.
  • Reopenings and vaccination could lift AMC from its COVID-19 slump, one Reddit user said.
  • Watch AMC trade live here.

AMC Entertainment surged as much as 8% on Tuesday as retail investors banding together in online forums returned to the struggling theater chain.

The world’s biggest movie-theater company saw its stock price skyrocket in late January as traders in Reddit groups including r/wallstreetbets piled into highly shorted stocks. Shares soared as high as $20.36 on January 27 before plunging back to earth as the day-trader phenomenon fizzled out.

Tuesday’s price action suggests the crowd of casual investors is still somewhat in it. The gains placed shares at their highest in about a week. Posts on Wall Street Bets hailed AMC as a top recovery play and praised the company’s recent stock sales as a key lifeline. Vaccinations and economic reopening could revive AMC from its virus-induced downturn, Reddit user u/ImFedUpWithItAll said in a post detailing his bullish thesis.

“I’m not Buffett so I’m not buying for life. I’m in this for the rally to normalcy,” they added.

AMC was the most heavily traded company on the New York Stock Exchange before the market opened. Other stocks featured on Wall Street Bets fared worse. Investors looking to lift Palantir saw shares tumble in early trading. GameStop – the group’s favorite stock during the January rally – rose slightly.

Read more: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

The theater chain was among the few companies able to convert extraordinary retail-trader demand into a stronger balance sheet. The company raised more than $300 million last month by selling shares during the Reddit-trader rally. When coupled with a $411 million credit line, the fundraising efforts took bankruptcy talks “completely off the table,” CEO Adam Aron said in a statement.

To be sure, locations in key markets including California and New York remain closed as COVID-19 cases rise across the country. The halt to regular operations endangered the company earlier in the pandemic and forced warnings of extinguished cash reserves.

Daily COVID-19 case counts have since fallen, prompting investors to shift back into so-called reopening sectors including travel, leisure, and entertainment.

AMC closed at $5.59 on Friday, up roughly 158% year-to-date. The company has three “buy” ratings, 10 “hold” ratings, and four “sell” ratings from analysts, with a median price target of $3.99.

Read more: UBS says bitcoin is a bubble and too volatile to diversify a portfolio, unlike gold – here’s why the bank says it could end up ‘worthless’

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