US stocks trade mixed as investors digest March inflation surge and J&J vaccine pause

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  • US shares traded mixed on Tuesday as consumer prices surged in March.
  • Consumer prices rose 0.6% in March fueled by an economy rebounding from the pandemic recession.
  • Traders nervously eyed calls to halt use of Johnson & Johnson’s vaccine following reports of blood clots in six recipients.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

US shares trade mixed on Tuesday as consumer prices surged in March and officials called for a halt in the administration of Johnson & Johnson vaccines.

Consumer prices rose 0.6% in March from February, the Labor Department reported Tuesday, fueled by an economy rebounding from the pandemic recession.

It shot up 2.6% from the same period a year ago – roughly in line with the 2.5% expectation from economists polled by Reuters – when large swathes of the country were in lockdown to curb the spread of the virus

The year-over-year climb is the highest since August 2018. It is also higher than the 1.7% recorded in February.

Among the biggest contributors were gasoline prices, which surged 9.1% in March, and food.

Consumer inflation data aim to capture the cost of buying goods and services, which the Federal Reserve and financial markets watch closely.

Bond yields meanwhile have temporarily risen on expectations of higher growth and inflation. This, in turn, has weighed on technology shares, which look relatively less attractive when yields rise.

The 10-year US Treasury note rose higher Tuesday by 1.5 basis points to 1.691% from the 1.675% at the end of Monday. Yields move inversely to prices.

On Monday, all three major indexes ended lower as investors took a breather from Friday’s record highs.

Here’s where US indexes stood at the 9:30 a.m. ET open on Tuesday:

Johnson & Johnson shares fell by as much as 3.5% after the US Food and Drug Administration and the Centers for Disease Control and Prevention jointly recommended a pause in its Covid-19 vaccine over blood clot reports in some people who had received the shot. It remains unclear if this will impede President Joe Biden’s goal of administering 200 million vaccines in his first 100 days.

GameStop could see its rally fade because of strong digital competition from Microsoft and Sony, Ascendiant Capital analyst Edward Woo said. Woo pointed to GameStop’s low market share in digital game sales and expects the company’s long-term share price to drop sharply.

“Due to the popularity of GameStop on Reddit chat boards and with Robinhood retail investors, GameStop shares appears to no longer trade on traditional fundamental valuations or metrics, but on retail investors’ sentiment, hope, momentum, and the powers of crowds,” he wrote.

Bitcoin breaks its record for the second straight day, soaring to an all-time high above $63,000 amid excitement ahead of Coinbase’s direct listing on the Nasdaq. The world’s most famous cryptocurrency rose as much as 5.3% to hit $63,179 on Tuesday, well above the last all-time high of just over $61,700 seen in March.

Oil prices edged higher after strong Chinese import data, Reuters reported, shrugging off tensions in the Middle East, which thus far have not affected oil supply. West Texas Intermediate crude climbed 0.92%, to $60.251 per barrel. Brent crude, oil’s international benchmark, rose 1.01% to $63.92 a barrel.

Gold slipped 0.24%, to $1,739.81 per ounce, as the treasury yields weighed on the precious metal’s appeal.

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Americans unleashing pent-up savings could drive up inflation and rattle parts of the market, JPMorgan’s chief strategist says

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Americans have built up savings during COVID that could be unleashed.

US consumers unleashing their pent-up savings in a huge wave of spending could drive up inflation and rattle some parts of the stock market, JPMorgan Asset Management’s chief strategist for Europe has said.

Karen Ward said in an online presentation this week that JPMorgan estimates Americans have built up extra savings worth around 8% of US GDP during the COVID-19 pandemic, when their spending options have been limited.

Ward, a former top economic advisor to the UK’s finance ministry, said she thought most of this would be unleashed in a spending spree. When combined with Joe Biden’s $1.9 trillion stimulus bill – worth around 9% of GDP – that is likely to push inflation higher, she said.

“I’m not talking about runaway inflation of the 70s,” she said. “But I just think the risks in my view are more skewed towards inflation averaging 3% over the next 10 years, rather than inflation averaging 1% over the next 10 years.”

Core personal consumption expenditure inflation, the Federal Reserve’s preferred measure, stood at an annualized 1.5% in January.

Ward said that a rise in inflation was likely to generate volatility in parts of the stock market as investors reacted to the new situation. She added that confusion around the Fed’s new tolerance of higher inflation and employment would also create uncertainty.

Economists expect the US economy to boom in 2021, following the worst contraction since World War II in 2020. Yet they are divided on what this means for price levels, which is a key question for markets, given the importance of inflation to assets’ values and returns.

Whether or not inflation rises persistently “is the big question that nobody knows the answer to,” said Nasdaq chief economist Phil Mackintosh.

Rising growth and inflation expectations have already pushed bond yields sharply higher, with investors demanding a bigger return to account for price rises.

The move up in yields shook many investors in February and March. The tech stocks that did so well during the pandemic fell sharply, as bonds and stocks that are set to do better from strong growth and inflation started to look more attractive.

Ward said she thought bond yields would rise further as inflation picked up, and would probably generate further volatility in some parts of the market on the way.

The JPMorgan strategist said the Fed’s new mandate to tolerate higher inflation and employment may also cause problems.

“Not only do they want to reach full employment, but they also want inclusive employment. So what exactly does that mean?” she said. “I think that has the potential to generate us some volatility.”

Yet, she said the global stock market as a whole was unlikely to be majorly troubled because stronger growth should support companies’ earnings.

Many analysts believe inflation will remain low, however, that is partly because unemployment is set to remain higher than it was before the crisis in the medium term.

The Fed itself has signaled it does not think inflation will be damaging, with chair Jerome Powell reiterating that message on Thursday.

Jan Hatzius, Goldman Sachs’ chief economist, predicted in a note on Monday that US inflation would remain “well below the Fed’s 2% target, consistent with an economy that remains well below full employment.”

He added: “All this has increased our confidence that Fed officials will be able to stay the course in exiting only very gradually from their highly accommodative stance.”

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Robinhood CEO says investing ‘should be as ubiquitous as shopping online’ and should not be viewed as gambling

Vlad Tenev Robinhood

Robinhood Markets CEO Vlad Tenev defended the mission of his trading platform, which seeks to “democratize finance for all” amid backlash from lawmakers, regulators, and Wall Street firms blaming the mobile app for luring inexperienced investors and “gamifying” the stock market.

“Investing should be as ubiquitous as shopping online,” Tenev told Bloomberg. “It should just be something that people do.”

The Menlo Park, California-based company has faced scrutiny for its role at the center of the GameStop frenzy in January. This includes complaints that the mobile app used “aggressive” tactics to lure young and inexperienced investors with commission-free trades.

A five-hour congressional hearing in front of the House Financial Services Committee was held on February 18, scrutinizing the role the company played.

“This is what I signed up for,” Tenev said. “Any time you’re causing change in society and kind of upending the status quo, it’s probably not going to be the most comfortable process.”

The 34-year-old founder also rebuffed comments from various experts on the addictive nature of trading apps like Robinhood. The app has attracted over 13 million users since 2013, many of whom are younger retail traders.

“I reject the idea that investing in the US capital markets is gambling,” Tenev said. “We’d be happy to have the conversation, but of course we understand that investing is a serious thing.”

“The facts will come out and it will bear out that Robinhood is a customer-focused company that’s operating with the highest standards of integrity,” Tenev said.

In the February hearing, Tenev maintained that Robinhood has created opportunities for a new generation of investors. The CEO told lawmakers that the assets of his platform’s users have collectively grown by more than $35 billion, a claim challenged by some, including Rep. Jim Himes.

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