The red-hot commodity market is being underappreciated in the long term by investors still obsessed with stocks, JPMorgan says

NYSE trader worried
  • Commodity prices have soared in recent months, but investors obsessed with the stock market don’t seem to care, according to a Wednesday note from JPMorgan.
  • Global investors only have 0.6% of their portfolios allocated to commodities excluding gold, below the average weighting.
  • If inflation continues to surprise to the upside, commodities will serve as a useful hedge for investors, JPMorgan said.
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Commodity prices have been surging in recent months as pent-up demand from consumers amid a reopened economy, combined with supply chain imbalances, created a perfect storm.

With inflation on the rise, investors should look to increase their commodity exposure as a hedge, according to a Wednesday note from JPMorgan.

Lumber prices have more than tripled in the past year as demand for housing and home renovations soar and Canada restricts the supply of timber from its forests. Oil prices have been on the move higher as demand for fuel jumps and a cyber attack cutoff one of the biggest pipelines in the US. And copper prices have more than doubled thanks to increased demand for it in electric vehicles and the supply chain failing to keep up.

This dynamic, in combination with easy year-over-year comparables, led the consumer prices index to surge 4.2% in April, representing its strongest reading in 13-years.

Despite the surge in inflation and the recent rise in commodities, JPMorgan found that investor allocation to the commodity ex-gold space stands at just 0.6%. That’s below its post-2009 average, and well-below the near-1% levels it stood at from 2010 to 2013.

At the same time, investors can’t seem to get enough of stocks, with equities allocations surging past its post-2008 average in recent months, according to JPMorgan.

“Investors are currently underweight commodities in global portfolios,” the bank said. This sets up equities to be more vulnerable than commodities from a positioning perspective.

Read more: ‘If lumber crashes, stocks might be next’: An award-winning portfolio manager who’s tracked lumber prices for years breaks down why futures hitting a record high of $1,600 is an ominous sign – and shares what investors can do ahead of the eventual crash

“Not only do commodities ex-gold look less vulnerable in the longer-term from a positioning point of view relative to the near-term, but they also look a lot less vulnerable relative to the equity asset class,” JPMorgan explained.

And if inflation continues to surprise to the upside in the coming months, commodities relative attractiveness in the long-term “becomes even stronger given investors’ perception of commodities as [a] better inflation hedge,” the JPMorgan concluded.

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Tech stocks need to overcome these 5 walls of worry to prevent a further 7% decline, Fundstrat’s Tom Lee says

NYSE trader
  • The decline in technology stocks has more room to go if five walls of worries aren’t overcome, Fundstrat’s Tom Lee said in a Tuesday note.
  • The Nasdaq 100 could drop a further 7% to its 200-day moving average, Lee said.
  • These are the 5 “wall of worries” tech stocks need to overcome to prevent further downside, according to Fundstrat.
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The high-flying technology stocks that dominated returns in 2020 have seen their fortunes reverse so far this year amid a “violent rotation” into cyclical stocks, and there could be more downside ahead according to Fundstrat’s Tom Lee.

In a Tuesday note, Lee warned that the tech-heavy Nasdaq 100 could drop as much as 7% to its 200-day moving average if it doesn’t overcome five “wall of worries.” The index’s 200-day moving average currently stands at 12,438.

“Essentially, growth needs favorable outcomes on 5 of 5 ‘wall of worries’ to avoid further downside, [while] epicenter only needs a favorable outcome on 1 of 5 to work,” Lee explained.

Those walls of worries include inflation fears, higher interest rates, regulation from the Biden administration, a reopened US economy, and an increase in the capital gains tax rate.

“The outcome of these 5 events shifts the balance in favor of one group or the other,” Lee said, adding that epicenter stocks only need a few things to work while tech needs all 5 events to work in its favor due to crowded positioning among investment managers.

A rise in inflation, interest rates, and capital gains taxes would benefit epicenter stocks tied to the physical reopening of the economy relative to technology stocks, Lee said. And increased regulation would hurt mega-cap tech stocks. Finally, because most unrealized capital gains are in technology stocks, a hike in the capital gains rate could spur selling as some investors may seek to lock in a lower tax rate.

And if the Nasdaq 100 gravitates to its 200-day moving average, “there will be a panic out of growth stocks,” Lee said. That’s why Lee recommends investors cut their exposure to tech stocks in half relative to the S&P 500.

“In simple terms, we are saying to cut technology holdings in half and allocate this to epicenter sectors,” Lee said, adding that there is urgency to his message. With technology and the FANG mega-cap tech stocks representing 39% of the S&P 500, Lee recommends clients assign just a 19% weight to the sector.

But in the long-term, Lee sees plenty of upside ahead for the tech sector, and believe bargains will be available if the current decline continues.

Lee said in an interview with CNBC on Tuesday that investors should look at companies tied to the supply chain like semi-conductor equipment manufacturers, and believes that the technology sector will ultimately make up 50% of the S&P 500, “if not more” five years from now.

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Dow plummets 472 points on inflation fears as tech stocks whipsaw

NYSE trader
  • Inflation fears drove a choppy trading session in stocks on Tuesday as the Dow Jones plummeted more nearly 500 points.
  • The tech-heavy Nasdaq 100 started the day down by more than 2% before it briefly reversed all losses and turned green.
  • Fueling a surge in inflation expectations has been the actual surge in commodities like lumber, oil, and copper.
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Stocks were volatile on Tuesday as fears of rising inflation persisted among investors. The Nasdaq initially fell more than 2% before briefly turning positive, while the Dow Jones fell more than 500 points before paring some losses.

Fueling the surge in inflation expectations has been the actual surge in commodity prices, such as lumber, oil, and copper.

This week’s stock market decline hit high-flying tech stocks the most, with shares of Tesla down as much as 13% since the start of the week. Cathie Wood’s ARK Invest flagship ETF was also being sold heavily by investors, as it fell 10% since Monday.

Here’s where US indexes stood at the 4:00 p.m. ET close on Tuesday:

Virgin Galactic, the pre-revenue space tourism company that seeks to launch paying customers into space, fell as much as 21% after its first-quarter earnings report revealed an uncertain flight schedule as it deals with maintenance issues for its spaceship.

Palantir initially fell as much as 9% after its first-quarter earnings report, but went onto reverse those losses and rise by as much as 9%. The company also said it will accept bitcoin as a form of payment and was weighing adding it to its balance sheet.

The price of dogecoin briefly surged as much as 20% after Tesla CEO Elon Musk ran a poll on Twitter to see if the electric vehicle manufacturer should accept the meme-inspired cryptocurrency as a form of payment. Tesla currently accepts bitcoin as payment for its products.

Roblox jumped as much as 18% after it reported mixed earnings results in its first report as a public company. The stock erased all of its losses for the month of May and reached its highest levels since late April.

Novavax extended its two-day decline to as much as 31% after it delayed seeking emergency approval for its COVID-19 vaccine.

Oil prices were higher. West Texas Intermediate crude jumped 0.4%, to $65.35 per barrel. Brent crude, oil’s international benchmark, dropped by 0.4%, to $68.60 per barrel.

Gold was flat on Tuesday at $1,837.30 per ounce.

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Goldman Sachs outlines the 3 biggest risks facing mega-cap tech juggernauts right now – and explains why regulation is the scariest prospect of all

Trader NYSE
A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 5, 2020.

  • Potential policies from President Biden’s administration represent big risks for mega-cap tech stocks, according to a note from Goldman Sachs.
  • Higher corporate and capital gains tax rates could reduce profits and spur a sell-off by investors who are sitting on big gains, the note said.
  • “The greatest fundamental risk to the continued market leadership of the five largest companies appears to be the potential intervention of regulators,” Goldman said.
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Mega-cap tech stocks like Facebook, Apple, Amazon, Microsoft and Alphabet face growing risks as President Joe Biden moves forward with his agenda, according to a Friday note from Goldman Sachs’ David Kostin.

Those five stocks represent more than a fifth of the S&P 500 as measured by market value, and for good reason, according to Kostin. The tech giants posted strong growth amid a global pandemic and their underlying revenue streams remained durable as other businesses struggled.

And while valuations appear stretched for the mega-cap tech stocks, fast growth and low interest rates justify them, according to Kostin.

But there are three big risks that these tech stocks are facing over the next year, which could lead to limited upside ahead from current levels, Kostin said.

1. Higher Taxes

Tax reform plans from the Biden administration could dent profits and spur selling by investors, according to Kostin.

Biden has proposed raising to corporate tax rate to 28%, though has signaled that a compromise around the 25% level is possible. That tax hike could decrease 2022 earnings for the mega-cap tech group by 9% relative to analyst estimates, according to the note.

A higher capital gains tax rate in 2022 could also lead to weakness in the tech stocks, as some investors who are sitting on big gains might sell in 2021 to lock in the lower current tax rate.

“The FAAMG stocks have appreciated by $5 trillion during the last 5 years, accounting for 29% of the S&P 500 market cap increase during that time,” Kostin explained.

2. Higher Interest Rates

Low interest rates have supported the valuation of high growth, long duration stocks for more than a decade as investors have learned to cope with near-zero interest rates.

But the trend of near-zero interest rates could be nearing its end, based on expectations from strategists at Goldman Sachs. The bank expects the yield of the 10-year US Treasury will rise to 1.90% by the end of 2021, representing a cycle-high since the pandemic began.

“All five FAAMG stocks have above-average duration compared with the Russell 1000, meaning they are especially sensitive to moves in long-term interest rates,” Kostin explained.

This dynamic was on full display in late 2020 and earlier this year. When interest rates rose sharply from November through March, FAAMG stocks underperformed the S&P 500 by seven percentage points.

“A similar period of rising rates in 2H 2021 would likely hamper FAAMG returns,” Goldman said.

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3. Anti-trust Regulation

“Looking forward, the greatest fundamental risk to the continued market leadership of the five largest companies appears to be the potential intervention of regulators,” Kostin said.

Recent appointments made by the Biden administration suggest there is increased risk of a stricter regulatory regime for the FAAMG stocks, as they “face a laundry list of legal battles and investigations over their market power and competitive practices ranging from commercial litigation to DoJ and FTC antitrust lawsuits to Congressional probes,” the note said.

But investors don’t seem to be worried, as shares of Alphabet and Facebook are both higher since the announcement of higher scrutiny of their business practices.

Goldman said investors could be right, and that any antitrust actions have little to no major impact on the companies, but for now the uncertainty remains a big risk for the companies.

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Dow, S&P 500 close at record highs after dismal jobs report gives Fed more breathing room

trader, NYSE
  • The Dow Jones and S&P 500 closed at record highs on Friday after a weak April jobs report gave the Federal Reserve breathing room to continue with its easy monetary policies.
  • April saw an addition of 266,000 jobs, well below the estimates forecast of 1 million.
  • The April jobs report represented the worst miss since 1998.

The Dow Jones and S&P 500 closed at record highs on Friday after a weak April jobs report led to investors bidding up popular stay-at-home stocks that have performed well during the pandemic. The Nasdaq led the markets higher, but failed to reach new records.

April saw an addition of 266,000 jobs, well below the estimated forecast of 1 million. Unemployment rose to 6.1% from 6.0%. Economists had expected the rate to fall to 5.8%. The jobs report represented the worst miss since 1998.

The report likely gave the Federal Reserve more breathing room in continuing with its easy monetary policies, with regards to keeping interest rates low and its $120 billion monthly bond purchases.

While the Nasdaq 100 jumped following the release of the April jobs report, the Dow Jones moved lower as cyclical stocks tied to a reopened economy were out of favor.

Here’s where US indexes stood at the 4:00 p.m. ET close on Friday:

Square jumped 6% following its first-quarter earnings report, which surpassed analyst estimates. The company saw its bitcoin revenue jump 1,000% to $3.5 billion, and disclosed that it’s the third-largest corporate holder of the cryptocurrency.

The surge in bitcoin interest has led to banks opening up new business divisions to gain exposure. A report said Citi is planning to launch its own crypto trading services, and Goldman is also launching a cryptocurrency trading desk.

A bitcoin ETF launched three weeks ago has already attracted $832 million in assets under management, as the crypto craze continues.

Since the announcement of divorce between Bill and Melinda Gates, more than $5 billion worth of stocks have been transferred to Melinda from Bill Gates’ Cascade Investment holding company.

Tilray jumped 10% on a double upgrade from Jefferies, which said its merger with Aphria was a “perfect” match.

Oil prices rose modestly. West Texas Intermediate crude was up 0.05%, to $64.73 per barrel. Brent crude, oil’s international benchmark, increased by 0.01%, to $68.10 per barrel.

Gold jumped to its highest price since February, rising as much as 1.5%, to $1,842.59 per ounce

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Why the horrid April jobs report was actually great news for stocks

NYSE trader
  • The April jobs report badly missed estimates on Friday, but the stock market promptly hit record highs anyway.
  • That’s because the market is now in a phase where bad economic news is good news for equities.
  • The biggest fear for investors is an inflation spike that prompts the Federal Reserve to tightening monetary policy sooner than expected. The weak jobs report soothed those worries.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Bad economic news is now good news for the stock market, as Friday’s horrid April jobs report translated into record highs for the S&P 500 and a spike in tech shares.

April saw an addition of 266,000 jobs, well below the estimated forecast of 1 million. Unemployment rose to 6.1% from 6.0%, bucking expectations for a decline. It was the worst miss since 1998.

But instead of an instant drop in stocks following the April jobs report, the tech-heavy Nasdaq 100 soared more than 1%. And while the more economically sensitive Dow Jones industrial average initially sold off, it quickly reversed into positive territory.

The centerpiece of this apparent disconnect is inflation, which is the biggest risk facing stocks right now, according to a recent Bank of America survey. The worry is that significant rise in inflation will prompt the Federal Reserve to tighten its easy monetary policy, which has long driven bullish sentiment in stocks.

But the significant labor-market weakness indicated by the April jobs report has investors shrugging off inflationary concerns for now. In fact, investors seem to have been emboldened to pile further into tech stocks, which carry the highest and most daunting valuations in the market.

This same dynamic was on full display earlier this week – albeit in inverse fashion – after Janet Yellen’s comments about interest rates needing to eventually rise caused a similarly sharp sell-off in tech stocks.

Going forward, now that the economy doesn’t appear as red-hot as many have thought, inflation expectations decline further. That could, in turn, give the Fed more breathing room to continue its monthly bond purchases of $120 billion and keep interest rates near 0%.

April’s jobs report gives credence to Fed Chairman Jerome Powell’s committment to not even talk about talking about tapering its monthly bond purchases or raising interest rates. Instead, Powell would like to see a string of reports that solidify the idea that inflation is consistently running above its average target of 2% and the economy is near full employment.

Read more: ‘If lumber crashes, stocks might be next’: An award-winning portfolio manager who’s tracked lumber prices for years breaks down why futures hitting a record high of $1,600 is an ominous sign – and shares what investors can do ahead of the eventual crash

There are varying explanations for why more Americans are not rushing back into the job market. The president of the US Chamber of Commerce called for the end of the $300 supplemental unemployment insurance on Friday, arguing that government stimulus programs have disincentivized employees to return to work.

But Fundstrat’s Tom Lee thinks instead, Americans are afraid to get back to work given that the COVID-19 pandemic has yet to be eradicated.

“Many people are still unwilling to ‘risk their lives’ to get a job given COVID-19 fears,” Lee said on Friday.

Whatever it may be, if the weak jobs reports continue, it could result in a jump in wage inflation as businesses are forced to pay top-dollar for workers.

But for now, as evidenced by Friday’s move in the stock market, bad news is good news.

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Melinda Gates now owns $5 billion across these 3 stocks as part of her divorce proceedings

Melinda French Gates

The divorce of Bill and Melinda Gates announced earlier this week has already led to the division of assets between the couple that’s worth more than $140 billion.

According to data from Bloomberg, regulatory filings made on May 3, the same date the couple announced their divorce, Melinda Gates has already received $5 billion worth of stock from Cascade Investment, a holding company founded by Bill Gates.

More asset transfers are likely over the coming weeks and months, as the separation is expected to generate a wealth transfer not seen since the divorce of Jeff Bezos and Mackenzie Scott in 2019, which led to a $38 billion settlement.

Other potential stocks that could be transferred from Cascade Investment to Melinda Gates include Deere & Co., Republic Services, and Ecolab, which are heavily owned positions at the holding company.

These are the three stocks worth a combined $5 billion that have been transferred to Melinda Gates over the past week.

1. AutoNation

Ticker: AN
Shares owned: 2.9 million
Market value: $314.4 million
% of shares outstanding: 3.65%

autonation toyota dealership

1. Canadian National Railway

Ticker: CNR (Toronto Stock Exchange)
Shares owned:
14.1 million
Market value:
$1.6 billion
% of shares outstanding:
1.98%

FILE PHOTO: A Canadian National Railway train travels eastward on a track in Montreal, February 22, 2015.. REUTERS/Christinne Muschi/File Photo

1. Grupo Televisa

Ticker: TV
Shares owned: 244.6 million
Market value: $3.1 billion
% of shares outstanding: 43.95%

FILE PHOTO: The logo of broadcaster Televisa is pictured at its offices in Ciudad Juarez, Mexico, November 16, 2017. REUTERS/Jose Luis Gonzalez/File Photo
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These 5 stocks have helped drive a 32% decline in Cathie Wood’s Ark Invest flagship ETF

Markets Trader Reaction

The reflation trade out of growth and into cyclicals in anticipation of a reopened economy has damaged the flagship ETF managed by Cathie Wood’s Ark Invest.

The ARK Disruptive Innovation ETF has declined 32% since its peak at $160 in mid-February. The ETF is down 13% year-to-date, a flip from its 2020 return of nearly 150%.

Despite the negative returns for the ETF in 2021, investors are not backing down from investing alongside Wood, as $6.7 billion has flowed into the ETF year-to-date, according to fund flow data from ETF.com. The ARK ETF still has more than $21 billion in assets under management.

Detailed below are the five stocks that helped drive the decline in the tech-focused ETF managed by Cathie Wood, based on Thursday afternoon prices.

5. Square

Ticker: SQ
Decline from peak: 20%
% of ARKK ETF: 4.66%

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4. Tesla

Ticker: TSLA
Decline from peak: 26%
% of ARKK ETF: 10.77%

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3. Shopify

Ticker: SHOP
Decline from peak: 28%
% of ARKK ETF: 3.66%

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2. Roku:

Ticker:ROKU
Decline from peak: 42%
% of ARKK ETF: 4.79%

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1. Teladoc

Ticker: TDOC
Decline from peak: 50%
% of ARKK ETF: 6.37%

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Warren Buffett’s Berkshire Hathaway is nearing the maximum stock price of $429,496 allowed on the Nasdaq

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Warren Buffett, the CEO of Berkshire Hathaway, and Charlie Munger, the vice chairman.


Class A shares of Berkshire Hathaway are fast approaching the maximum stock price allowed on the Nasdaq exchange, The Wall Street Journal first reported on Tuesday.

The stock sat at $429,172 on Thursday morning, a few hundred dollars below the maximum of $429,496.7295.

On Tuesday, Nasdaq temporarily suspended broadcasting the price of Class A shares over several popular data feeds that provide real-time price updates for online brokerages and finance websites.

The issue stems from the way Nasdaq’s computers count and the compact digital format it uses.

“Nasdaq and some other market operators record stock prices in a compact computer format that uses 32 bits, or ones and zeros,” The Journal explained. “The biggest number possible is two to the 32nd power minus one, or 4,294,967,295. Stock prices are frequently stored using four decimal places, so the highest possible price is $429,496.7295.”

Nasdaq is rushing to issue an upgrade to fix the problem, expected by May 17, the report said.

Berkshire Hathaway is the only stock close to hitting this upside limit, in part because of CEO and Chairman Warren Buffett’s refusal to split the stock; rather than do that, Berkshire Hathaway in 1996 issued Class B shares, which are more accessible to investors, given their price on Thursday of $285.

“I know that if we had something that it was a lot easier for anybody with $500 to buy, that we would get an awful lot of people buying it who didn’t have the faintest idea what they were doing,” Buffett told investors at Berkshire’s annual meeting in 1995.

Outgoing Amazon CEO Jeff Bezos is said to have resisted splitting Amazon stock to attract long-term investors rather than speculative investors who like to focus on lower-priced stocks.

Shares of Berkshire Hathaway are up more than 20% year-to-date, as a reflation trade out of growth and into cyclicals unfolds in anticipation of a reopened economy.

Read more: Dave Bujnowski beat 99% of his peers to return 125% last year. The Baillie Gifford investor shares 5 stocks set to benefit from the end of the pandemic and a hyperconnected economy.

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Consumer confidence in stock prices suggest there’s more time left for the bull market, NDR says

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  • Consumer confidence in the stock market has not reached excessive levels, suggesting there is more time left for the current bull market, Ned Davis Research said in a Wednesday note.
  • Consumers’ view on bonds is bearish, which is a hopeful sign for the economy going forward, NDR said.
  • Despite the bullish signals from tamed sentiment toward stocks, record high margin debt serves as a risk for the market.
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Many sentiment indicators have shown an excessive amount of optimism towards the stock market in recent weeks, but consumer confidence readings tell a different story, according to a Wednesday note from Ned Davis Research.

US consumers are still skeptical about stocks, according to a survey by the Conference Board. Expectations for a decrease in stock prices over the next 12 months has fallen to a neutral level after being elevated amid the COVID-19 pandemic. The indicator is still far away from reaching excessive levels that would trigger a contrarian sell signal.

This indicator is contrarian in that stocks perform well over the next 12 months when consumers are overwhelmingly bearish on stock prices, and perform poorly when consumer are overwhelmingly bullish on stock prices.

A neutral reading towards stocks for this consumer confidence survey “suggests that the bulls could still have some time” for the rally in stocks to continue, according to NDR.

Another bullish indicator is US consumers’ confidence towards bonds, which has reached a pessimistic level.

“When people get this negative on bonds historically, a lot of the bad news (good news for nominal economic growth) is starting to get priced in,” NDR explained.

But one high-risk warning that should be flashing for stock market investors is record levels of margin debt. While rising margin debt often coincides with rising stock prices, a fast rate of change over the past year has hit a level where stocks have often struggled, NDR warned.

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