US futures soar and global stocks climb as investors cheer huge Apple and Facebook earnings

Apple CEO Tim Cook
Apple CEO Tim Cook.

US stock futures climbed sharply on Thursday in the wake of blowout earnings from Apple and Facebook, and after the Federal Reserve promised to keep up its support for the economy.

Nasdaq 100 futures jumped 1%, boosted by the big-tech earnings. S&P 500 futures rose 0.67% while Dow Jones futures climbed 0.43% as investors also mulled a major speech by President Joe Biden on his taxing and spending plans.

Booming iPhone sales helped Apple’s profit more than double and revenue soar in its latest fiscal quarter, year on year. The company’s shares rose 2.82% in pre-market trading after it announced a $90 billion share buyback program.

Facebook’s revenue also jumped, helped by soaring advertising prices. Its shares rallied 7.04% in pre-market.

The Federal Reserve’s latest interest rate decision added to the good mood in the market. The Federal Open Market Committee held interest rates near zero and pledged to keep buying bonds at a pace of $120 billion a month.

And Fed Chair Jerome Powell signaled that the central bank would keep up its support for the economy, despite the outlook brightening, saying: “We’re a long way from our goals.”

The dollar index fell after the decision and press conference, standing at 90.65 on Thursday, down more than 2.7% in April.

In the bond market, the yield on the key US 10-year Treasury note fell on Wednesday, but picked up again on Thursday morning to stand at 1.647%. Yields move inversely to prices.

“The Fed maintained their very dovish policy stance overnight despite acknowledging the robust US economic recovery at the start of this year,” Lee Hardman, currency analyst at Japanese bank MUFG, said.

“The lack of any hawkish policy shift last night from the Fed has encouraged an extension of the bearish US dollar trend that has been in place this month.” Low US interest rates tend to make dollar-denominated investments less attractive, which weighs on the currency.

Asian and European stocks climbed on Thursday, supported by the Fed and a raft of strong earnings. China’s CSI 300 rose 0.88%, while Japanese markets were closed for a public holiday.

Europe’s Stoxx 600 was up 0.49% in early trading, boosted by strong earnings from consumer goods company Unilever and oil major Shell.

Oil prices – which boosted Shell’s results – rose for the third day on Thursday. The improving outlook in many of the world’s biggest economies supported the market, despite the raging pandemic in India.

Brent crude oil climbed 0.58% to $67.16 a barrel, while WTI crude climbed 0.58% to $64.23 a barrel.

Investors were also weighing President Joe Biden’s Wednesday night speech to Congress, in which he laid out his plan to boost spending and raise taxes to support the US economy.

Biden proposed higher taxes on companies and the rich to pay for a big expansion of the social safety net. He said: “It’s time for corporate America and the wealthiest 1 per cent of Americans to pay their fair share. Just pay their fair share.”

Stocks initially fell when Biden’s plan to raise taxes on investments were first reported last week, but have since recovered strongly.

Read the original article on Business Insider

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

GettyImages 1308338714
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.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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.”

Read the original article on Business Insider

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

GettyImages 1310342539
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.”

Read the original article on Business Insider

Big-money investors have dumped stocks for 4 straight weeks, even as major indexes hover near record highs

2021 03 05T123827Z_3_LYNXMPEH240MQ_RTROPTP_4_GLOBAL MARKETS.JPG

US stocks have hit record highs in the past weeks – with the S&P 500 breaching 4,000 for the first time – as President Biden’s unprecedented stimulus plan has spurred renewed economic optimism.

Yet Bank of America revealed in a recent note that its institutional clients have been net sellers of shares over the past four weeks.

Communication-services stocks have been at the center of the trend, seeing several weeks of near-record outflows from all BofA client funds as the 10-year Treasury yield has climbed to more than one-year highs. The sector does, however, remain overweighted by actively managed funds.

Only two sectors saw inflows from BofA client portfolios overall: industrials and materials.

Meanwhile, private clients were buyers for the sixth week, though inflows have recently decelerated.

Buybacks by corporate clients have also slowed. The bank did note that the resurgence in buybacks in the first quarter could imply a new record for S&P 500 gross buybacks in 2021.

As for exchange-traded funds, the bank saw big buyers of equity ETFs year-to-date, especially broad market ETFs, which have seen inflows slow down every week for a month.

Growth ETFs saw outflows for the first time in four weeks.

Read the original article on Business Insider

Ray Dalio said in a blog post that he sees ‘classic bubble dynamics’ across the market. Here are 12 of the best quotes.

FILE PHOTO: Ray Dalio, Founder, Co-Chief Executive Officer and Co-Chief Investment Officer, Bridgewater Associates attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 18, 2017. REUTERS/Ruben Sprich
  • Bridgewater boss Ray Dalio said in a recent blog post that there are “classic bubble dynamics” across the market.
  • He said the economics of bond investing in particular were “stupid,” and warned a sell-off could be coming.
  • Dalio recommended “a well-diversified portfolio of non-debt and non-dollar assets.”
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Bridgewater Associates boss Ray Dalio does not like what he sees when he looks out across the market.

In a major blog post on Monday, he said there are “classic bubble dynamics in so many different assets.”

Dalio, ranked by LCH Investments as the best-performing hedge fund manager of all time, said a long-term debt cycle that has seen investors gorge on bonds may be about to end, which could be “traumatic for most everyone.”

The founder of $150 billion fund Bridgewater spoke for many investors who are concerned about the recent jitters in the bond market continuing and becoming destabilizing.

He also said that the “economics of investing in bonds… has become stupid,” while sharing some strategy ideas to combat low returns. And he said the US may become “inhospitable to capitalists.”

Here are 12 of the key quotes:

Market bubbles

1. “There’s just so much money injected into the markets and the economy that the markets are like a casino with people playing with funny money. They’re buying all sorts of things and pushing yields on everything down. Now you have stocks that have gone up, and you have classic bubble dynamics in so many different assets.”

2. “The increased supply of money injected into the system bids up investment asset prices and can cause financial market bubbles even when actual economic conditions are still weak.”

3. “Bonds have been in a 40-year bull market that has rewarded those who were long and penalized those who were short, so the bull market has produced a large number of comfortable longs who haven’t gotten seriously stung by a price decline. That is one of the markers of a bubble.”

Read more: Goldman Sachs says to buy these 29 cheap stocks set to generate higher earnings next year as interest rates and bond yields continue to rise

Bond market woes

4. “The economics of investing in bonds (and most financial assets) has become stupid…. if you buy bonds in [the US, Europe, Japan or China] now you will be guaranteed to have a lot less buying power in the future.”

5. “If bond prices fall significantly that will produce significant losses for holders of them, which could encourage more selling.”

6. A major bond-market sell-off would be “traumatic for those who are holding the debt assets and traumatic for most everyone though it eventually reduces the ratios of debt and debt service to incomes. It is also traumatic for capital markets, capitalism, and economies. During this credit/debt collapse people realize that they don’t have as much buying power as they thought and financial and economic conditions worsen.”

Major policy changes

7. “If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other storehold of wealth assets and other tax domains so they could very well impose prohibitions against capital movements to other assets (e.g. gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.”

8. “The United States could become perceived as a place that is inhospitable to capitalism and capitalists. Though this specific wealth tax bill [proposed by some Democrats] is unlikely to pass this year the chances of a sizable wealth tax bill passing over the next few years are significant.”

Investment strategy

9. “Because I believe that we are in the late stage of this ‘big debt cycle’…, I believe cash is and will continue to be trash (i.e. have returns that are significantly negative relative to inflation) so it pays to a) borrow cash rather than to hold it as an asset and b) buy higher-returning, non-debt investment assets.”

10. “Rather than get paid less than inflation why not instead buy stuff-any stuff-that will equal inflation or better? We see a lot of investments that we expect to do significantly better than inflation.”

11. “I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars.”

12. “I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. I also believe that one should be mindful of tax changes and the possibility of capital controls.”

Read the original article on Business Insider

The rotation into value stocks has a long way left to run, JPMorgan and Barclays say

GettyImages 1230710456
  • JPMorgan and Barclays say the rotation into value stocks should continue as economic growth continues to accelerate.
  • Rising bond yields and inflation should boost banks in particular, JPMorgan analysts said.
  • The MSCI Value index has jumped 8.7% this year, while the growth index is broadly flat.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The global rotation into value stocks has further to go as countries reopen after the coronavirus pandemic and consumers start spending again, according to JPMorgan and Barclays.

Value stocks – or cheaper shares such as banks and energy firms – have handsomely outperformed fast-growing stocks such as the big tech names in 2021 so far.

The MSCI World Value index was up 8.7% year-to-date on Friday compared to 0.04% fall in the MSCI Growth index, Bloomberg data showed. Stocks such as Bank of America and Exxon are beating the likes of Tesla and Amazon.

The strong performance has led some investors to question the rally. But banks including JPMorgan and Barclays are saying previously unloved stocks will continue to climb as stimulus and vaccines power a recovery.

“Value continues to look very appealing, especially the banks,” JPMorgan analysts including Mislav Matejka said in a note on Monday.

They said the moves in value stocks are still well below what has been seen in past economic recoveries, suggesting they still have further to rise.

Analysts at Barclays, including Emmanuel Cau, said in a note that “value still has significant catch-up potential” because a “longer term rebalancing within the equity market may be underway.”

They said that after a decade of fast-growing technology companies dominating the markets, a strong economic recovery could cause a major shift.

Rising growth and inflation expectations – thanks to vaccines and stimulus – are pushing up bond yields, weighing on growth stocks.

“Higher rates naturally call into question the high (future) expected growth of these stocks trading on high valuations, as both future cash flows and the valuation look to be worth less today,” the Barclays note said.

The analysts said that stronger growth expectations are also pushing up earnings expectations for value companies, which tend to be more sensitive to the economic cycle.

JPMorgan said banks, which broadly benefit from higher market interest rates, “remain very attractive in a long term context.”

The Barclays analysts said they thought that growth and inflation “may even surprise” in the second half of the year.

They recommended investors use any dip to add to positions that stand to benefit, such as mining stocks, consumer-focused firms, and financials.

However, JPMorgan said rising bond yields and inflation could push up the US dollar, which may weigh on emerging-market companies and miners.

Read the original article on Business Insider

BlackRock’s chief bond strategist breaks down the 3 reasons rising bond yields are whacking stocks

GettyImages 1205044060
Rising bond yields have worried investors and triggered a sell-off in stocks

  • Rising bond yields have knocked stock markets, with the Nasdaq turning negative for the year.
  • Scott Thiel says higher yields make stocks look less attractive, while the speed of change is worrying traders.
  • He also says investors are concerned the Fed will not stamp down on borrowing costs.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

At a time when bitcoin is soaring and day-traders are taking on hedge funds, bonds can seem pretty dull.

But the bond market has sprung back to life over the past few weeks and reminded investors just how important it is – with yields shooting higher and shaking faith in the stock-market rally.

Rising bond yields have triggered sharp falls in the Nasdaq, which is packed full of flashy stocks that soared when returns on bonds were ultra-low. Tesla had tumbled more than 30% over the month to Friday, with Ark’s Innovation ETF down around 26% and Amazon off by roughly 12%.

But why exactly are rising bond yields worrying investors? We asked Scott Thiel, chief fixed income strategist at BlackRock – the world’s biggest asset manager with more than $8 trillion under management – for some answers.

Investors are betting growth will drive inflation

Government bonds – ultra-safe securities that governments sell to borrow money – are the backbone of global markets, with the US Treasury market worth around $21 trillion.

In recent weeks, yields on bonds have risen sharply as investors have dumped government securities at a rate not seen since Donald Trump was elected in 2016. (Yields are the rate of return bondholders can expect, and they move inversely to prices.)

Investors now think economic growth will roar ahead in 2021, causing a rise in inflation. As a result, bond-buyers are demanding a higher return to make up for price erosion and because there are other good investment opportunities. Some investors also think central banks could now start cutting back their support sooner than expected.

The yield on the key 10-year US Treasury note stood at 1.574% on Friday, up from 0.92% at the start of the year.

The dividend yield on the S&P 500 – how much on average the companies listed on the index pay out in dividends each year relative to their stock price – is around 1.57%, according to Bloomberg data. For the first time since late 2019, 10-year notes are yielding more.

Thiel, who has managed some of BlackRock’s biggest bond funds, sees three key drivers: The arrival of coronavirus vaccines, which will let economies reopen; the Democrats taking control of the US Senate and planning $1.9 trillion of stimulus; and a huge amount of pent-up demand thanks to people saving money during lockdown.

“If you put those 3 things together… it has put the economy on a very aggressive reopening stance,” he says.

Rising bond yields hit company valuations

But why are stock markets nervous when growth is expected to be so strong? Thiel’s explanation can again be broken down into 3 parts.

Firstly, he says “the most important thing to think about” is that bond yields and inflation are key factors in judging what companies are worth.

If borrowing rates and inflation look likely to stay low for a long time, then the returns and earnings of stocks become more attractive. Lower interest rates also hold down companies’ borrowing costs.

Low rates therefore caused a surge in the shares of fast-growing, high-earning companies like Amazon, Apple and Google, helping the Nasdaq soar more than 80% since its March 2020 lows.

But Thiel says: “If you shift that dramatically, in a very short period of time, and imply that that may be just the beginning of rate increases, you can have a situation where equity markets don’t like that very much at all.”

Screenshot 2021 02 26 at 12.27.50

The Fed’s stance has worried investors

This leads to another, related explanation of the market jitters. Investors worry the Fed and other central banks will allow rates to rise, without intervening.

Markets have become used to the Federal Reserve holding down bond yields and pumping money into the economy. But Thiel says the Fed has “basically declined to… hit any kind of alarm button at all” over the rise in borrowing costs.

He says the Fed has in fact signaled “the opposite, which was to say that this was consistent with how they thought the market should play out.”

Fed Chairman Jerome Powell disappointed markets on Thursday when he signaled the central bank is happy keeping policy as it is for the time being.

Kit Juckes of Société Générale said in a note it was “not the message markets wanted to hear”, which triggered another slide in stocks and spike in yields.

Rapid changes catch stocks off guard

Finally, the sheer speed with which bond yields have risen has taken markets by surprise, Thiel says.

Some of the daily moves seen in bond markets were “very, very, very big,” he says. “So I think it was very much a feature of a very quick move that we saw in rates… I think it caught the market a little off guard.”

Goldman Sachs analysts said in a note investors are suffering “indigestion” as they rapidly re-value stocks in light of changing bond prices.

Shane Oliver, head of investment strategy at AMP Capital, said in a note that the rise in yields had triggered a fast rotation “away from last year’s winners like tech stocks, to cyclical shares like financials and resources that will benefit from stronger economic conditions.”

Despite the recent stock-market turbulence, Thiel remains optimistic about the outlook for stocks because the rapid recoveries expected, especially in the US and China.

“We don’t believe that markets are dramatically overvalued at this point,” he says, adding that there’s “a lot of economic growth coming.”

Read the original article on Business Insider

US stocks set to hit new highs while oil soars as US jobless claims beat expectations and economies show signs of recovery

GettyImages 596957126
Oil prices have jumped, with investors expecting a strong rebound in demand as economies recover.

US stocks were on track to rise to all-time highs Friday at the end of a stellar week in which the S&P 500 had already risen about 4% and was heading for its strongest weekly gain in three months.

Signs the US and other economies are recovering from the latest round of coronavirus restrictions have also boosted oil prices to one-year highs, as the demand outlook brightens.

After the index climbed more than 1% on Thursday, S&P 500 futures inched 0.28% higher on Friday. Dow Jones Industrial Average futures rose 0.29%, while Nasdaq futures climbed 0.22%.

China’s CSI 300 rose 0.17% overnight, finishing the week in the green, as the strong economic recovery outweighed worries over rising short-term credit costs. Japan’s Nikkei 225 jumped 1.54% on upbeat earnings and stimulus hopes.

Read more: Investors are flocking to trade Dogecoin and other hot digital tokens on Voyager, a platform with no Robinhood-style restrictions. Its CEO says Bitcoin will hit $100,000 this year – and shares 3 other cryptocurrencies to watch.

The Europe-wide Stoxx 600 index rose 0.42% in early trading, while the UK’s FTSE 100 climbed 0.11%.

Investors have been pulled in different directions in recent weeks. Hopes that vaccines and stimulus will power a strong recovery in 2021 have clashed with short-term economic pain and a day-trading frenzy that shook markets at the end of January.

But better-than-expected economic data from the US has sparked new optimism that the recovery will be a powerful one.

Figures released Thursday showed that new US unemployment claims fell last week for the third week in a row – to 779,000 – and factory orders rose more than expected in December.

The Bank of England on Thursday cut its short-term growth forecasts because of January’s lockdown. But it said the country’s speedy coronavirus vaccine rollout “should help the UK economy recover rapidly later this year.”

Adding to the general mood of optimism, Democrats in Congress are powering ahead with plans to pass a $1.9 trillion stimulus package without Republican approval.

Investors’ attention Friday will be on the official monthly US employment report, due at 8:30 a.m. ET. Economists at Daiwa expect a modest 50,000 increase in payrolls, following a 140,000 decline in December. Yet they said in a note that recent data suggested the figure could be better than expected.

Oil prices have soared this week as the economic outlook has brightened, with investors betting demand will rise. Brent crude was up 1.12% on Friday morning to $59.66 a barrel, its highest level since last February. Brent has gained more than 7% this week, its largest weekly increase in a month. West Texas Intermediate crude was 1.42% higher at $57.03 a barrel.

Read more: A top-ranked manager at a firm that handles $50 billion in wealth told us 4 ways investors could smartly play day-trading favorites like GameStop without risking it all

“With inflation sentiment rising in the US, partially due to higher government borrowing, adding a tailwind to the economic recovery, the conditions still remain supportive for oil markets,” said Jeffrey Halley, a senior market analyst at the currency firm Oanda.

The dollar index slipped back from its highest level since December. It was last down 0.16% to 91.39.

A strong pound, after the Bank of England suggested negative interest rates were not likely anytime soon, added to greenback weakness. The pound was up 0.21% to $1.37 on Friday after jumping Thursday.

US bond yields were little changed. The yield on the 10-year Treasury note was roughly flat at 1.139% but continued to trade near its highest level since March, reflecting stronger growth and inflation expectations. Yields move inversely to bond prices.

Read the original article on Business Insider