|Day's Range||538.23 - 538.23|
(Bloomberg) -- How willing will the Federal Reserve be just to switch off all the stimulus it rolled out to safeguard markets from the coronavirus? The most plausible answer is “not very,” logic that forms the most aggressive bull case on equities.As anyone who has watched the rocky path to reopening cities and states, it’s hard to know when to sound the all clear in waters as uncharted as they are now. Uncertainty dictates prudence. That’s the case in deciding when to allow people back to work, and will logically guide policy makers, too, when it comes to their measures that have kept markets in working order.With the S&P 500 already two-thirds of the way back from its bottom, that prospect -- that virus-fighting stimulus could linger for months or years after the worst of the pandemic has passed -- explains the uncanny confidence of stock bulls in the face of the worst economy since the Depression. As they see it, if even a modicum of economic order is restored and stimulus sticks, it’s a recipe for a melt-up.“The markets have become addicted to stimulus. That is the key factor that is going to continue to drive risk appetite, just like it did in the last cycle,” said David Spika, president of GuideStone Capital Management, which has about $12.5 billion in assets under management. “Going back to the last cycle, the Fed stayed involved for several years even though we returned to previous employment levels and we returned to previous earnings levels -- and the Fed continued to buy bonds.”Make no mistake: as big a role as reopening has played in the rebound, Federal Reserve largess, alongside trillions of dollars in payouts from Washington, has been as a crucial element lifting stocks. While the path of the virus is unknown -- Will there be a second wave? Can a vaccine succeed? -- one thing that seems certain is perpetual Fed support.Policy makers are “not going to be in any hurry to withdraw these measures,” said Chairman Jerome Powell late last month.That’s comforted equity investors, tamping down concerns over a credit crunch or solvency risk. Case in point: A Goldman Sachs basket of stocks with weaker balance sheets rose 4.3% this week, nearly double a similar group of stocks with healthier finances. Tuesday marked the widest gap in favor of the former since May 2009, when stocks were in the early days of their record bull run.The embrace is also palpable across the universe of smaller companies, where over a third of firms are expected to lose money and per-share profits are forecast to plummet 95% in the three months ending in June, according to Credit Suisse. The Russell 2000 rose 6.4% in May, its best month versus the S&P 500 in over a year.Crediting the Fed with boosting risk-assets is nothing new but its open-endedness may be the only way to explain a world in which 20 million Americans have lost their jobs and the S&P 500 is about four big days away from making up all the ground it lost since February. And it’s not just a full comeback that is envisioned. Many Wall Street strategists see the potential for the S&P 500 to go even higher than it was before the outbreak began.Take Fundstrat Global Advisors’ Tom Lee, for example, who sees the S&P 500 ending the year at 3,450 even as company profits plunge. Or Sophie Huynh at Societe General, who predicts the S&P 500 will rise to 3,500 by the end of 2020. It closed Friday at 3,044.The U.S. central bank has taken unprecedented steps to combat the economic crisis. It cut interest rates to near-zero and pledged to keep policy easy. It resumed asset purchases, declaring Quantitative Easing (QE) unlimited. The Fed is also buying a wide range of securities, including corporate and municipal debt.As a result, the central bank’s balance sheet has ballooned to $7 trillion, with roughly $3 trillion added in just three months -- roughly triple what was added in the year following the financial crisis in 2008. That increase is showing up in broad measures of money supply, including a gauge called money of zero maturity and Federal Reserve M2 money supply.Such a surge in liquidity is reassuring the bulls. Michael Darda, chief economist and market strategist at MKM Partners LLC, says it shows there’s more upside potential for stocks than downside risk. A measure called the price-liquidity ratio that plots the market cap of the S&P 500 versus total money supply shows equities actually look cheap, even as earnings collapse. Add to that rock-bottom interest rates on bonds, and a stock bull case is born.And if such stimulative policies remain alongside an economic recovery, its possible inflation will materialize. Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, points to the years after the financial crisis, when a liquidity explosion led to surges in asset prices -- from stocks to bonds, real estate and gold.“If past is prologue, the lesson is that we need to admit that this amount of liquidity means that asset inflation will likely be unleashed on the economy in coming years,” he wrote to clients. “That’s something we need to consider even in a slow-growth environment.”Granted, all bets are off if economies must shut again, unemployment levels stay high and a wave of defaults emerges. Chair Powell has made calls for more fiscal stimulus loud and clear, and the latest beige book from the central bank -- a report based on anecdotal information collected by the regional divisions -- detailed the devastation that’s still apparent across the U.S. economy.All the more reason, though, for Fed stimulus to remain if the economy is in need. This past week alone, Chevron Corp. and Boeing Co. announced permanent layoffs. Reports surfaced that SoftBank Group Corp. is planning deep staff cuts too.“The general expectation is that the Fed is going to maintain its supportive posture,” said John Carey, portfolio manager at Pioneer Investment Management. “That’s definitely one of the factors giving people confidence in purchasing shares -- they see very strong support from the Federal Reserve.”To be sure, such extended policy measures could lead to ills down the road including the potential for run-away inflation, according to Sandip Bhagat, Whittier Trust’s chief investment officer. Still, it’s likely it puts a floor under the stock market for now.“Don’t naturally assume it to be singularly stimulative with no side effects,” Bhagat said by phone. “But all the stimulus will prevent the market from melting down again, I just don’t know if it will sent it off to the races where S&P 500 3,000 becomes S&P 500 5,000.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- For one of the starker examples of how much recovery-obsessed investors are willing to stomach lately, compare this week’s surge in small caps with first-quarter results the companies just finished reporting.Weighted to service-oriented companies particularly hard hit by stay-at-home orders, the Russell 2000 saw per-share profits fall 90% from a year ago, several times more than members of the S&P 500, according to Goldman Sachs data. Meantime, before a hiccup on Thursday, the Russell 2000 Index had risen on eight of nine days in a rally exceeding 16%.“With small company stocks, because they carry significant debt and are more fragile businesses as a group, they face a more existential threat. That’s the same reason they tend to lead the way out of most recessions,” said Peter Mallouk, president and chief executive officer of Creative Planning. It’s not just that their earnings outlook improves, but the “existential risk of complete failure gets taken off the table,” he said.The divergence shows what a powerful force hope has been in guiding investors lately. It’s also a laboratory for observing the impact of Federal Reserve actions in equities. Strength in small caps is by definition strength in companies with the weakest credit profiles, and their fortunes turned almost simultaneously with Jerome Powell’s campaign to shore up bond and lending markets.Investors have shown themselves willing to pivot away from lockdown winners including tech and health care and move into shakier corners of the market. But the damage to earnings for smaller companies in the quarter just passed was deep and those stocks are still playing catch-up. Down about 16% this year, the Russell 2000 has lagged behind the S&P 500 by about 10 percentage points. That’s the most on record this far into the year.Earlier: Investors Pile Into Stocks That Win in a Full Economic RecoveryGoldman’s data is based on the total of how much each Russell 2000 company made in the first quarter and compared it with results from a year ago, showing EPS of $32.53 last year versus $3.23 this year.Rather than looking at per-share results, Vincent Deluard, global macro strategist at INTL FCStone, plotted the total amount of money made by each company that has released results. Based on a 90% reporting rate, the index’s components posted a loss of about $37 billion in the first quarter, his model showed.The group was already on weak footing coming into the crisis. More than a third of U.S. small caps had losses before the outbreak, while 40% don’t have sufficient cash to cover two months of operating expenses, according to a recent report from Deluard.“In such desperate times, only balance sheet strength, and especially cash positions, matter,” he said.Looking ahead, about 47% of Russell 2000 companies are projected to report a loss in the second quarter. That compares with 16% for large ones, according to data compiled by Bloomberg. And at 1 times sales, the Russell 2000 is trading near a multiple that’s one quarter of what investors are willing to pay for stocks in the Nasdaq 100. That’s the biggest discount since the dot-com era, data compiled by Bloomberg show.Some researchers, however, see potential for small-cap outperformance once a recovery begins, signs of which were prevalent this week. Coming out of recessions, small caps have beaten large nine out of the last 10 times and also tend to beat coming out of bear markets, according to Jefferies’s Steven DeSanctis and Eric Lockenvitz.“You’ve seen both value and small-caps do better because of the anticipation of a better economic cycle in the upcoming year,” said Wayne Wicker, chief investment officer of Vantagepoint Investment Advisers. “With that hope by investors, I think you’ve seen a shift to those more pro-cyclical plays.”To Barry James, portfolio manager at James Investment Research, the trend also makes sense. Investors already took advantage of the run-up in tech firms -- now, they’re looking for new deals.“We view the market as a battlefield and the generals have been leading and now maybe the privates are coming into battle,” he said. “Folks realize that is where the opportunities are.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
May.29 -- Henry McVey, head of global macro and balance sheet investments at KKR, says credit has become an active managers' market with value spots. He speaks with Bloomberg's Erik Schatzker on "Bloomberg Markets."
While there are winners in almost every corner of the small-cap space, we have presented five top-performing, small-cap ETFs from different sectors over the past month.
Stocks ended near session lows amid new developments that could raise tensions between the U.S. and China, and a deluge of new economic data, much of which was still consistent with a contraction but at least signaled some stabilization after an initial slump in activity.
In this episode of Influencers, Hoover Institution Senior Fellow Niall Ferguson joins Yahoo Finance to weigh the policy decisions surrounding the pandemic and help us to put the crisis into perspective.
On Tuesday, stocks finished higher, though they pared gains after Bloomberg report late in the session that the U.S. was considering sanctioning Chinese officials and firms over new national security efforts imposed on Hong Kong.
Stocks ended little changed Friday, as ongoing signs of the economic damage from the coronavirus pandemic compounded with fears of rising U.S.-China tensions. Still, the three major U.S. equity indices posted weekly advances of about 3%, with investors largely factoring in the fallout from the COVID-19 crisis into asset prices.
All three major indices closed in the red after Thursday’s trading session, falling due to the recent update from the U.S. Labor Department on initial unemployment claims and rising tensions in U.S.-China relations. The Final Round panel discusses the latest.
Solita Marcelli, UBS Global Wealth Management Deputy CIO Americas, joins Yahoo Finance's The First Trade to discuss overall markets, jobless claims and what to keep an eye on as economies begin to reopen.
May.21 -- Investors see the coronavirus pandemic as a natural disaster, causing a severe shock that is relatively short lived, followed by a strong recovery, according to David Riley, chief investment strategist at BlueBay Asset Management. "But one thing which upsets that narrative would be a re-escalation of trade tensions between the world's two largest economies," Riley said in an interview on "Bloomberg Markets: European Open."
Yesterday’s decline into the closing bell didn’t materially change the bullish perspective in stocks or upturn the credit markets.
Yahoo Finance's Jared Blikre joins Jen Rogers to break down the day's price action in stocks as well as a long in Electronic Arts (EA), a YF Premium Investment Idea.
Stocks were mixed Tuesday, indicating Wall Street was taking a breather from the regular session’s monster rally, after a trifecta of good news propelled the Dow and S&P 500 Index to their best day in over a month. A report late in the trading day questioning the significance of the data Moderna provided in assessing its Covid-19 vaccine candidate in a trial contributed to a brief slide in the three major indices.
Sean Covey, son of author Dr. Stephen Covey and original author of 'The 7 Habits of Highly Effective People', joins The Final Round to discuss the 30th anniversary of the book and adding modern updates to it.
(Bloomberg) -- It took 33 days for stocks to drop 34%, and three weeks to gain half of it back. Whiplashed investors have been thankful for a dose of calm, but signs are emerging the lull may not last.The clues are evident across options markets, in surging share volume and in widening daily price swings, among other places. Frantic positioning and extreme readings in market internals show that while the S&P 500 has been nestled in a trading range for four weeks, investors remain anything but settled.“Volatility is picking up,” said Matt Forester, chief investment officer of BNY Mellon’s Lockwood Advisors. “More volatility than what we’ve seen over the past couple months is probably in order for the market. There is a real tug of war from what we expect from policy makers and some of the dire fundamentals.”The S&P 500 sank 1.1% Tuesday, turning sharply lower after a report questioned promising results in a virus vaccine study. The increased prospect for a way to battle the pandemic had sparked a 3.2% rally Monday.Below are seven charts that illustrate the flash points in the market.Small But AggressiveTiny investors are historically bullish. Last week, the smallest of options traders (those who trade 10 contracts or fewer at a time) positioned themselves to bet on a rally, buying bullish calls and selling bearish puts at a record pace, according to Sundial Capital Research.“When we look at a group of traders who tend to be wrong at emotional extremes, the warning sign is clear,” said Jason Goepfert, the president of Sundial. “There is no data we follow that is more worrying than this.”Read more: Sundial Says Extreme Options Sentiment Is Awful Omen for StocksWaning HedgingA broader view of options trading shows all types of investors reconsidering protection. The Cboe put-to-call ratio for stocks, which tracks volume in bearish versus bullish bets, fell Monday to the lowest level since Feb. 19 -- the day the S&P 500 last hit a record before falling into the fastest bear market of all-time.Extreme BuyingAt the height of Monday’s stock rally, after positive early results for an experimental vaccine, a moment-by-moment measure of investor buying interest registered its highest reading ever. The number of stocks rising on the New York Stock Exchange exceeded those falling by 2,049 at one point, sending the NYSE Tick Index to a record high.Big Comeback for Small FirmsOver the last few months, a key fixture of the coronavirus stock crash has been the importance of company size. With concerns of a credit crunch and solvency risk running high, investors turned to large firms with strong balance sheets for safety.This year, an equal-weight version of the S&P 500 has fallen twice as much as the regular market-cap weighted benchmark. The small-cap Russell 2000 Index is still down 20%. Those trends reversed sharply on Monday, with the Russell 2000 up 6% and the equal-weight S&P 500 beating the regular gauge by the most since 2009.Paying UpValuations make a lousy market timing tool. Nevertheless, by most measures stocks look expensive. The S&P 500’s forward 12 month price-to-earnings ratio is now above 21, the highest since 2001. Analysts now expect S&P 500 profits to plunge 21% this year, but rebound 26% in 2021 to $160.90 a share, according to data compiled by Bloomberg Intelligence.High Volume & Price Swings ReturnIn the month of March, an average 15.6 billion shares traded across U.S. exchanges a day, the most active month in at least 11 years. Since, volume had been subsiding -- the past two weeks were the least active since late February when the selloff began. But Monday saw a pickup, with 12.8 billion shares changing hands, the most since April 30.The size of daily price swings has also been creeping higher. While still a long way from the days of March, when stocks moved 5% a day in the most volatile month on record, the S&P 500 swung an average of 1.7% over the last five sessions, the most in nearly a month.“We’ll have exciting days like yesterday and some down days when somebody’s treatment trial or vaccine trial fails,” said David Donabedian, chief investment officer of CIBC Private Wealth Management. “It’s impressive, but it’s still a bear market rally we’ve seen since March 23rd.”Giving Up HopeInvestors are throwing in the towel on value stocks, or those that trade cheaply. The latest Bank of America Fund Manager Survey shows a net 23% of respondents think value will lag growth going forward. That’s the most bearish stance on value stocks since late 2007.The timing is notable considering the persistent underperformance of the value style. Last week, the Russell 1000 Value Index had its third-worst week versus growth in the last decade, pushing a relative ratio of value versus growth to a fresh record low.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Stocks kicked off the week on a high note, fueled by a trifecta of positive headlines: Moderna’s success with a potential coronavirus vaccine, the Federal Reserve pledging more support for the recovery, and more states reopening their economies.
In this episode of Influencers, Ford CEO Jim Hackett joins Andy Serwer to analyze the health of the U.S. auto industry and discuss the impact of COVID-19 on the American workforce.
Stocks recovered earlier losses and pushed into positive territory Thursday afternoon. Earlier in the session, the Dow had been off as many as 458 points after the Labor Department’s weekly report on new jobless claims showed another 2.981 million individuals filed for first-time unemployment benefits last week, or more than had been expected. The 30-stock index was up nearly 200 points around 1:30 p.m. ET and was on track to close higher for the first time in four sessions.
George Young, Portfolio Manager at the Villiere Balanced Fund, joined Yahoo Finance's Jen Rogers, Myles Udland, Dan Roberts, and Melody Hahm to discuss the stocks he's watching and his outlook for the market.
Stocks fell Wednesday, with declines in the three major indices accelerating into the last hour of trading, as traders digested commentary from Federal Reserve Chair Jerome Powell.