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The View from 5th Avenue – June 18th, 2021

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19043 A daily trading perspective… Casey Badach | Jared Lechner | Andrew Chader | Ryan Maguire US dealing direct: +1 212 803 7300     MARKET SNAPSHOT   S&P: ▼ -1.31% Nasdaq: ▼ -0.92% UST 10-yr: 1.438% VIX:   20.7 EUR/USD: 1.1863 USD/JPY: 110.21 Gold: ▼ -0.3% WTI Crude: ▲ +0.8% Copper: ▼ -0.5% S&P Leaders: Autos +0.2%, Consumer […]

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The View at Two – 28th April, 2021

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Straight Face… Of course the impending FOMC decision had plenty to do with the lack of real action this morning (MVOLUSE -42%). No surprises were expected, but with such an intense focus on “parsing” Powell’s words for ANY change in tapering tone, yields pushed higher just in case. Turns out, there was no need. Drumroll please…CRICKETS. Fed headlines revealed ABSOLUTELY NOTHING new. Powell’s words did mention a “strengthening economy” which was sliggghtly more aggressive in tone than his last “turned up.” Semantics really, but maybe a set up for September? Either way, treasuries were hit and stocks basically remained as they were – flat. In the meantime, plenty of action in the earnings space, though a distinct lack of enthusiasm (see more below). Looking at the S&P sectors, ENERGY is outperforming as the “forgotten rotation” plays catch up. The XLE is up 3.2% led by Hess (+7.4%) whose adjusted EPS beat estimates and Devon (+9%) after a broker upgrade, but also because oil has lagged the commodities move for too long. Speaking of lagging performers, TECH is at the bottom of the sector barrel after the first round of megacap results, despite Alphabet’s (+4.6%) surge in ad sales. It is Microsoft’s (-3%) numbers that just weren’t enough to keep profit takers from stepping in. Elsewhere, Boeing (-2.7%) dropped after burning more cash on the 787 delivery halt and Texas Instruments’ (-4%) sales forecast was less than analysts hoped. With stock valuations about 25% above their 5-year average, good is not good enough. From here, things get a bit more interesting potentially. Another big options bet placed over the last week sees the market’s view of rate hikes shifts drastically before Sept (aka something to come from the Jackson Hole symposium in August). With the US recovery on such a blistering pace, the Fed can’t keep calling for “substantial further progress” with a straight face for too much longer.

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The View at Two – 27th April, 2021

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All Downhill from Here… Take a deep breath: we’re only 30% of the way through earnings but it doesn’t get any busier than this in terms of the combined market cap reporting today (chart below). That breath isn’t because things feel “hectic” at the moment (a lot of that market cap weight comes after the bell from MSFT / GOOGL), rather it’s to ease the frustration arising from the fact that at least so far, earnings season isn’t delivering the answers many had hoped for. Yes it’s hard to complain when we hit all-time highs as frequently as we are, and it’s not as if earnings have been a big disappointment (3/4 S&P co’s have beat EPS ests thus far), but they still haven’t produced a definitive sign as to what “comes next.” This morning’s slate of cyclical / reopening barometers is a good example: GE, MMM, and SHW delivered quarterly beats, but not without warts and none coming with upgraded FY guidance. Net result today: all three in the red, the results “good but not good enough” to justify the next leg higher with GE +26%, MMM +14%, SHW +10% (ATH though) already ytd. For now, the Reflation trade remains stuck…   

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The View at Two – 22nd April, 2021

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Lock In Those Gains… So far this week we endured the shock and horror of 2 consecutive red days, then yesterday the S&P rallied back near ATHs to answer the call of the sentiment gut check. Yet even with a barrage of earnings to digest and jobless claims data, today’s action felt very indecisive, with indices’ drifty behavior offering little clue as to what lies ahead for the Reflation trade. The action has picked up however, as reports that President Biden is mulling a top-tier capital gains tax of 43.4% seemingly caught the market off guard. Indices immediately tumbled into the red before trying to regain their footing, but are currently pushing towards new lows once again. It’s hard to pick out many spaces getting especially hard but Semis, FANG, Tech are noticeable decliners (aka those with the most capital gains to be taken). The lone S&P sectors clinging to green are Commercial Services thanks to a beat and raise from Equifax (EFX +15%), and the concentrated Telcos as AT&T (T +3.8%) dialed up the subscriber gains that Verizon’s slippage had hinted at. The rest of the board is red, but notable earnings underperformers include Dow Inc (DOW -5.6%) dragging on Materials and Biogen (BIIB -3.3%) weighing on Pharma. Yields have remained fairly steady, and the Russell has now joined the major indices in the red (IWM -0.5%). Reading through analysis of the tax plan, it seems the number isn’t much different from what’s already been whispered, and of course any ideas have a long road to go before they become law, but clearly this is a case of an indecisive market getting a hard shove to the downside. The market has shown an incredible ability to shrug off anything / everything negative, but this could also mark the arrival of a real headwind that the market has been dreading ever since it began riding the post-election Blue Wave higher…

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The View at Two – 21st April, 2021

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Alka Seltzer to the Rescue….Though the major averages quickly moved from red to green this morning, two days of losses earlier this week seemed to have left a mark as the move packed a punch for the “stonks only go up crowd” (BUZZ -2.2% yesterday). That was expected to continue today after NFLX’s (-6.5%) big miss last night and what it meant for the stay-at-home play. Indeed the reopening and reflation trade sectors are outperforming. That said, BUZZ is back +1.4% and markets are back to doing what they do best – going up once again as if nothing ever happened. Healthcare, Materials and Transport are leading the way for the S&P, while The Dow is being helped by Visa (+1.7%) and Home Depot (+1.1%) specifically. The Nasdaq has Microsoft (+0.5%) to assist, though NYFANG+ is -0.5% thanks to the aforementioned Netflix soil. And while small and microcaps underperformed yesterday, they are outperforming again today (RTY +1.2% and RMICRO +2% vs. MS Size -1.1%), which only goes to prove that this market wants badly to keep going up (though if Vix is any indication at 17.36, no one wants to do much of anything currently). Though there are some concerns with tax-related selling in front of next month’s IRS filing deadline, earnings will remain the name of the game. The risk is, when you are priced to perfection (and equity valuations are close to record highs), you better deliver on earnings and guidance.

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The View at Two – 20th April, 2021

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Anniversaries are the Worst… On this day last year we learned that $0 is not, in fact, the ultimate support level, as WTI crude contracts added to the madness of Spring 2020 by dipping into negative price territory. Of course things are a lot different now, both for the price/outlook of crude and for markets overall, but perhaps it’s the scarring memory that’s knocked the commodity more than -2% off its early morning gains before settling down. Ok, maybe it’s more likely that oil is simply one of the easier targets getting caught up in the risk-off move today, but the result is the same for stocks: that is, mostly red as a mixed bag of earnings (and the anticipation of NFLX after the bell) has prompted investors to take some chips off the table. Recent reflation winners are bearing the brunt of the damage (Banks, Energy, Hotel/Leisure all underperforming) but Tech/Semis aren’t faring much better; Defensives Utilities, Real Estate, and Household Goods are left as the relative outperformers as the 10-year yield sinks back towards 1.55%. Some other notables:

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The View at Two – 16th April, 2021

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Value Vibes…The global recovery has accelerated this week with the MSCI All Country World Index pushing to fresh record highs today. Credit goes to a multitude of positive economic figures out of the US this week, as well as data from Beijing showing China’s economy soared in Q1. Not to mention, an equally optimistic Europe, which closed today with 7 weeks of advances. In the US, stimulus money, Covid-19 vaccinations and business re-openings have spurred a spring surge in consumer spending, a sharp pullback in layoffs and a bounceback in factory output. Further, a solid start to the corporate earnings season is helping support the recovery. That said, Morgan Stanley (-3.4%) and Bank of New York Mellon (-4.2%) are actually not contributing to the Bank sector’s overall move higher today, however. The former saw a record quarter that was overshadowed by a $1bn Archegos hit (#notalone). And the latter reported Q1 profit and revenues down from a year ago. That said,  Goldman (+1%), BAML (+0.8%) and JPM (+0.6%), as well as PNC Financial (+1.7%) after earnings today, are carrying the team just fine. Elsewhere, Materials and Consumer Discretionary are also outperforming, while Energy and Tech lag. What happens next will depend mostly on continued recovery signals, vaccine progress, yield moves and Fed speak. Though it will be interesting to watch the red flags that continued to be raised in regards to the market’s ascent. David Einhorn said yesterday that markets are fractured and could be broken completely. “Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious.”

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The View at Two – 15th April, 2021

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Goldilocks Triumphs… Realistically speaking bulls almost couldn’t draw up the action today any better. Sure, Bank earnings aren’t getting as warm a reception as hoped, but they’re also a necessary (and lightly-weighted) casualty as Treasury yields tumble even as monster economic datapoints signal the US recovery is in full force. The potential for the “just right” balance of high growth and low rates has Growth/Tech cheering and Value trailing as the tide pulls indices to fresh ATHs. A look at some notable sector/stock moves on a busy day:

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The View at Two – 13th April, 2021

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Stolen Spotlight… Today was supposed to be all about March CPI, especially given the recent pause in the Reflation trade and all the debate surrounding the Fed’s favorite word “transitory.” But as has happened countless times over the last year, Covid-related interference disrupted our regularly scheduled programming, as JNJ (-1.9%) announced it would be halting injections of its vaccine across the US as 6 cases of a rare blood clotting disorder have emerged from the 7 million jabs already given. The good news is US vaccine supply targets should still be met (chart below shows how much Pfizer / Moderna are currently shouldering the load anyway). Still, the resulting jitters along with the unsurprising CPI reading have led to a clear outperformance of Growth over Value today (MTUM +1.6% vs VLUE -1.0%) with the Nasdaq 100 earlier gapping to a new intraday ATH as investors reunited with some 2020 favorites. Tech and stay-at-homes names are higher (ZM +6.3%, PTON +1.6%) along with the defensive sectors that reopening rotation had left behind (Utilities, Healthcare, Real Estate). YTD darlings Banks and Cap Goods are lower as Treasury yields extend their slide following solid demand at the 30-year auction. Meanwhile, Transports are getting an extra bruising from American Air (AAL -2.9%) following United (UAL -0.5%) in delivering disappointing preliminary Q1 revs.

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The View at Two – 9th April, 2021

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Quiet, Please, Quiet… It’s almost as if investors have taken on the etiquette of golf patrons at the Masters, staying very quiet so as to not upset the ‘action.’ (Sure we’ll round up the week by carrying on with the golf analogy). The die was cast a bit early on after China’s March PPI registered at hits highest level since 2018. The US followed suit, its own PPI measures exceeded expectations, giving a bit of weakness to Treasuries but while such evidence of inflationary pressures might’ve sparked an intense selloff in the face of rising yields, that hasn’t been the case today. Sure the 10-year yield has already come along way in a short period of time, the case could be made that given where equities reside, yields could and should be higher yet. That said, yields were a bit perky today and banks/financials doing better as a result ahead of earnings next week. Amazon is helping retail after the vote in Alabama went against forming a union and LEVI’s giving apparel a boost on a ‘booming’ sales forecast. Seems the athleisure being folded and put back in the closet, the time for ‘real’ clothes is back. Much has been made of complacency creeping back into the market but option buying would intimate otherwise. This is a “wall of worry” in full force…