US stocks look like modest gains on Thursday after Wednesday’s technology sell-off on Wall Street.
Overnight, Chinese technology stocks were hammered when the US securities regulator said it has enacted a new law that could lead to the deletion of US markets.
Despite recent pressure on stocks, in our call of the day, Barclays said it was “all systems go,” with the risk rally continuing and global growth reaching its fastest pace in four decades.
The bank said in its most recent global outlook that fears of an overheating US economy would not derail the risk rally, prompting investors to remain overweight in equities.
“Yes, the stock multiples have been growing over the past year, but much of the rally was due to the absolutely stunning earnings recovery,” said Ajay Rajadhyaksha, head of macro research.
He noted that S&P 500 SPX,
Revenues were not expected to reach 2019 levels until 2021, but revenues in the fourth quarter of 2020 were higher than a year earlier. “A full V-shaped recovery within a year, despite the backdrop of ongoing pandemic-related restrictions,” he added.
The earnings outlook, a consensus of more than 21% growth between 2020 and 2021, was another reason to be optimistic, Rajadhyaksha said.
Stock market valuations may seem elevated from history, but the “magnitude of positive news expected in the coming quarters means stocks still don’t look expensive to us,” added Barclays.
The bank maintained an S&P 500 target of 4,000 by the end of 2021 and within US stocks was overweight industrials, healthcare, hardware and semiconductors. The strategists added that valuations looked more attractive in the UK and the eurozone, despite the slow rollout of COVID-19 vaccinations.
In Europe, the bank is overweight in value stocks such as financials and commodities-related stocks, but more selective in cyclical sectors and underweight in defensive sectors.
Even the bond sell-off in the first quarter, which threatened to halt the rally, only reflected a better growth picture, but Barclays said it remained a risk.
Admittedly, the fly in the ointment is bond sell-off and fears that inflation will force the Fed into an aggressive walking cycle that crushes the risk rally. We think these fears are exaggerated, ”said the bank.
“The bond market did its best to derail the risk rally in Q1. And that failed. “
The graph
The Russell 2000 RUT,
closed below the 50-day moving average (DMA) but more than 20% above the 200-day moving average on Tuesday, for the first time in the index’s 42-year history, Bespoke Investment Group said. The index’s worst day in nearly a month ended its longest string of closings above the 50-day moving average in 10 years.
Tailor-made investment group
Four out of five times the index closed below its 50 DMA and more than 15% above its 200 DMA occurred “in the early stages of multi-year bull markets,” Bespoke added.
The markets
US Equity Futures ES00,
YM00,
NQ00,
be slightly higher than the open, up 0.2% on Nasdaq futures after the tech-heavy index COMP,
Wednesday fell 2%. European stocks fell slightly as concerns about a third wave of coronavirus in the continent remained in focus. Oil prices fell early on Thursday, after shooting higher on Wednesday amid the ongoing blockage of the Suez Canal.
The buzz
AstraZeneca AZN,
announced updated Phase 3 trial data of its vaccine on Wednesday evening, saying it is 76% effective in preventing symptomatic COVID-19. The British-Swedish drug company originally said on Monday that its vaccine has an efficacy rate of 79%.
H&M HM.B,
and other clothing and shoe brands, including Nike NKE,
and Adidas ADS,
are facing a backlash in China over expressing concerns about forced labor in the Xinjiang region.
GameStop GME,
On Wednesday, stocks had their worst day in seven weeks, after fourth-quarter earnings and sales missed expectations. The video game dealer’s stock was also revised downward by Wedbush analyst Michael Pachter.
The Suez Canal, one of the world’s most important trade routes, remained blocked by a large cargo ship as efforts to free the ship came in a third day.
The European Union has proposed tighter controls on exports of COVID-19 vaccines to the UK and other countries with better vaccination coverage. The proposals will be discussed Thursday, but tensions between the UK and the EU could be eased with a reported deal to work together.
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