Font size
This commentary was recently published by money managers, research firms and market newsletter authors and edited by Barron’s.
Make way for Tesla
Notes on US Investment Policy
CFRA
23 December: On Monday December 21
Tesla
(ticker: TSLA)
Investments and management of apartments
(AIV) in the S&P 500. Tesla was added to the S&P 500 Automobile sub-industry index within the S&P 500 Consumer Discretionary. Since Tesla is now the fifth largest company in the
S&P 500
to market value, the sector weights will change – quite a dramatic one. In particular, the Consumer Discretionary sector grew 13.6% from its December 18 representation in the S&P 500 of 11.2% to its 12.8% exposure at the date of Tesla’s entry on December 21. To make way for Tesla, all other industries will have to shrink initially from just 1.2% for energy to a whopping 1.9% for financial services and basic materials.
– Sam Stovall
Green light for bank repurchases
Ivan Feinseth Market View 360
Tigress financial partners
December 22: At the end of last Friday, the Federal Reserve released the results of its second round of stress tests, which allowed the country’s largest banks to resume stock buybacks in the first quarter of 2021, subject to certain restrictions, as long as the fourth quarter results meet the required levels. The sum of ordinary dividends and share repurchases cannot exceed the average net profit per quarter in 2020. The good news is that strong bank results this year, with dreaded credit losses that never materialized, have contributed to an improvement in earnings. profits of banks, along with their currently low valuation levels versus book value. The six largest banks are expected to be able to buy back a total of $ 11 billion in shares in the first quarter of next year.
All the major banks won on the news yesterday, as did many that announced new share buybacks.
JPMorgan Chase
(JPM) announced a $ 30 billion buyback. Morgan Stanley (MS) announced a $ 10 billion share buyback. Both
Citigroup
(C) and
Goldman Sachs
(GS) said they would resume stock buybacks next year. The news and announcements highlight the strength in the financial sector and a significant turnaround in business trends.
“Ivan Feinseth.”
Don’t be afraid of rising bond yields
Paulsen’s perspective
The Leuthold Group
December 22: The relationship between bond yields and the stock market changes drastically depending on whether the 10-year bond yield is above or below 3%. When bonds returned more than 3% (nearly three-quarters of the time since 1900), the stock market did best when interest rates fell (+ 11.7% annualized return) and struggled when interest rates rose (-0.2% return on an annual basis).
However, with returns of less than 3%, their impact is almost the opposite. Shares rose at an average rate of + 4.2% year-on-year as interest rates fell below 3% (just a third of the gains made when bond rates fell above 3%), and amazingly when the interest rates rose less than 3%, the stock market was up + 16.8% average annual clip! In addition, the frequency of monthly stock market gains with rising returns is also shockingly different. The stock market was up 52% of the time as yields rose from levels above 3%. But when interest rates rose from an initial level below 3%, the stock market went up 68% of the time!
—James W. Paulsen
Market mania!
Cross currents
Crosscurrents Publications
21st of December: We can now safely say that the current environment is the greatest stock market mania in history, bigger than even the Roaring Twenties that ended in the Great Depression of 1929-1932 and yes, even bigger than the fantastic tech mania that gripped the nation had. in the March 2000 peak. We can make this claim based on valuation measures such as Robert Shiller’s CAPE (cyclically adjusted earnings earnings ratio), now at 33.77, the second highest in history, and the S&P 500 P / E ratio at 37.38, also the second highest in recorded history. In this case, we ignore the massive spike in P / E that occurred in 2008, as revenues suddenly shrank. Neither the Roaring Twenties nor the fantastic tech mania can even remotely match the lifespan of this period, despite the sudden and remarkable collapse of 27 sessions of 38% that began in February. This was certainly not a typical year!
The last two overly enthusiastic bouts ending in 2000 and 2007 were both followed by the worst bear markets in decades, both dropping 50% from their highs. We are sure there will be a repeat. As our historical and long-term technical studies come out, stocks are on a 51.5% hit from last Friday’s peak.
—Alan M. Newman
Non-US stocks look attractive
The Market Strategy Radar screen
Oppenheimer Asset Management
21st of December: The fall in the US dollar this year has improved returns for US investors in most foreign stocks and indices tied to foreign stock markets. In many markets, returns in local currency are significantly lower than in dollars.
The strength of the dollar in recent years was due to several factors, including the relative strength of the US economy, the dollar as a safe haven and the favorable spread of US Treasury bonds compared to international interest rates.
In our view, the recent weakening of the dollar offers US investors the opportunity to buy foreign stocks before we expect it to be both a domestic and a global economic recovery as the world moves (using effective vaccines) towards a post-Covid 19 environment.
While we cannot predict with any certainty that the dollar will remain at its recent levels or even fall below its current levels, history suggests that as the U.S. moves towards an economic recovery in a post-crisis environment, U.S. consumers cravings for imported goods and leisure and business travel to foreign destinations are likely to boost foreign currencies, allowing overseas – particularly the export-driven and travel destinations of U.S. citizens – to move at a faster pace towards economic recovery and expansion, which in turn could stimulate foreign stock prices.
—John Stoltzfus
Bitcoin is rising towards USD 50,000
Stock strategy
BTIG
the 20th of December: In the three years since the bubble burst in late 2017 / early 2018, cryptocurrency has matured, with digital assets accepted by consumers and businesses, and increased interest from institutional investors and governments. So are the financial markets in cryptocurrencies maturing – open interest rates for Bitcoin futures will be six times higher in 2020 than at the beginning of 2018 as a two-way market develops.
Towards 2021, the main fundamental drivers – asset diversification, rising interest rates and deficits, incoming administration more sympathetic to the asset class and newer investor comfort with technological innovation, and greater tolerance for volatility, both in stocks and cryptocurrencies – set the stage for Bitcoin to hit $ 50,000 next year.
—Julian Emanuel, Michael Chu
To be eligible for this section, material with the author’s name and address must be sent to [email protected].