Global equities index sluggish with inflation in focus, oil climbs
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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U.S. Treasury yields rose after an auction while the dollar fell slightly against a basket of currencies including the euro although it gained ground slightly against the yen.
A global equities index fell slightly on Monday after hitting record highs last week, as investors took a breather ahead of the next batch of U.S. economic data, while oil prices rallied on concerns about shipping disruptions.
US Treasury yields rose after an auction while the dollar fell slightly against a basket of currencies including the euro although it gained ground slightly against the yen.
On Monday sales of new U.S. single-family homes rose less than expected in January amid a sharp decline in the South region, but demand for new construction remained underpinned by a persistent shortage of previously owned homes. In addition, Dallas Federal Reserve manufacturing data was positive.
”The resiliency of the economy is shining through here. What that means is maybe that rates stay a little higher for longer,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual Wealth Management.
Investors are waiting for data on U.S. durable goods orders due out on Tuesday and the U.S. Federal Reserve’s favored measure of inflation – the core personal consumption expenditures (PCE) price index – is due on Thursday.
”The PCE price inflation index (is) expected to show a little bit more inflation, in line with the numbers that we saw with the CPI and PPI, so the markets are bracing for that,” said Peter Cardillo, chief market economist at Spartan Capital Securities, referring to readings of the consumer price index and the producer price index.
The data will provide the next test for investors, who have had to rethink their bets on central bank rate cuts in recent weeks, surprised by strong U.S. job growth and inflation.
Investors were also watching the risk that U.S. government agencies could be shut down if Congress cannot agree on a borrowing extension by Friday.
On Monday the Dow Jones Industrial Average fell 62.30 points, or 0.16%, to 39,069.23 while the S&P 500 dropped 19.27 points, or 0.38%, to 5,069.53 and the Nasdaq Composite lost 20.57 points, or 0.13%, to finish at 15,976.25.
The U.S. stock market had risen to record highs last week with help from a bullish financial update from AI pioneer Nvidia.
MSCI’s gauge of stocks across the globe fell 1.97 points, or 0.26%, to 759.21. The STOXX 600 index had closed down 0.37%.
DEBT AUCTION
Commodity-linked stocks put pressure on European indexes on Monday after the STOXX 600 hit record highs last week as comments from ECB policymakers had prompted optimism over rate cuts on Friday.
Japan’s blue-chip Nikkei scaled record highs for the second consecutive trading session, supported by upbeat performances in pharmaceuticals, although profit-taking limited momentum. The Nikkei closed up 135.03 points, or 0.35%, to 39,233.71.
But MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.43% lower 0.43%, at 526.50.
U.S. Treasury yields rose on Monday as investors sought a higher premium for taking on a record $127 billion in government coupon debt at two auctions that suggested demand was a bit weak ahead of key inflation data later in the week.
The yield on benchmark U.S. 10-year notes rose 1.7 basis points from 4.26% late on Friday while the 30-year bond yield rose 1.4 basis points to 4.3942% from 4.38%. The 2-year note yield, which typically moves in step with interest rate expectations, rose 3.2 basis points to 4.7225%, from 4.69% late on Friday.
In currencies, the dollar index edged down ahead of U.S. durable goods orders and the inflation reading.
The dollar index fell 0.19% to 103.77, with the euro up 0.29% at 1.085.
Against the Japanese yen, the dollar strengthened 0.12% to 150.68 ahead of Japanese inflation data due on Tuesday, forecast to slow to 1.8%. That could add to the case against policy-tightening by the Bank of Japan, the holdout dove among developed market central banks.
In commodities, oil prices gained on Monday as European diesel demand, constrained by Russian sanctions and shipping disruptions, pulled prices higher in a market jittery with U.S. refinery output limited by planned overhauls, analysts said.
U.S. crude settled up 1.43% at $77.58 a barrel and Brent finished at $82.53 per barrel, up 1.11%.
Spot gold lost 0.2% to $2,031.55 an ounce. U.S. gold futures fell 0.68% to $2,024.80 an ounce. Copper lost 1.38% to $8,449.00 a tonne.
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US stocks eke out gain as Nvidia rally slows, yields slip
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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On Wall Street, the Dow Jones Industrial Average rose 0.16% and the S&P 500 eked out a 0.03% gain as both posted new closing highs. The Nasdaq Composite dropped 0.28% but all three indices rose for the week, with the Dow up 1.3%, S&P 500 1.7% and the Nasdaq 1.4%.
A gauge of global equity markets lost steam on February 23 but still set a new high amid optimism over Nvidia’s potent results, while Treasury yields fell as the market bet that the Federal Reserve will not cut interest rates until at least June.
Wall Street mostly extended gains as Nvidia briefly shot above $2 trillion in market value for the first time, driven by the AI frenzy that has gripped investors since the chipmaker’s blockbuster quarterly earnings report two days earlier.
Nvidia’s shares jumped 4.9% to a high of $823.94, before paring gains to close up 0.4%. Investors worry valuations may be stretched after a rally that has lifted the S&P 500 more than 7% so far this year, but are optimistic about the profits companies may gain from artificial intelligence.
“We don’t see that much more upside from current levels,” said Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management in New York.
“But we have to acknowledge that over the last year we have been consistently positively surprised by the enormous profit growth for some of the AI-leveraged companies,” Marcelli told Reuters, adding that better-than-expected inflation could prompt the Fed to cut more than expected.
Data that showed U.S. services sector growth picked up in January as new orders increased and employment rebounded to help equity markets advance, though a measure of input prices rising to an 11-month high added fodder to fears of sticky inflation.
MSCI’s all-country world index, a gauge of stock performance worldwide, closed up 0.1% after earlier hitting to a new intraday high.
The combination of strong growth and inflation not yet slowing to the Fed’s 2% target has led Fed officials to push back on rate cut expectations.
The strength of the labor market has unequivocally emboldened the Fed to be more relaxed about keeping rates high for longer,” said Dec Mullarkey, a managing director at SLC Management in Boston.
“So, the Fed is signaling it will be patient and use that runway to let more data roll in and cement the evidence that the economy is well balanced before they adjust rates,” Mullarkey said.
Fed funds futures show a 52.6% chance of a cut in June, with a 35.5% probability of no cut, a sharp reversal from bets on Feb. 1 of a 62% chance of a cut in March, according to CME Group’s FedWatch Tool.
The pan-European STOXX 600 index rose 0.43% to post its fifth straight week of gains and a new closing high. The French CAC40 and German DAX indices also closed at record highs.
On Wall Street, the Dow Jones Industrial Average rose 0.16% and the S&P 500 eked out a 0.03% gain as both posted new closing highs. The Nasdaq Composite dropped 0.28% but all three indices rose for the week, with the Dow up 1.3%, S&P 500 1.7% and the Nasdaq 1.4%.
The dollar was poised to record a weekly fall for the first time in 2024 as investors consolidated positions and sought further guidance on global economies. The dollar index rose 0.029%, with the euro down 0.03% to $1.082. On the data front in Europe, German business morale fell unexpectedly in Europe’s biggest economy in December, an Ifo institute survey showed.
German bond yields were on track for their third straight weekly increase as the economic data and central bank officials continued to chip away at investors’ hopes for rapid rate cuts by the European Central Bank this year.
Japan’s stock market was closed for a public holiday on Friday, but Nikkei futures rose nearly 1%, suggesting Japanese stocks will extend their record run next week.
Chinese shares wobbled between gains and losses. The Shanghai Composite index rose above the psychologically key 3,000-point mark. It is up 4.6% for the week and has bounced about 10% from five-year lows set more than two weeks ago.
Hong Kong’s Hang Seng index slipped 0.1%.
Data showed on Friday that China’s new home prices fell for the seventh month in January, leaving sentiment fragile as policymakers’ efforts to restore confidence in the debt-ridden sector struggled for traction.
A Reuters poll showed that the recent rally in global stocks had a little further to go but they were divided on whether there would be a correction in the next three months.
The two-year Treasury yield, which reflects interest rate expectations, fell 2.2 basis points to 4.692%, while the yield on the benchmark 10-year note was down 7.5 basis points at 4.252%.
The 10-year hit a three-month high of 4.3540% overnight.
U.S. crude futures settled down $2.12 to $76.49 a barrel and Brent fell $2.05 to settle at $81.62.
Gold prices were set for a weekly gain, buoyed by a softer dollar. U.S. gold futures settled 0.9% higher at $2,049.40 an ounce.
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US stock futures fall ahead of Fed Chair Powell’s congressional testimony
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Stock futures tied to the Dow Jones Industrial Average slipped 66 points, or 0.19 percent, while S&P 500 fell 10.50 points, or 24 percent, and Nasdaq futures tumbled by 40 points, or 0.26 percent
US stock futures were trading slightly lower on Wednesday amid signs of weakening global demand after China slashed its lending benchmarks to jump start sluggish demand. Investors are also focusing on Federal Reserve Chairman Jerome Powell’s congressional testimony later in the day, which could possibly be a potential market mover. Powell’s semi-annual speech to Congress will likely focus on the economy and possibly interest rate direction.
Stock futures tied to the Dow Jones Industrial Average slipped 66 points, or 0.19 percent, while S&P 500 fell 10.50 points, or 24 percent, and Nasdaq futures tumbled by 40 points, or 0.26 percent.
On Tuesday, all the three major US equity indexes ended the trading session in the red territory but off session lows, with oil super-majors Exxon Mobil Corp weighing on the S&P 500 and Dow Jones.
The Dow Jones Industrial Average tumbled 245.25 points, or 0.72 percent, to 34,053.87, the S&P 500 fell 20.88 points, or 0.47 percent, to 4,388.71 and the Nasdaq Composite plunged 22.28 points, or 0.16 percent, to 13,667.29.
The broad sell-off comes on the heels of the Nasdaq’s longest weekly winning streak since March 2019, and the S&P 500’s longest since November 2021. Including yesterday’s loss, the benchmark S&P 500 has advanced 14.76 percent so far in 2023.
Investors also started the holiday-shortened week by taking profits in the wake of a sustained rally amid signs of weakening demand across the world.
Speaking to Reuters, Dakota Wealth’s senior portfolio manager Robert Pavlik said that the market is trying to test whether these recent gains are going to stick. “The market runs in cycles and the most recent rally has surprised a lot of people,” Pavlik said.
“The Fed hasn’t given these hikes much time to have a real impact on the economy,” Pavlik added.
“I don’t know what the Fed sees that the rest of us don’t see,” Pavlik said. “Inflation is not running as rampant as it was. We’ve seen it at the grocery stores and we’ve seen it at the pump.”
A series of Fed officials apart from Powell are expected to make remarks today. Traders will be looking to their comments for more clarity about their expectations for monetary policy and the US economy.
That comes after policymakers decided to pause their rate-hiking campaign, which had been ongoing since March last year, at their meeting last week — but insisting on further tightening ahead. Two more increases of 25 basis points each are expected this year, as per the central bankers.
No major data is expected today. Elsewhere, UK inflation figures defied expectations of a slowdown and held at 8.7 percent in May, while ‘core’ inflation rose above 7 percent for the first time since 1992. The Bank of England’s next interest rate decision is expected tomorrow (June 22).
With agency inputs
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Wall Street’s mysterious 2,200% IPOs come from tiny New Jersey broker
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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From its base in Red Bank, New Jersey, Network 1 Financial Securities Inc. has underwritten six US microcap IPOs this year that surged by an average 2,190 percent on their first day of trading. That’s more than 250 times the performance of offerings underwritten by Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, according to Bloomberg-compiled data.
Fifty miles south of midtown Manhattan, in a red-brick building bounded by a railway track, sits a little-known brokerage behind some of the world’s wildest initial public offerings.
From its base in Red Bank, New Jersey, Network 1 Financial Securities Inc. has underwritten six US microcap IPOs this year that surged by an average 2,190 percent on their first day of trading. That’s more than 250 times the performance of offerings underwritten by Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, according to Bloomberg-compiled data.
Source: Bloomberg
Unfortunately for investors, the downside for Network 1’s listings has proven equally extreme. While still in positive territory, the brokerage’s average offering this year plunged 75 percent from its peak within a month.
Big moves in tiny stocks are nothing new on Wall Street, but the deals underwritten by Network 1 — which was founded in 1983 and markets itself as a full-service brokerage for sophisticated investors — stand out for consistently outsized swings. They’re part of a remarkable stretch of gut-wrenching volatility in New York IPOs, mostly by companies from China, that have baffled longtime market observers and drawn the attention of US securities regulators.
In one of the most striking examples underwritten by Network 1, China-based garment maker Addentax Group Corp. soared 13,000 percent to $656.54 on its August 31 trading debut to briefly become bigger than about a third of S&P 500 Index members. That’s despite having less than $13 million in revenue for the year ended March. The following day it fell to $30.
The trend is eerily familiar to market participants in Hong Kong, which was a hotbed for mysterious moves in tiny stocks before a regulatory crackdown brought new offerings to a virtual halt. As small Chinese companies that might otherwise have listed in Hong Kong turn to the US as an alternative, Network 1 has emerged as one of the most active players in this growing corner of the market.
“Investors should definitely err on the side of caution given how a number of these stocks have quickly pulled back 98-99 percent from their peaks,” said Ken Shih, the Hong Kong-based head of wealth management, Greater China at Saxo Capital Markets HK Ltd, speaking about the wild microcap IPO moves in general. “What investors should be least comfortable with is the lack of transparency in these stocks to make sense of their unusual meteoric rise in pricing.”
Network 1 did not respond to multiple emails and phone calls asking for comment. When Bloomberg News reporters visited its New Jersey office nobody was available to talk. The company has not been accused of any wrongdoing in regards to the IPOs.
In a recent video on his LinkedIn page, Chairman Damon D. Testaverde said its clients are “high-net worth, sophisticated investors here in the United States and in other countries.”
Regulatory Censures
Network 1 has a history of run-ins with regulators. It has been censured for breaches ranging from a failure to develop written anti-money laundering programs to a lack of policies to detect suspicious transactions and insider trading, according to Financial Industry Regulatory Authority’s records.
In 2007, it agreed to pay a $100,000 fine for soliciting a customer, who was a controlling shareholder of a company, to sell shares in amounts that exceeded regulatory caps, which Network 1 then bought and resold. Testaverde was suspended for about four months following the decision, according to the Finra report. Testaverde didn’t reply to messages sent via Linkedin or to his company email address.
Another disclosure dated 2020 stated “the firm failed to identify that a customer, a self-identified corporate insider of a microcap issuer, was actively trading the stock of his own company.” The firm was fined $60,000 and required to review its anti-money laundering program.
Its marketing materials say it has conducted private placements for the likes of Grab Holdings Ltd. and Space Exploration Technologies Corp. A spokesperson for Grab said it had not engaged the company for any transaction, though it was unaware if other parties may have engaged them to participate in investment rounds. Spacex didn’t reply to emails or phone calls to its public relations team seeking comment.
Of Network 1’s 49 deals for stocks that are still trading since 1995, 17 are trading 80 percent or more below their offer price, according to Bloomberg-compiled data. Seven are in positive territory.
China-US Connection
In recent years, the company has built up a specialist Chinese investment banking practice with a dedicated Mandarin-speaking team. At least 55 percent of the IPOs underwritten by Network 1 since July 2015 were of firms domiciled in either China or Hong Kong, or that had a majority of their operations in those countries, according to an analysis of transactions listed on Network 1’s website.
One banker at a large Chinese brokerage said Network 1 is well-known among China focused-funds for its focus on microcaps and is often present at industry events. A US-based banker for a separate big Chinese broker said Network 1 focused on smaller Chinese and Hong Kong companies that don’t meet listing requirements for their home markets. Both asked not to be identified talking about client matters.
This year four out of Network 1’s six listings — the others were a SPAC and a Malaysian payment provider — were either domiciled in Hong Kong or China or have their main revenue streams from China. These include school operator Golden Sun Education Group Ltd., lockset manufacturer Intelligent Living Application Group Inc. and financier Magic Empire Global Ltd.
All of these offerings had a low float and sometimes a large stake held by insiders. For instance, Magic Empire’s chairman and chief executive officer hold a combined 63 percent of its shares. None of the companies replied to emailed requests for comment.
Among Network 1’s apparent indirect owners is Shawn Huang Shanchun, the chief executive of a blockchain-based e-commerce company Future Fintech Group Inc. from China who identified himself as the executive vice-chairman of the US broker in a Chinese-language book he wrote. That position is not listed on Network 1’s website or in regulatory filings. According to the Finra filing, Huang holds undetermined stakes through the underwriter’s parent company.
As well as managing the Nasdaq-listed Future Fintech, Huang also owns a majority stake in Wealth Index (Beijing) International Investment Consulting Co., according to both Future Fintech’s announcement and the Chinese corporate database Tianyancha. The author of four books on capital markets, Huang is a graduate of news collection and editing, Future Fintech said at the time of his appointment.
A Xi’an, China-based public relations officer for Future Fintech declined to comment on its CEO’s behalf. There was no reply to a subsequent email to the company’s UK office.
‘Scary Stocks’
While Network 1 this year has brought more Chinese microcaps to the US market than any other broker, it’s not the only operator in this market segment.
Even though bigger Chinese deals in the US have evaporated as the two countries negotiate an agreement allowing American inspectors to examine audits of Chinese businesses, the US is still an attractive option for small companies. Unlike Hong Kong where approvals are required to go public, the US operates under a disclosure-based system, where there’s no permission needed.
Hebe Chen, Melbourne-based market analyst at IG Markets Ltd, says she expects more such deals in the coming months. “Before the door fully closes, investors and institutions, especially those with a high-risk appetite, are trying to squeeze into the market as opportunities may evaporate anytime,” she said.
Some of these other deals run by other brokers have also seen eye-popping increases. For example, Hong Kong-based financial services firm AMTD Digital Inc., whose IPO was underwritten by a related entity, was bigger than Goldman Sachs by market value at close on August 2.
Source: Bloomberg
While the string of first-day pops illustrate the reach of this year’s unusual price action, it’s sometimes just the start of the wild price swings.
AMTD Digital, for example, is continuing to experience sessions with extreme price spikes in the weeks after its debut. On Wednesday, shares surged as much as 204 percent.
Such huge price swings could be related to low liquidity, Justin Tang, head of Asian research at United First Partners in Singapore, especially when companies have made sure to leave something on the table for subscribers to IPOs.
“Big moves happen when other investors want in on the move and yet cannot get enough supply,” Tang said. “The same supply-demand imbalance shows up when investors want to cash out, yet there are insufficient buyers at a certain price.”
The US Securities and Exchange Commission in August said it is monitoring the unusual moves in microcap IPOs without naming any firms. The SEC declined to comment on whether it is assessing any of the Network 1 deals.
“These are scary stocks,” Erik Gordon, professor at the University of Michigan’s Ross School of Business in Ann Arbor, Michigan, told Bloomberg last week, speaking about small IPO stocks in general. “Professionals won’t get near them they’re so scary. It’s easy to get those big price spikes, but they’re not sustainable.”
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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter
Nasdaq VP bullish on Indian companies listing in US, to meet Nirmala Sitharaman
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Nasdaq Vice-President Edward Knight told CNBC-TV18 that he has already had productive discussions with the Finance Ministry and he was cautiously optimistic about listing prospects.
Nasdaq Vice-President Edward Knight on Tuesday said he will meet Finance Minister Nirmala Sitharaman to discuss the listing of Indian companies in the United States.
“India should allow initial listing of companies on US stock exchanges, like China, Singapore, Israel, Canada and Nordic States,” Knight, who is also the interim chairman of the USIBC board of directors, told CNBC-TV18 on September 6.
He said he has already had productive discussions with the Finance Ministry and he was cautiously optimistic about the listing prospects.
Talking about the foreign portfolio investors (FPIs) pulling out of Indian equity markets over the last few months, Knight said, “Investors have taken a step back due to uncertainties, but technology is synonymous with economic growth.”
On US markets, Knight said he was optimistic about the tech sector and that 250 companies in the Nasdaq pipeline have been wanting to go public. He added that he wanted to explore cooperation with IFSC in GIFT City. “Nasdaq can be a technology partner, provide integrity and anti-financial crime tools to IFSC in GIFT City,” Knight said.
He said India has 260 unicorns ready to go public and that he would like to set up a startup-to-unicorn pipeline. “We would like to work with the Indian government to facilitate access for these unicorns to global capital markets,” he said.
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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter
Who is Michael Burry and why did he sell all but one stock?
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Michael Burry, the investor of ‘The Big Short’ fame slashed his portfolio to just one stock holding from 11.
Michael Burry, the famed investor of ‘The Big Short’, sold all his holdings from his US stock portfolio barring a single holding in the second quarter, a Securities and Exchange Commission filing showed on Monday.
Michael Burry’s Scion Asset Management disclosed only about 500,000 shares of Geo Group, worth $3.3 million in the filing. Earlier, at the end of March, Scion’s portfolio comprised 11 stocks worth $165 million excluding the bearish put options it held against 206,000 Apple shares.
Which are the stocks that were sold?
Scion Asset Management sold off its long positions on 11 US equities in the second quarter, including Google’s parent company Alphabet, Facebook’s parent company Meta Platforms, Bristol-Myers Squibb, Booking Holdings, Cigna Corp., Discovery, Global Payments, and Nexstar Media Group. The asset management firm earlier held as much as $165 million of these US stocks at the end of the first quarter this year.
Burry had taken a knife to his portfolio in the past as well. He slashed the portfolio from 20 holdings to six in the third quarter of last year, reducing its value from $140 million to $42 million.
Who is Michael Burry?
Michael Burry is best known for being one of the first investors to foresee and profit from the US subprime mortgage crisis that occurred between 2008 and 2010. He has been profiled in the book ‘The Big Short,’ by Michael Lewis about the mortgage crisis, which was made into a movie where Christian Bale played Burry’s character. He made a great deal of money for his investors and himself during that time, then took several years off and now has been back for some time.
Burry is also known for betting against Elon Musk’s Tesla and Cathie Wood’s Ark Innovation fund last year and for investing in GameStop before it became a meme stock.
Why did he sell all his stocks?
Burry took to Twitter to say that the 18 percent gain in the tech-heavy Nasdaq Composite Index (.IXIC) since the start of the third quarter is likely to reverse. Burry deletes his tweets frequently.
The close followers of Burry interpret his decision to liquidate his portfolio as a bad omen, reported the Business Insider. The hedge-fund manager diagnosed a speculative bubble last summer and he said the owners of meme stocks and cryptocurrencies are moving toward the ‘mother of all crashes.’
Recently, he also told investors not to get too excited about the recent rally in stocks as previous downturns have seen many temporary rebounds before spiralling. He wrote on Twitter, that he “can’t shake that silly pre-Enron, pre-9/11, pre-WorldCom feeling” referring to three events that led to an approximate fall of 75 percent in the Nasdaq between February 2000 and September 2002, Reuters reported.
As per the SEC filing, Burry’s firm has just one stock holding at the end of the second quarter. Scion held 501,360 shares of the Geo Group Inc. The group invests in private prisons and mental health facilities and has a market capitalisation of less than $900 million.
The Florida-based company is a leading provider of enhanced in-custody rehabilitation, post-release support, electronic monitoring, and community-based programs, according to its website.
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Technology stocks were a big factor pushing the market higher. That sent the Nasdaq composite higher, while the Dow Jones Industrial Average also rose significantly. Retailers also made solid gains.
Stocks rose on Wall Street on Friday and closed higher for the week, breaking a seven-week losing streak, the longest such stretch since 2001.
The S&P 500 rose and notched the biggest weekly gain for the benchmark index since November 2020. Technology stocks were a big factor pushing the market higher. That sent the Nasdaq composite higher, while the Dow Jones Industrial Average also rose significantly. Retailers also made solid gains.
On Friday:
The S&P 500 rose 100.40 points, or 2.5%, to 4,158.24.
The Dow Jones Industrial Average rose 575.77 points, or 1.8%, to 33,212.96.
The Nasdaq rose 390.48 points, or 3.3%, to 12,131.13.
The Russell 2000 index of smaller companies rose 49.62 points, or 2.7%, to 1,887.86.
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Wall Street | The Dow Jones Industrial Average ended 1.76 percent higher while the S&P 500 gained 2.47 percent and the Nasdaq Composite closed 3.33 higher on Friday. Economic data showed that consumer spending was better-than-expected and inflation might have peaked which drove the key US indices to settle higher.Asian Equities | Taking cues from the US market, benchmark indices in Asia rose on Monday. MSCI’s broadest index of Asia-Pacific stocks outside Japan was gained nearly 1 percent earlier today. Japan’s Nikkei 225 jumped 1.9 percent, Hong Kong’s Hang Seng rose 0.9 percent, South Korea’s Kospi surged 1 percent and China’s Shanghai Composite was up 0.3 percent.D-Street | On Friday, Nifty50 ended at 16352.45, up 1.1 percent while Sensex closed 1.2 percent higher at 54884.66.SGX Nifty | Nifty futures traded on the Singapore Exchange rose 0.8 percent to 16,461 points as of 7:45 am, indicating a positive open for Dalal Street.Crude Oil | Oil prices rose to two-month highs today as traders waited to see if the European Union would reach an agreement on banning Russian oil ahead of a meeting on a sixth package of sanctions against Moscow for its invasion of Ukraine, reports said. Brent crude futures gained 46 cents, or 0.4 percent, to $119.89 a barrel while US West Texas Intermediate crude futures jumped 60 cents, or 0.5 percent, to $115.67 a barrel, extending solid gains from last week.Dollar | The dollar nursed last week’s losses and was headed for its first monthly drop in five months today as investors have scaled back bets that rising US rates will spur further gains and as fears of a global recession have receded a little, as per reports.Gold | Gold prices firmed in choppy trading on Monday, as a weakening dollar buoyed greenback-priced bullion, although gains were capped by some investors turning to riskier assets in Asia. Spot gold was up 0.2 percent at $1,856.86 per ounce, as of 0152 GMT. U.S. gold futures edged 0.1 percent higher to $1,859.40.Stocks to watch | Stocks such as Mahindra & Mahindra, Oil and Natural Gas Corporation, Tata Motors and Nykaa among others will be on investors’ radar. (Read the complete list of today’s stocks to watch here)FII and DII data | As per provisional data available on the NSE, foreign institutional investors (FIIs) have net sold shares worth Rs 1,943.10 crore, whereas domestic institutional investors (DIIs) remained net buyers, to the tune of Rs 2,727.47 crore worth of shares on Friday.Cryptocurrency | Major cryptocurrencies traded in the green early on May 29 as the global crypto market cap increased 0.70 percent to $1.20 trillion over the last day. Bitcoin traded above Rs 23 lakh while Ether traded at Rs 1.44 lakh. Cardano gained 2 percent while Binance Coin was trading 1 percent higher.
View: Looking at the brighter side of Wall Street amid uncertainty
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Amidst chaos and uncertainty in US market, there may be some overlooked factors like- people focusing on missed earnings estimates are actually missing forests for the trees and if slowing growth in the US real GDP is seasonal.
The performance of the widely tracked US indices, such as the S&P 500 and NASDAQ 100 indices, has been negative since the start of 2022. As of April 30, 2022, they have fallen seven percent and 15 percent respectively.
The recent underperformance has been attributed to all sorts of fears and disappointments, including high inflation, the Ukraine-Russia war, a hawkish Fed, COVID-19, slowing growth and companies missing earnings estimates .
Amid chaos and uncertainty, there may be some overlooked factors, such as:
1. People focusing on missed earnings estimates are actually missing forests for the trees
2. Slowing growth in the US real GDP may be seasonal
Companies missing earnings estimates
Only 55 percent of S&P 500 companies have reported actual results for the January-March period of 2022, as of April 29. Contrary to the negative sentiment, out of reported results, 80 percent of S&P 500 companies reported positive EPS surprise and 72 percent reported positive revenue surprise.
According to Factset, so far, companies have reported earnings growth of 7.1 percent in Q1 2022 vs estimates of 4.7 percent. At a company level, Amazon was the largest detractor to earnings growth for S&P 500 due to a large negative earnings surprise because of a one-time valuation loss adjustment.
Breaking down GDP numbers
The January-March 2022 real GDP in the US shrank 1.4 percent on a sequential basis as against estimates of 1.1 percent growth. This added to the recession fears, yet under the hood, it is interesting to see the real contributors to such change.
The GDP of the October-December period of 2021 was high due to rising inventory levels, which added five percentage points to the overall 6.9 percent sequential growth. Businesses seem to have invested in inventory buildup in anticipation of supply chain issues and strong demand on account of the holiday season.
Post after the first three months of 2022, the inventory level fell and contributed 0.84 percent to the overall declining GDP. The decline in inventory level may not be a cause of concern as it just suggests the consumption of the excess inventory of the last quarter further reflecting robust demand. Additionally, detracting government spending resulted in GDP decline by 0.48 percent. On the positive side, services contributed 1.86 percent, in line with expectations, as consumers started spending on restaurant, tourism, travel etc.
Now that we understood a few reasons why the US markets have underperformed, let us explore some strong fundamentals displayed by the world’s largest economy.
· Rising interest rates may not necessarily punch a hole in consumer wallet
Current, interest payment outgo as a percentage of consumer income is at 9.3 percent, close to lowest level, implying that in a rising interest rate scenario (like today), consumers appear to be in better position to absorb relatively higher interest payments.
· Real wages are above pre-pandemic levels
· Consumer NPA (non-performing assets) ratio at historical lows
· US Corporate is not debt-laden
Conclusion
Equity markets irrespective of geography have always been volatile. As market experts speak, the current global macro events should not be ignored and one should take all investment-related decisions carefully.
Having a holistic view, keeping all the points mentioned above, becomes essential. Moreover, we should not forget the bigger picture and the benefits of having international equity as part of asset allocation.
–The author Mahavir Kaswa is Head of Research-Passive Funds at Motilal Oswal AMC. The views expressed in this article are his own.
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Fear is that central banks can go too far in taming inflation, and medicine might be worse than the disease, says Max Life Insurance’s Mihir Vora | “We are in for volatility going forward, mostly because of global regions and the fact that we have now clear indications that the central bank is now giving priority to inflation as the number one enemy and we have seen most of the central banks, including our Reserve Bank of India coming out unequivocally, saying that, whatever is required to tame inflation, we shall do that. The risk is — and which is what I think the market is now factoring in — that probably the central banks can go too far, and the medicine might be worse than the disease. And that’s the fear that the market has at this point in time,” said Mihir Vora, Director & CIO, Max Life Insurance.We are in a downtrend and there are no signs of bottoming out, says Goldilocks Premium Research’s Gautam Shah | “I think we are clearly in one downtrend or a bear market, if you want to call it that, because if you look at the broader markets, I think the average decline from the highs is about 35 percent. The headline indices are not depicting the same, but clearly there has been a lot of damage across the board. And now as this correction is playing out, I think the best in the business, the most fundamentally strong names, are the ones that are coming under pressure because of the global factors. So I think we are in a downtrend, yes, there are no signs of bottoming out, we are likely to see further downside,” said Gautam Shah, Founder & Chief Strategist at Goldilocks Premium Research.We are due for a growth slowdown, says Wells Fargo’s Gary Schlossberg | “The longer term issue is that so much of this inflation run-up has been due to exogenous or outside shocks. And it’s still to be determined how much inflation will come off if and when those shocks ultimately subside. How persistent will this inflation rate be? But for now, at least I fully agree rates are moving up. The Fed will remain aggressive, and with higher inflation that will squeeze incomes, we’re due for a growth slowdown here,” said Schlossberg.A real risk down the road is recession, says Geosphere Capital’s Arvind Sanger | “The market realised that inflation is not going away. And just the Fed is not raising interest rates by 75 basis points but by 50 basis points doesn’t mean that the job will be done until inflation is vanquished. And for inflation to be vanquished, we don’t know how far the Fed will have to go, how long it will have to go. But there’s a real risk that as they go down that path, you could see a recession. So I think the market was coming to terms with the fact that you can celebrate as much as you want about 75 versus 50 but the fundamental inflation problem is still around,” said Arvind Sanger, Managing Partner at Geosphere Capital Management.We shouldn’t be surprised if RBI goes 75 basis points in June and says we have come to pre-pandemic level, says Citi South Asia’s Badrinivas | “It’s a very clear messaging from them (RBI), that there is an urgency to get to the neutral or a pre-pandemic level — I won’t even say neutral — pre pandemic level, which is really the 5.15 percent and removing the ultra-accommodation. So in my view, I think we shouldn’t be surprised if they go 75 basis points in June, and say that we have quickly come to the pre-pandemic level and then we do expect a few more rate hikes down in the upcoming policies all the way till the end of the year,” said Badrinivas NC, Head-Markets, Citi South Asia. The expectation, as things stand now, is probably to get to a 6.5 to 7 percent kind of repo rate, he said.
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