Tag: Wall Street

US job market sees significant drop, hits three-year low

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US job openings fell to a three-year low in March, while the number of people quitting their jobs declined, signs of easing labor market conditions that over time could aid the Federal Reserve’s fight against inflation.

The Job Openings and Labor Turnover Survey, or JOLTS report from the Labor Department on Wednesday was, however, tempered somewhat by other data showing a measure of prices paid by manufacturers for raw materials jumped to the highest level in nearly two years in April as commodity prices increased.

Falling goods prices were the major driver of the moderation in inflation last year. With price pressures picking up in the first quarter, the surge in input costs is unwelcome news. Fed officials on Wednesday kept the US central bank’s benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.

Policymakers signaled they were still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings.

The Fed has raised its policy rate by 525 basis points since March 2022. Financial markets have pushed back the expected timing of a rate cut this year to September from June.

“Continued cooling in the labor market is part of the Fed’s plan to help return inflation to 2%, with job openings serving as one of the Fed’s barometers,” said Mark Streiber, an economic analyst at FHN Financial. “While it is too early to say that the easy goods disinflation we experienced in 2023 is over, upward pressure on goods is an unwelcome development for the Fed.”

Job openings, a measure of labor demand, were down 325,000 to 8.488 million on the last day of March, the lowest level since February 2021, the Labor Department’s Bureau of Labor Statistics said. Data for February was revised slightly higher to show 8.813 million unfilled positions instead of the previously reported 8.756 million.

Economists polled by Reuters had forecast 8.686 million job openings. Vacancies peaked at a record 12.182 million in March 2022. There were 1.32 job openings for every unemployed person, down from 1.36 in February. This ratio averaged 1.19 in 2019, indicating the labor market is gradually cooling.

March’s decline in job openings was led by construction, with 182,000 fewer unfilled positions. Vacancies decreased by 158,000 in finance and insurance. But job openings rose by 68,000 in state and local government education.

The decrease in job postings was concentrated in the West and Midwest. There were also fewer open positions in the South, which has experienced robust employment growth. Job postings increased in the Northeast. Demand for labor dropped considerably among small businesses with one to nine employees and establishments with 50 to 249 workers.

Small businesses have accounted for much of the increase in hiring following the pandemic. Declining vacancies led some economists to anticipate a sharp slowdown in overall job growth in the second quarter. The job openings rate fell to 5.1%, the lowest since January 2021, from 5.3% in February.

Employment is, however, expected to remain positive this year, keeping the economic expansion on track.

Stocks on Wall Street pared losses following the Fed’s rate decision. The dollar was steady against a basket of currencies. US Treasury prices rose.

MANUFACTURING FALTERS

Hiring dropped 281,000 to 5.500 million in March and the hires rate fell to 3.5% from 3.7% in February.

Layoffs decreased 155,000, the most in nearly a year, to 1.526 million. That was the lowest level since December 2022, pointing to a solid labor market. Low layoffs have accounted for solid job growth.

“Companies have shifted their focus from addressing staffing shortages by aggressively recruiting new workers to more proactively retaining the workers they have,” said Julia Pollak, chief economist at ZipRecruiter.

The number of people quitting their jobs dropped 198,000 to 3.329 million in March, the lowest level since January 2021. The decline in resignations was concentrated in trade, transportation and utilities, as well as other services.

The quits rate, viewed as a measure of labor market confidence, slipped to 2.1%, which was the lowest since August 2020 and followed 2.2% in February.

It soothed fears of a resurgence in wage growth after labor costs surged in the first quarter. Nonetheless the outlook for inflation remains challenging.

A survey from the Institute for Supply Management (ISM) on Wednesday showed its measure of prices paid by manufacturers for inputs shot up to 60.9 in April, the highest reading since June 2022, from 55.8 in March. That partly reflected higher oil prices. The overall ISM manufacturing PMI dropped to 49.2 last month from 50.3 in March, which was the highest and first reading above 50 since September 2022.

A PMI reading above 50 indicates growth in the manufacturing sector, which accounts for 10.4% of the economy.

“Oil prices have since returned to levels from the end of March, though they are likely to remain supported by resilient global demand as the outlook for China and the US improves,” said Matthew Martin, US economist at Oxford Economics.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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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

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wall Sreet indexes split, Treasuries dip amid earnings, geopolitical crosscurrents

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks were mixed on Friday and Treasury yields dipped on lackluster earnings and uncertainties surrounding central bank policy and geopolitical strife. Gold and crude prices advanced as market participants kept an uneasy eye on unfolding events in the Middle East.

Of the three major US equity indexes, the Dow was only one firmer. The Nasdaq fell more than the S&P 500, weighed down by mega-cap tech and tech-related momentum stocks.

The S&P and the Dow were on track for their third straight weekly percentage loss, while the Nasdaq appeared to be headed for its fourth consecutive down week.

“The market lacks conviction in either direction,” said Michael Green, chief strategist at Simplify Asset Management in Philadelphia. “There’s confusion about how the overall health of the economy.”

Also Read: IMF raises India’s FY25 growth forecast to 6.8%; pegs global growth at 3.2% in 2024, 2025

While the first-quarter reporting season is still in its early stages, expectations have dimmed. Analysts now see aggregate S&P 500 earnings growth of 2.9% year-on-year, down from the 5.1% estimate as of April 1, according to LSEG.

“Earnings reports so far are very much a mixed bag,” Green added. “Most companies are reporting relatively lacklustre results and guidance that is somewhat mixed.”

Chicago Federal Reserve President Austan Goolsbee said on Friday that the Fed’s restrictive policy is “appropriate” given economic strength and the slower-than-expected process of bringing inflation down closer to its 2% target.

“The Fed is, like the rest of us, somewhat struggling with the conflicting data,” Green said. “Goolsbee generally tends to be a fiscal dove.”

Mounting tensions in the Middle East appeared to plateau after Tehran downplayed Israel’s retaliatory drone strike against Iran, a move that seemed geared toward averting regional escalation of the war.

The Dow Jones Industrial Average rose 137.44 points, or 0.36%, to 37,912.82, the S&P 500 lost 16.07 points, or 0.32%, to 4,995.05 and the Nasdaq Composite dropped 151.86 points, or 0.97%, to 15,449.64.

Also Read: Who is Riddhi Patel, the Indian-American protester held for threatening to ‘murder’ lawmakers?

European shares dipped to their lowest level in more than a month as the prospect of Mideast turmoil escalating spooked investors, despite some upbeat earnings results.

The pan-European STOXX 600 index lost 0.13% and MSCI’s gauge of stocks across the globe shed 0.45%. Emerging market stocks lost 1.34%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.59% lower, while Japan’s Nikkei lost 2.66%.

Treasury yields inched lower on easing jitters over a potential broadening of the Middle East conflict. Benchmark 10-year notes last rose 8/32 in price to yield 4.6166%, from 4.647% late on Thursday. The 30-year bond last rose 14/32 in price to yield 4.7158%, from 4.745% late on Thursday.

The dollar lost ground as currency markets calmed down after a flight to the Swiss Franc and the yen in the wake of Israel’s drone attack on Iran. The dollar index fell 0.22%, with the euro up 0.23% to $1.0667.

The Japanese yen strengthened 0.05% versus the greenback at 154.59 per dollar. Sterling was last trading at $1.2429, down 0.05% on the day.

Crude oil prices dipped earlier as supply concerns eased in the wake of Iran’s subdued response, but had recently reversed course. US crude rose 0.81% to $83.40 per barrel and Brent was last at $87.57, up 0.53% on the day.

Gold advanced, putting the safe-haven metal on track for its fifth straight weekly gain. Spot gold added 0.7% to $2,393.60 an ounce.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

S&P 500 breaks below 5,100 after the sell-off in big tech

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Tech megacaps dragged down stocks as bond yields jumped after hot retail sales spurred bets the Federal Reserve will be in no rush to cut rates. Oil whipsawed on geopolitical angst.

In a volatile session, the S&P 500 erased an earlier advance and fell over 1%. Microsoft Corp., Apple Inc. and Nvidia Corp. led declines in the rate-sensitive technology space. Volatility perked up, with the premium for one-month put options to protect against a pullback in US equities hitting the highest since October. Wall Street’s “fear gauge” — the VIX — hit levels unseen this year.

“Stocks began to violate uptrends and pull back,” said Craig Johnson at Piper Sandler. “Interest rates are expected to stay higher for longer. A more cautious and tactical approach is favored as earnings season gets underway.”

The S&P 500 broke below 5,100, dropping to the lowest in almost two months. The tech-heavy Nasdaq 100 slid over 1.5%. Both gauges breached their 50-day moving averages — seen as a bearish signal by several chartists. Banks outperformed on a surprise profit from Goldman Sachs Group Inc.

Treasury 10-year yields spiked nine basis points to 4.62%, while those on two-year notes came closer to 5%. Bonds were also under pressure as JPMorgan Chase & Co. and Wells Fargo & Co. tapped the US high-grade bond market, the first in a likely parade of bond sales from banks after results.

West Texas Intermediate reclaimed its $85 mark — after briefly falling below it — and gold climbed on fears of escalating tensions in the Middle East. Top Israeli military officials reiterated the country has no choice but to answer Iran’s weekend attack.

US retail sales rose by more than forecast in March and the prior month was revised higher, showcasing resilient consumer demand that keeps fueling a surprisingly strong economy. As long as a robust labor market supports household demand, there’s a risk that inflation will become entrenched.

“If the S&P 500 is going to avoid its first three-week losing streak since last September, investors will need to move past concerns that rate cuts will be delayed because of sticky inflation,” said Chris Larkin at E*Trade from Morgan Stanley. “In the near-term, that could come down to the tone set by the first full week of earnings season, but geopolitical tensions in the Middle East remain a wild card.”

Expectations for monetary policy have been shifting toward a later start to Fed rate cuts, which officials have said requires a higher degree of confidence that inflation is on a sustainable path back toward their 2% target. Traders are no longer fully pricing in a rate cut before November.

“In our view it’s not about ‘higher for longer’ when it comes to the Fed’s rate regime rather, it’s a continuation of the ‘pause for now’ until inflation gives up its stickiness,” said John Stoltzfus at Oppenheimer Asset Management.

Soothsayers at Jefferies JPMorgan Chase & Co., Citigroup Inc. and State Street Corp. agree that the strength in economic data and corporate earnings is enough to keep this year’s stock market rally going — whether or not interest rates are dialed back.

Stickier inflation stemming from strong economic momentum is better for US equities than stagflation, according to Bank of America Corp. strategists led by Ohsung Kwon.

“If inflation is sticky because of momentum in the economy, that’s not necessarily bad for stocks,” they wrote, adding “but stagflation is.”

An improving outlook for the US economy and continued easy financial-market conditions have prompted Wells Fargo Investment Institute to boost its outlook for the US stock market and corporate earnings estimates.

The investment adviser raised its S&P 500 Index 2024 year-end forecast to range of 5,100 to 5,300.

“A point of emphasis is that these year-end targets allow for potential market disappointments related to the track of inflation and the federal funds rate,” strategists at WII wrote.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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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

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US stocks get hit as war jitters fuel rush to bonds

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The financial world was roiled by a flare-up in geopolitical risks that sent stocks sliding — while spurring a flight to the safest corners of the market such as bonds and the dollar. Oil rose.

Equities saw their worst day since January after a news report that Israel was bracing for an attack by Iran on government targets. Approximately 40 launches were identified crossing from Lebanese territory, some of which were intercepted, the Israel Defense Forces wrote in a post on X. US President Joe Biden said he expects Iran will attack Israel sooner rather than later — and his message to Iran is “don’t” do it.

Wall Street’s “fear gauge” — the VIX — spiked to levels last seen in October.

To Matt Maley at Miller Tabak, investors have been much too complacent about geopolitical issues.

“Since gold and oil have been pricing in a meaningful impact on the marketplace from this crisis, it’s not out of the question that the stock market will follow those other markets and see an outsized reaction before long,” Maley noted.

The S&P 500 fell 1.5% Friday, with banks and chipmakers leading losses. The gauge posted its biggest weekly drop in 2024. Treasury 10-year yields sank seven basis points to 4.52%. Andrew Brenner at NatAlliance Securities also cited “massive short covering” and rate locking before an expected flurry of debt issuance by banks after earnings.

The dollar notched its best week since September 2022. Brent oil settled above $90. Gold topped the $2,400-an-ounce mark before erasing gains.

Treasuries rallied sharply, following the market’s worst two days since February, in which yields reached year-to-date highs after inflation readings savaged expectations for Federal Reserve interest-rate cuts this year. Two-year yields — which briefly topped 5% this week — plunged on Friday.

“Risk was off the menu on Friday,” said Fawad Razaqzada at City Index and Forex.com. “Investors were lighting up on risk exposure ahead of the weekend, fearing risk assets could gap lower should something happen.”

A direct confrontation between Israel and Iran would mean a significant escalation of the Middle East conflict and would lead to a significant rise in oil prices, according to Commerzbank analysts including Carsten Fritsch.

Escalating geopolitical tensions — most recently in the Middle East, but also including attacks on Russian energy infrastructure by Ukraine — have spurred bullish activity in the oil options market. There’s been elevated buying of call options — which profit when prices rise — in recent days, with implied volatility jumping.

As Wall Street’s earnings season kicked off, big banks’ results offered the latest window into how the US economy is faring amid an interest-rate trajectory muddied by persistent inflation.

JPMorgan Chase & Co. and Wells Fargo & Co. both reported net interest income — the earnings they generate from lending — that missed estimates amid increasing funding costs. Citigroup Inc.’s profit topped forecasts as corporations tapped markets for financing and consumers leaned on credit cards.

“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces,” JPMorgan’s Chief Executive Officer Jamie Dimon said. He cited the wars, growing geopolitical tensions, persistent inflationary pressures and the effects of quantitative tightening.

BlackRock Inc. Chief Executive Officer Larry Fink said he expects the Fed to cut rates twice at the most this year, and that it will be difficult for the central bank to curb inflation.

Fink told CNBC he would “call it a day and a win” if the inflation rate gets to between 2.8% and 3%, which is above the Fed’s 2% target.

Pacific Investment Management Co. warned that the Fed could pivot back toward interest rate hikes if US inflation moves higher — with the asset manager preferring to buy bonds in other markets.

While shifting expectations around the timing and pace of the first cuts are likely to create further yield volatility in the near term, UBS’s Chief Investment Office thinks the more important point is that the US central bank remains set to start easing this year.

With a low probability of the Fed needing to hike rates further, CIO maintains their positive outlook on quality bonds.

“We continue to favor quality bonds in our global portfolios and recommend investors lock in attractive yields before rates fall this year,” said Solita Marcelli at UBS Global Wealth Management. “We like those with 1–10-year duration, as well as sustainable bonds.”

“We also think investors should consider an active exposure to fixed income to improve diversification,” she concluded.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

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

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asian stocks rise to track gains on Wall Street

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares in Asia advanced Friday after a stellar quarter for US stocks ended on a positive note amid expectations that the world’s biggest economy will be able to achieve a soft landing.

Japanese, South Korean and mainland Chinese stocks also rose, with much of the region, including Australia, Hong Kong and Singapore closed for a public holiday.

The gains came after Wall Street traders sent the S&P 500 to its 22nd record this year after data showed the US economy remained in good shape. A $4 trillion surge in US equity values in just three months has startled doomsayers, while leaving a host of strategists scrambling to update their 2024 targets.

“Japanese stocks are rebounding from yesterday’s drop,” said Masahiro Yamaguchi, a senior market analyst at SMBC Trust & Banking Ltd. The moves are “driven by the US stock market, as various indicators show the resilience of the US economy.”

Traders are on alert for potential swings in Japan’s currency after officials stepped up warnings this week to stem its slide. While the yen has since strengthened a little against the dollar, it remains close to levels not seen in decades.

Some recent weakening moves in the yen were speculative and not reflecting fundamentals, Japanese Finance Minister Shunichi Suzuki said Friday, adding there is no specific defense line regarding the exchange rate level.

The S&P 500 topped 5,250, ending with a quarterly rally of over 10%. Two-year Treasury yields climbed five basis points to 4.62% in a shortened session ahead of the holiday, after Fed Governor Christopher Waller’s remarks that he’d like to see “at least a couple months of better inflation data” before slashing rates. The dollar extended its quarterly advance. Trading of cash Treasuries in Asia is closed due to the holiday.

In economic data, the US government’s two main measures of activity — gross domestic product and consumer spending — posted strong advances at the end of last year. Consumer sentiment rose markedly toward the end of March, supported partly by the strong stock-market gains.

US stocks spent most of the day struggling for direction, with traders remaining reluctant to make any big bets before the Federal Reserve’s preferred inflation gauge and Fed Chairman Jerome Powell’s remarks Friday — when markets will be closed.

Elsewhere, gold hit a fresh all-time high, extending a weeks-long rally fueled by bets on Fed rate cuts and deepening geopolitical tensions. Oil scored a 16% quarterly gain in the latest sign that export curbs by OPEC and its allies are reining in global supplies.

Bitcoin eased Friday after climbing to $71,555 in the previous session. Meantime, FTX co-founder Sam Bankman-Fried was sentenced to 25 years in prison for stealing billions of dollars from customers.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

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

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US markets will lose steam even as Fed signals rate cuts, survey shows

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks will lose momentum and Treasuries have yet to hit bottom even after the Federal Reserve decided to stick with its guidance for interest-rate cuts this year, according to Bloomberg’s latest Markets Live Pulse survey.

Investors expect the S&P 500 Index to rise to about 5,454 at the end of 2024, from just under 5,225 on Wednesday, according to a median of 93 responses. That would imply a marked deceleration in its gains, given the gauge has surged almost 10% this year after climbing 24% in 2023.

The survey forecast underscores ongoing skepticism that US stocks can sustain a breathtaking rally to record highs, a move driven by the so-called Magnificent Seven technology names and optimism that artificial intelligence will boost productivity.

More pain is seen for the bond market: the median call in the survey was for the 10-year Treasury yield to increase to about 4.5% from just under 4.3% currently.

Meanwhile, the US dollar may crack, according to the survey. Only 18% of respondents see the Bloomberg Dollar Spot Index climbing from current levels, while more than a third expect it to stagnate and the rest anticipate a decline. The index has climbed about 2% in 2024, unwinding much of its 2.7% decline last year.

The yen is expected to lead the charge against the dollar after it pulled back from close to the weakest since 1990 in the wake of the Fed meeting. Japan’s currency was forecast to outperform by 43% of the respondents, more than double the next-most popular picks — the euro and the British pound.

The yen sank to touch 151.82 per dollar before the Fed, and is still down almost 7% in 2024 after the Bank of Japan committed to maintaining accommodative policy settings on Tuesday even after carrying out Japan’s first rate hike since 2007.

Treasuries, the world’s biggest government bond market, have lost more than 3% so far this year as traders were forced to unwind bets on rapid, steep Fed cuts.

The Fed held steady for a fifth-straight meeting as Chair Jerome Powell said higher-than-expected inflation figures at the start of the year didn’t change the broader story that price gains were slowing on a “sometimes-bumpy road.”

That affirmed expectations for the Fed to stay the course on rate cuts later this year, which buoyed tech megacaps and helped drive US stocks to a fresh record on Wednesday.

Some 55% of the Pulse survey respondents said they expect stocks to outperform bonds once the Fed does start reducing rates, with a slightly smaller share saying the opposite.

The MLIV Pulse survey was conducted among Bloomberg terminal clients immediately after the Fed decision by Bloomberg’s Markets Live team, which also runs the MLIV blog. Sign up for future surveys here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

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

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wall Street moves higher as Federal Reserve still sees 3 cuts to rates this year

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks are moving higher Wednesday after the Federal Reserve indicated it’s still likely to deliver the cuts to interest rates this year that Wall Street craves, even though concerns are growing about stubbornly high inflation.

The S&P 500 rose 0.5% in afternoon trading after flipping between tiny gains and losses before the Fed’s announcement. The Dow Jones Industrial Average was up 221 points, or 0.6%, as of 2:45 p.m. Eastern time, and the Nasdaq composite was 0.6% higher.

After surveying its policymakers, the Fed said the median still expects the central bank to deliver three cuts to interest rates in 2024. That’s the same number as they had pencilled in three months earlier, and expectations for the relief such cuts would provide are a big reason U.S. stock prices have set records recently.

The fear on Wall Street was that the Fed would trim the number of forecasted cuts because of a string of recent reports that showed inflation remaining hotter than expected. To grind down inflation, the Fed has been keeping its main interest rate at its highest level since 2001.

High rates slow the overall economy by making borrowing more expensive and by hurting prices for investments. Those fears didn’t come to fruition, but the Fed also indicated it may end up keeping its main interest rate higher in 2025 and 2026 than it earlier indicated.

Part of that may be because of how resilient the US economy has been even with rates at high levels. It began hiking its main interest rate from virtually zero roughly two years ago to its current range of 5.25% to 5.50%.

Fed officials upgraded their forecasts for the US economy’s growth this year, and continued strength could translate into higher profits for companies, which in turn would help their stock prices.

“They probably figure they don’t need to cause a recession to tame inflation and that’s a good thing,” said Brian Jacobsen, chief economist at Annex Wealth Management.

“The Fed is getting a little less confident about where we are or even where we’re going, so they will likely take their cues from the markets as to whether they’re doing a good job or not.” In the bond market, Treasury yields had a mixed reaction.

The two-year Treasury yield, which closely tracks expectations for Fed action, initially jumped before quickly giving up the gain. It was recently at 4.63%, down from 4.69% late Tuesday.

The yield on the 10-year Treasury, which also takes into account longer-term economic growth and inflation, initially tumbled after the Fed’s announcement but then rose. It was recently at 4.29%, compared with 4.30% late Tuesday.

On Wall Street, Mexican food chain Chipotle rose 3.6% after announcing its first stock split in history, a move that would lower the price of each share and make it accessible to more investors.

Markets in Europe and Asia were mixed. Japan’s markets were closed for a holiday a day after the Bank of Japan hiked its benchmark interest rate for the first time in 17 years, raising the rate to a range of zero to 0.1% from minus 0.1%.

The FTSE 100 in London was virtually flat after British inflation in February came in below expectations at 3.4%, marking its lowest level since September 2021. That supports hope for rate cuts in the coming months.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

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

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Dow Jones gains over 200 points, S&P 500 sees new closing high shrugging off sticky inflation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stocks climbed to a fresh record as the latest inflation figures did little to alter bets the Federal Reserve will cut rates this year — even if officials keep a more cautious stance for now.

An equity decline that lasted just a few minutes gave way to a rebound that pushed the S&P 500 up more than 1%. Notwithstanding the fact that the consumer price index continued to show signs of “stickiness,” the overall report came only slightly above economist estimates. While that’s not ideal for a central bank trying to get close to its 2% target, the CPI was not a shocker to Wall Street traders dreading another post-inflation rout.

“Another hotter-than-expected CPI reading may breathe new life into the sticky inflation narrative, but whether it actually delays rate cuts is a different story,” said Chris Larkin at E*Trade from Morgan Stanley. “Sticky doesn’t necessarily mean overheating.”

The S&P 500 closed around 5,175. Tech led gains on Tuesday, with Oracle Corp. soaring 12% amid cloud revenue growth. Nvidia Corp. rallied over 7%. Boeing Co.’s losses in 2024 approached 30%. Treasuries remained lower after a $39 billion sale of 10-year notes and a growing slate of new corporate bonds.

For a glimpse on how anxiety was running high before Tuesday’s CPI print, the options market provided some clues.

Traders were more concerned about a potentially big S&P 500 move post-CPI than they were about the Fed’s rate decision next week, according to Citigroup Inc. analysts.

After closing at its highest since October, the Cboe One-Day Volatility Index — a measure of cost in S&P 500 options with maturities of no more than 24 hours — fell sharply on Tuesday. The more famous 30-day volatility index known as the VIX also retreated after the inflation data.

Now the relative sense of calm in the face of a strong inflation print was unusual. In fact, the advance in stocks marked a break from how stocks have traded on CPI days since the Fed started lifting rates.

An S&P 500 move of 1% or more has only happened on a handful of occasions on the day of the CPI release since March 2022. Most of the time, however, gains were on the back of lower — not higher — core inflation.

“It’s proving difficult to see what may stop the market’s momentum, as earnings, inflation, and interest rates are moving in the right direction,” said Skyler Weinand at Regan Capital.

The S&P 500 will deliver stronger-than-expected earnings in 2024, powered by resilient economic growth and artificial intelligence breakthroughs, according to Bank of America Corp. strategists — who are now among Wall Street’s most bullish profit forecasters.

The team including Ohsung Kwon and Savita Subramanian raised their earnings-per-share estimate to $250 from $235, tying with BMO Capital Markets and Deutsche Bank AG for the most optimistic outlook among strategists tracked by Bloomberg.

Subramanian last week raised her S&P 500 target to 5,400.

As a flurry of forecasters bump up their optimism toward US stocks in lockstep, Morgan Stanley’s Mike Wilson won’t budge, arguing he sees no justification to upgrade his outlook given an absence of broad earnings growth.

The strategist stuck to his year-end S&P 500 forecast of 4,500 in an interview on Tuesday with Bloomberg Surveillance Radio, even as a growing list of peers at firms including Bank of America Corp., Goldman Sachs Group Inc., and UBS Group AG have raised projections for the benchmark.

“A lot of folks have raised their price targets because of higher multiples,” Wilson said. “We’re not willing to do that.”

The stock market may be rallying, but the yield curve remains inverted — which suggests that there are plenty of investors who are still concerned about economic conditions this year, according to Weinand at Regan Capital.

“While a recession would naturally steepen out the yield curve to positive territory, we think the yield curve can steepen this year without a recession,” he noted. “Investors will eventually realize that we can achieve a soft landing and that sentiment shift can push 10-year Treasury bond yields back above 2-year Treasury bond yields.”

The Fed is widely expected to hold interest rates steady for a fifth straight meeting when policymakers gather March 19-20. Much of the focus by investors will be on the Federal Open Market Committee’s quarterly forecasts for rates, including whether fresh employment and inflation figures have prompted any changes.

To Bret Kenwell at eToro, regardless of whether the inflation print is ideal, investors mostly want to know whether they can count on what’s expected — and right now, that’s for a June rate cut.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

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

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Reddit, investors seek up to $748 million in planned IPO

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Reddit Inc. and its investors are seeking to raise as much as $748 million in what would be one of the biggest initial public offerings so far this year, according to people familiar with the matter.

The social media platform and some of its current shareholders plan a sale of 22 million shares for $31 to $34 each, said the people, who asked not to be identified because the information wasn’t public yet. The company was seeking a valuation of as much as $6.5 billion in the listing, Bloomberg News has reported.

The people said the company is setting aside about 1.76 million shares in the IPO to be bought by users and moderators who created accounts before January 1. Those shares won’t be subject to a lockup period, meaning the owners can sell them on the opening day of trading, according to Reddit’s filing in February with the US Securities and Exchange Commission.

A representative for Reddit declined to comment.

Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021, when IPOs on US exchanges set an an all-time record of $339 billion, according to data compiled by Bloomberg. Reddit raised funds that year valuing it at $10 billion, and Bloomberg News reported the following year that it could be valued at as much as $15 billion in an IPO.

Meanwhile, IPOs in the US tumbled, reaching only $26 billion last year, the data show. In January, Bloomberg News reported that Reddit was weighing feedback from early meetings with potential IPO investors that it should consider a valuation of at least $5 billion.

The company is a high-profile addition to the year’s roster of newly and soon-to-be public companies. The biggest of those listings was the $1.57 billion offering by Amer Sports Inc. in January. Astera Labs Inc., a software maker focused on artificial intelligence, said in a filing Friday that it would seek up to $534 million in its IPO, which will likely proceed Reddit’s.

Reddit’s listing will be watched closely by IPO candidates such as Microsoft Corp.-backed data security start up Rubrik Inc. and health-care payments company Waystar Technologies Inc. Their deliberations come after a quartet of US listings led by semiconductor designer Arm Holdings Plc’s $5.23 billion offering in September failed to ignite a lasting rebound in the market.

Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its February filing. The company reported a net loss of $91 million on revenue of $804 million in 2023, compared with a net loss of about $159 million on revenue of $667 million a year earlier.

Reddit’s largest shareholder is Advance Magazine Publishers Inc., part of the Newhouse family publishing empire that owns Conde Nast, which bought Reddit in 2006 and spun it out in 2011.

Reddit said its millions of loyal users and moderators pose risks as well as a benefit for the company. Redditors have a historically combative relationship with the site, launching revolts over everything from racism on the platform to executives’ staffing decisions.

Thousands of members of the WallStreetBets forum — which boasts around 15 million users and helped popularize meme stocks like GameStop Corp. — voted to boost a forum post about shorting Reddit’s stock when it begins trading. Their reasons varied from the company’s lack of profitability to competitive concerns.

The IPO is being led by Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp., according to Reddit’s filing. The company plans for its shares to trade on the New York Stock Exchange under the symbol RDDT.

Reddit co-founder and Chief Executive Officer Steven Huffman said in a signed letter included in the filing that the company has many opportunities to grow both the platform and the business.

“Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere,” Huffman said. “Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.”

Reddit said it’s in the early stages of allowing third parties to license access to data on the platform, including to train artificial intelligence models. The company said that in January it entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years. It expects a minimum of $66.4 million of revenue from those agreements this year, according to the filing.

Reddit also has announced a deal with Alphabet Inc.’s Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.

Huffman owns shares giving him 3.5% of the voting power. That includes Class B shares that will have 10 votes each compared with one each for the Class A shares to be sold in the IPO, the filing shows. Huffman also has a voting proxy agreement with Advance.

Other large shareholders include Chief Operating Officer Jennifer Wong, as well as FMR LLC and entities affiliated with OpenAI Chief Executive Officer Sam Altman, Tencent Holdings Ltd., Vy Capital and Quiet Capital and Tacit Capital, according to the filing.

Huffman’s fellow co-founder, venture capitalist Alexis Ohanian, isn’t listed among the investors with stakes of 5% or more and isn’t named elsewhere in the filing.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

JPMorgan sees “froth” in US stocks, while Goldman says rally justified

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Are US stocks forming a bubble? It depends on who you ask.

To JPMorgan Chase & Co.’s chief market strategist Marko Kolanovic, the dramatic rally in US equities and Bitcoin’s quick surge above the $60,000 mark signal yes. He sees those advances as indicative of accumulating froth in the market — conditions that typically precede a bubble when asset prices rise at an unsustainable pace.

He joins in a chorus of rapidly piling up warnings from Wall Street that are hearkening back to the dot-com boom of the late-1990s, or the post-pandemic mania of 2021, when stock prices quickly ballooned and then burst.

Meanwhile, David Kostin at Goldman Sachs Group Inc. is among those who thinks the risk-on mood is warranted, arguing Big Tech’s lofty valuations are supported by fundamentals.

As the S&P 500 Index keeps hitting new highs — driven chiefly by big gains in American technology giants — it’s drawn the ire of critics who think the bullish run can’t last, and excitement from optimists who think there’s room for more gains.

Kolanovic is a key figure in the former group. The market is pushing ahead “with volatility low and froth building,” he wrote Monday in a note to clients.

“Equities have moved up this year, even as bond yields rose and rate cut expectations unwound,” he said. “Investors may be assuming that the increase in yields is reflective of economic acceleration, but earnings projections for 2024 are coming down and the market appears too complacent on the cycle.”

In contrast, Goldman’s Kostin said this time is different from other periods in history when stock prices have moved abruptly, typically beyond their value. Unlike prior such instances, the breadth of “extreme valuations” is far more contained this time, with the number of stocks trading at those multiples down sharply from the peak in 2021.

Moreover, in contrast to the “growth at any cost” mentality in 2021, “investors are mostly paying high valuations for the largest growth stocks in the index,” he wrote in a note Friday. “We believe the valuation of the Magnificent 7 is currently supported by their fundamentals.”

The group, particularly Nvidia Corp., Meta Platforms Inc. and Microsoft Corp., have raced ahead this year and pulled major stock indexes along with them. The S&P 500 has logged 15 closing records in 2024, posting four-straight months of gains.

So far, financial results are justifying the moves. Earnings per share for the cohort rose a combined 59% in the fourth quarter from a year earlier, compared with expectations of 47%, data compiled by Bloomberg Intelligence show.

But to Kolanovic, the environment is a head-scratcher, reflecting investor complacency and an underappreciation of risk.

The continued climb in stocks “may keep monetary policy higher for longer, as premature rate cutting risks further inflating asset prices or causing another leg up in inflation,” he said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow