Green spring: the markets start their hike towards the weekend …
We see a continuation of yesterday’s rebound in the stock markets as the trading charts flash green ahead of the open. T-bill yields are lower, tech stocks appear to be rebounding, crude prices are on the rise – all signs of optimism.
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(Friday market open) The end of spring is often marked by the color green. Today it is not only the grass and trees that are turning green, but also the early trading graphics. And let’s not forget those big green tractors.
Bellwether cyclical action Deere (DE), which is often seen as an indicator of broader economic health, rose more than 1.3% after ending the profit ball. The farm and construction equipment maker also beat revenue estimates and raised its net income forecast for its 2021 fiscal year.
Across the pond, purchasing manager indices showed strong growth in eurozone activity ahead of manufacturing and service sector surveys this morning of IHS Markit (INFO). The better economic outlook seemed to help oil prices recoup some of the losses that hit black gold amid the possibility of Iranian oil returning to the market.
The new good economic news accompanies lower yields on Treasuries, helping to send investors back to growth stocks as the tug-of-war continues between those stocks and value stocks. On days when investors aren’t so keen they look to value stocks while days like today they look to growth.
It looks like this back-and-forth could continue in the coming months until the market gets more clarity on inflation, interest rates and the Fed’s asset purchase program. . But for now, early indications this morning suggest the market may end the week on a high note.
An old but good
It looks like investors took a page off the old buy-the-dip playbook again on Thursday, continuing the momentum that helped the top three US indices cut losses in the previous session.
Buying interest was enough yesterday to end the index’s three-day losing streak, with large tech-related companies in favor and stronger-than-expected jobless claims helped fuel optimism about when the economy reopens.
The initial weekly jobless claims of 444,000 people continued the downward trend that has continued for several weeks now. It was the second week in a row under 500,000 and a little under the Wall Street consensus.
Despite this boost to the economy, yields on Treasuries have declined. Perhaps investors thought the yield got too high the previous session after the Fed comments on the possibility of discussing adjusting the pace of asset purchases if the economy continues to recover. Investors may also tend to believe that the Fed’s rhetoric that a spike in inflation will only be transitory.
Falling Treasury yields on Thursday seemed like that confidence boost the market needed, and the result was a downside buy rally in growth stocks such as the FAANG names and Microsoft (MSFT). While AmazonThe gains of (AMZN) were relatively small, MSFT, Facebook (FB) and Alphabet (GOOGL) increased by more than 1% while Netflix (NFLX) and Apple (AAPL) gained more than 2%.
It helped boost the technology Nasdaq Composite Index (COMP) at pole position for the day, significantly outperforming the other two major US indices. Growth stocks, such as tech companies, tend to perform worse in a rising interest rate environment because it makes debt more expensive and because it often comes with higher inflation. high, eroding expectations of future earnings.
Inflation and jobs: rock and hard?
It should also be remembered that the Fed has a dual mandate. In addition to price stability, the central bank is also responsible for providing maximum support for sustainable employment.
With the latest State of Employment report well below expectations and weekly jobless claims still high by historical standards, policymakers may be willing to let inflation accelerate a bit for a while. some time.
This particularly appears to be the case under the Fed’s relatively new policy of averaging inflation. As long as prices increase by an average of 2% per year, central bankers are prepared to let periods of rising inflation continue to offset periods of falling inflation.
It’s a balancing act, of course, because price level uncertainty – inflation, if left unchecked – could undermine the price stability part of the dual mandate.
Can I borrow your (electric) truck? As the market for electric vehicles continues to heat up, so does the niche of electric pickup trucks. Ford engine (F) this week unveiled its F-150 Lightning electric pickup. General Motors (GM) is taking reservations for its GMC Hummer EV. You’re here (TSLA) is developing the production capacity of its Cybertruck. And privately held Rivian – which is planning an IPO this year – says deliveries of the launch edition of its R1T electric pickup truck will begin next month. We hope the new EV pickup offering will make borrowing your friend’s truck to move to a new location more environmentally friendly.
Electric Truck Sticker Shock: While none of these electric pickups can be considered cheap, cheaper options under $ 40,000 make the Tesla and Ford models more wallet-friendly. R1T and Hummer vehicles are much more expensive. With cars, Tesla’s lowest Model 3, at just over $ 40,000, has proven to be incredibly popular, but we’ll have to wait and see if its Cybertruck or Ford’s comparably priced electric F-150 ends up. sell better than more expensive pickup options. . “While Rivian and GM aim for the high end of the market and Tesla makes promises that seem difficult to keep, Ford is clearly aiming to be affordable and accessible to the mass market,” said a note from the Bespoke Investment Group. “We don’t have a clear idea of â€‹â€‹what strategy will work in the long term, but it seems to us that the modular approach from ‘bare bones’ to ‘tricked out’ across the F-150 Lightning product line has a plus. big chance of success in the mass market than the high-priced Hummer EV without risking relying on the over-promising attitude of Rivian or Elon Musk. “
Trade winds: Besides electric vehicles, another strand of the green economy includes an increasing dependence on renewable sources of electricity such as solar and wind power. While the United States only lags behind China and the European Union in terms of installed onshore wind power capacity, the development of domestic offshore wind is still in its infancy compared to ‘Europe and Asia. It was only this month that the U.S. government gave the green light to the nation’s first large-scale offshore wind farm off the coast of Massachusetts – a project called Vineyard Wind 1 which is a joint venture between Copenhagen Infrastructure Partners and Avangrid (AGR). This project will use turbines manufactured by General Electric (GE). Dominion Energy (RE), Public Service Enterprise Group (PEG), and Eversource (ES) are also among the US companies that appear likely to benefit from the Biden administration’s drive to deploy 30 gigawatts of offshore wind capacity by 2030. Currently, two small wind farms off the coast East have a total capacity of 42 megawatts, and the Vineyard project will add an additional 800 megawatts.
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This week’s economic calendar. Source: Briefing.com