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BREAKING AS I WRITE THIS:
- Shares in Microsoft could take a hit when the market opens, following reports of large-scale hacking, allegedly by a Chinese group. In the larger picture, whether this leads to further de-listings of Chinese shares trading in the U. S. remains to be seen.
- The attacks on Saudi oil facilities may unsettle oil prices.
North American markets today, Monday, viewed several hours before opening at 9:30 a.m. EST look poised to start choppy with major indicators in the red but improving. It is possible that at least the DOW and/or the S&P 500 could make it to flat or green during the morning.
European markets are open at time of writing and indicators there are in the green. The lockdown is easing in the United Kingdon and investors there will be listening for clues as Bank of England Governor Andrew Bailey speaks to the Resolution Foundation.
The Canadian dollar, British pound and Euro are all down.
In the United States, markets, investors and cash-strapped individuals are relieved by passage by the Senate of President Joe Biden’s virus relief bill. A final vote is required by the House to adopt the Senate version but that appears certain. This should boost both consumer and infrastructure spending over the coming months.
Canada has steadying oil prices and an improved trade balance with the United States. Statistics Canada reported that the January global surplus was C$1.41 billion, the largest since 2014
In both countries the increasing numbers of vaccinations appear to be boosting recovery hopes. While the virus continues to overhang everything, investors are looking for a strong recovery following quickening vaccine rollouts.
Goldman Sachs predicts 7% U.S. GDP growth and falling unemployment for 2021.
Still, last week’s plunge and surge amount to a warning about the looming correction. Heeding the warning means adjusting portfolios in a way that some would consider going against the tide, starting with the FAANG+ stocks, according to Gavin Graham, UK-based analyst and media commentator.
(FAANG+ refers to Facebook, Amazon, Apple, NetFlix and Google. The+ refers to Microsoft.)
“Investors should take some profits on the FAANG+ stocks which have done exceptionally well as rising bond yield pose a threat to their expensive valuations,” Graham says.
Graham sees some of the more surprising changes in valuations as clues. “The fact that TESLA is now off by a third and down -15% for the year to date is probably the best indication,” he says, adding that TESLA has been ‘the poster child for the excesses of this tech bull market.”
Amongst the FAANG+ group, Apple is down 8.5%. Amazon by 7.8%, NetFlix by 4.5% and Facebook by 3.5% he points out.
Exceptions to drops in the FAANG+ group are Microsoft which is up 4% (before the hacking) and Alphabet (Google) which is up 20%. This may be because investors see these stocks as more resilient and less likely to be hit by regulatory issues.
Those valuations counterpoint with legacy stocks such as Exxon which is up 48%, Chevron up 29%, Bank of America up 22% and Wells Fargo up 25%. “It’s the revenge of the value stocks,” he suggests.
Several landmark earnings reports are due this week including AMC Entertainment Inc,.one of the equities involved in the recent Reddit trading frenzy. AMC reports its fourth-quarter and yearend 2020 results on Wednesday. The stock might get a boost today from the re-opening of New York movie theaters. However, investors will be looking for larger recovery clues considering movie studios’ (and viewers’) commitment to streaming, changing film distribution policies and a recovery in which cinema-going might not be a high priority for many getting free of restrictions. AMC closed at $8.05 on Friday -- a drop of over 60% from its frenzy-induced high of $20.36. Those who hold shares above the current price have a painful decision to make. (GameStop Corp., the other stock most involved in the Reddit frenzy reports on March 25.)
Ironically, the frenzy has taken another turn. It can be argued that much of it was driven by FOMO – the fear of missing out. Meanwhile, a new ETF, appropriately named BUZZ, selects investments based on social media chatter. The fund will rebalance each month into the 75 most talked about stocks in social media. The opening days of trade were negative, but only time will tell if the approach is successful.
‘This may prove to be the ultimate FOMO investment,” says Jay Nash, Senior Vice president at National Bank Financial in London. “I don’t plan to go anywhere near this.”
Nash points out that the process does not appear to offer any historical reference for success and appears to be designed to jump in and out of what may prove to be very short-term stock trends.
Two major reports this week will shed some light on investing in cloud where revenues are estimated to exceed $1 trillion or more over the next decade. Wedbush Securities estimates roughly 35% of workloads are on the cloud, a number that could hit 55% by 2022
Infrastructure and service provider Oracle Corp. reports third-quarter results on Wednesday and has a varied set of ratings including one ‘Sell’ on the Street. On Friday, Oracle jumped by over 6.58 % to close at $69.93, which Reuters attributes to the Barclays Bank decision to upgrade the stock to a Buy.
The company will likely report increased revenues triggered at least in part by the trend to remote working and the resulting demand or its cloud services.
Cloud software vendor DocuSign Inc. reports fourth quarter and full year 2021 on Thursday. In mid-February Wedbush Securities raised its price target to $300 from $270, citing the company’s deal flow. With only three exceptions – JP Morgan, Wells Fargo and Deutsche Bank, it has a ‘Buy’ rating amongst the analysts I checked.
Later in the week, on Friday, we hit the one-year anniversary of the plunge into bear market territory that followed then-President Donald Trump’s decision to ban most travel from Europe due to the COVID 19 epidemic. The S&P 500 promptly fell by a hefty 5.9%.
Related: The Week Ahead: Data Might be the Key Commodity of the Future