- S&P 500, DJI positive, Nasdaq down; banks outperform, NYFANG red
- Energy leads gains among S&P sectors; comm svcs falls most
- Dollar, crude rise; gold, bitcoin down
- U.S. 10-Year Treasury yield rises to ~1.61%
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S&P 500 YEAR-END 2022 TARGET 5,100 – GOLDMAN (1307 EST/18507 GMT)
In Goldman Sachs’ (GS) latest U.S. Weekly Kickstart note, David Kostin, chief U.S. equity strategist, is highlighting his S&P 500 (.SPX) year-end 2022 target of 5,100.
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He says this represents a 9% price gain from Friday and a total return with dividends of 10%. He says their 3-month and 6-month interim targets are 4,850 (+3%) and 5,000 (+6%) and reflect a supportive equity investment backdrop GS anticipates during 1H.
With this, Kostin offers three recommendations:
(1) Supply chains are starting to normalize and cyclical equities including “reopening” stocks should outperform
(2) Labor market tightness will persist and investors should skip firms with high labor costs relative to EBIT
(3) Bond yields will rise so fast-growing stocks valued entirely on long-term growth expectations would be vulnerable to rising rates or disappointing sales compared with growth stocks that enjoy high margins.
NASDAQ FLIPS TO RED AS GROWTH NAMES TUMBLE (1221 EST/1721 GMT)
The S&P 500 and Nasdaq had climbed after President Joe Biden picked Federal Reserve Chair Jerome Powell to lead the central bank for a second term, with Wall Street lenders rallying on the prospect of interest rate hikes in 2022.
The U.S. 10-Year Treasury yield was also popping back up to the 1.60% area.
Here is where markets stand approaching the halfway mark of the trading day:
EXISTING HOME SALES: EVERYTHING OLD IS NEW AGAIN (1120 EST/1620 GMT)
Investors began Thanksgiving week by thanking President Joe Biden for keeping Fed Chairman Jerome Powell’s steady hand on the tiller of monetary policy, and also expressing gratitude for a bit of better-than-expected economic data in the form of existing home sales.
For the last few months, the housing market has been the has-been of the economic recovery, falling victim to its early stardom.
Mandated lock downs initially sparked a stampede to the suburbs, launching demand – along with home prices – to the moon, a phenomenon resulting in the prospect of home ownership drifting beyond the realm of affordability for many potential buyers.
But the sector has recently shown signs of returning to an even keel.
Sales of pre-owned U.S. homes rose by 0.8% last month to 6.34 million units at a seasonally-adjusted annualized rate (SAAR), according to the National Association of Realtors (NAR).
The number came in 140,000 units above consensus and marked a slight acceleration from September’s 0.7% gain.
The uptick helped keep the inventory of homes on the market steady at 2.3 months supply – below the historical average but up from the record low of 1.8 months reached last December.
“Home sales remain resilient, despite low inventory and increasing affordability challenges,” writes Lawrence Yun, NAR’s chief economist at NAR.
Yun also points out that just as the sector benefited from the pandemic’s initial onset, it could be experiencing a second wind due to the current inflation wave.
“Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment,” he says.
The easing credit environment has also lent some support, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“For mortgaged buyers, the rebound in sales has been supported by lower rates since their spring peak, and a clear easing in lending standards,” Shepherdson notes.
The NAR print falls neatly inline with other recent housing data, particularly the 4% increase in building permits and a rebound in homebuilder sentiment, both released last week.
While economic data holds a rear view mirror to recent activity, the stock market provides a forward-looking indicator, reflecting where investors see the housing sector six months to a year down the road.
But as illustrated by the graphic below, over the last 12 months the HGX and the SPCOMHOME indexes are now essentially neck-and-neck with the benchmark S&P 500 (.SPX).
Wall Street has grown greener as the morning progresses, with all three major indexes notching healthy gains in a broad rally.
BANK SHARES CHEER LOUDEST FOR POWELL SECOND TERM (1050 EST/1550 GMT)
Shares of the biggest U.S. bank stocks (.SPXBK) are outperforming the broader market on Monday after the White House said it would nominate current Federal Reserve Chair Jerome Powell for a second four-year term while for vice chair, it picked Lael Brainard, the Fed board member who was seen as the other main contender for the top job. read more
“There’s some consensus on the Street that Brainard is pretty far left of Powell in terms of her political views and would be a lot tougher on the banks via regulation and via scrutiny around mergers and acquisition activity,” said R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York which specializes in trading financial stocks.
“It’s a little bit of an initial relief rally that Powell is a little bit more of a Wall Street friendly choice.”
While Biden has yet to fill three Fed seats, including vice chair for supervision, a key role for bank regulation, investors seemed confident that Powell would be able to set the tone for regulation.
Grant said it was somewhat unusual for a Fed chair to be re-nominated by a Democratic president after being originally signed up by a Republican president.
“He’s found a way to kind of navigate both sides of the aisle pretty well. And I think there’s a quorum that he’s a strong leader during a tough time.” he said.
“He’s been the leader of the Fed during a very tumultuous time with COVID. He navigated the (former President Donald) Trump situation fairly well, which was sloppy and nasty at times,” said Grant. “People just generally feel better about the direction of the economy under Powell.”
The S&P 500 banks index (.SPXBK) is up 2.4% and on track for its biggest daily percentage gain since Sept. 23. Among the biggest percentage gainers in the group are SVB Financial (SIVB.O), Wells Fargo (WFC.N) and People United Financial (PBCT.O).
POWELL NOMINATION RELIEVES U.S. STOCK INVESTORS (1010 EST/1510 GMT)
The three major U.S. stock indexes are solidly higher in morning New York trading, with the S&P 500 (.SPX) and Nasdaq (.IXIC) hitting record highs, as President Joe Biden picked Federal Reserve Chair Jerome Powell to head the central bank for a second term.
Investors appeared to be cheering the news as a second term for Powell could soothe some worries over a change in the status quo.
“My reaction is one of relief. He was a steady hand, I think people liked in general the policies that he enacted since Covid first became an issue,” said Peter Tuz, president at Chase Investment Counsel in Charlottesville, Virginia.
(Caroline Valetkevitch, Lewis Krauskopf)
U.S. SHARE BUYBACKS HIT RECORD IN Q3 (0921 EST/1421 GMT)
S&P 500 (.SPX) companies have made record quarterly share repurchases in Q3 2021, amounting to $225 billion, topping the previous record of $223 billion in the fourth quarter of 2018, data from S&P Dow Jones Indices showed.
Given the annual record of $806 billion set in 2019, a December quarter buyback as well as the remaining unreported Q3 of $204 billion in repurchases would set a new annual record, Senior Index Analyst Howard Silverblatt wrote in a research note on Saturday. The 12-month high is $823 billion, set in the 12-months ending in March, 2019.
“At this point, I’ve penciled in a new annual record, with a new 12-month record being in the works,” Silverblatt said.
Buybacks have roared back this year after bottoming out at $89 billion in the second quarter of last year as the U.S. economy shutdown due to the pandemic.
NASDAQ COMPOSITE: FLYING ON FUMES? (0845 EST/1345 GMT)
The Nasdaq Composite (.IXIC) is currently on pace to rise around 25% this year. That puts its rolling three-year rise on track to be 142%. That would be its biggest such rise since the three-year period ending Dec. 31, 1999, just prior to the bursting of the tech bubble.
Meanwhile, the IXIC ended at an all-time high on Friday. That makes 46 record closes so far in 2021 vs 55 for all of last year.
However, one measure of the Composite’s internal strength has once again broken down:
After hitting a high of 75.7% earlier this month, which was well shy of its 2021 peaks, the Nasdaq New High/New Low (NH/NL) index fell to 53.3% on Friday. That was its weakest reading, with the IXIC at a record close, since Aug. 30. Back then, five trading days later, the Composite topped and then slid as much as 8% into its October trough.
Of note, just since early 2020, there have been five sharp IXIC declines from record high-territory, averaging about 15%, all of which were preceded by multi-week/multi-month NH/NL index divergence.
Unless this measure can at least reclaim its descending 10-day moving average, the risk is that it continues to trend down to test the 2020 trough, which was at 1.2%.
Additionally of note, last week saw three Hindenburg Omens triggered on the Nasdaq, and two on the NYSE Composite (.NYA).
These clusters can highlight an especially fractured market, vulnerable to instability.
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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