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LIVE MARKETS U.S.-Putting cannabis stocks back on the radar

Wed 17th June, 2020 4:29pm
* Major averages mixed: Dow, S&P slip, Nasdaq modestly higher * Tech leads sector gainers; energy weakest group * Dollar up; crude, gold dip; US 10-yr yield ~0.75% June 17 (Reuters) - Welcome to the home for real-time coverage of U.S. equity markets brought to you by Reuters stocks reporters and anchored today by Terence Gabriel. Reach him on Messenger to share your thoughts on market moves: PUTTING CANNABIS STOCKS BACK ON THE RADAR (1113 EDT/1513 GMT) Jessica Rabe, DataTrek co-founder, is out with a note talking about the how the marijuana industry has fallen off the radar screens of many investors as the momentum for US legalization slowed. However, she believes a confluence of recent events could serve as tailwinds for public cannabis stocks. According to Rabe, the chances of Democrats taking back the White House and Senate continue to improve. Although, Joe Biden thinks more research must be conducted before legalizing recreational marijuana, Rabe believes with enough persuasion, his party may also be able to change his mind. This because, the vast majority of Biden’s base wants marijuana legalized. Rabe adds that many industry advocates for marijuana legalization, including members of a Biden-Sanders task force, view it as a social justice issue. This because African Americans are disproportionately hurt by the drug’s illegal status and enforcement. Therefore, Rabe believes marijuana legalization is an important cause to consider as Americans continue to protest and society negotiates police reform. Another factor Rabe considers is that the COVID crisis has put significant stress on state budgets, and legalizing marijuana would provide a “new new” source of tax revenue in the hardest hit areas. Indeed, as Rabe sees it, although a controversial topic, the economic impact from the virus may be impetus for some states, such as New York, to finally get enough votes to pass a bill through their state legislatures. In sum, Rabe says that "increasing odds for Democrats to control the presidency and two houses of Congress next year, ongoing protests for police/criminal justice reform, and the economic/employment fallout from the pandemic could all speed up national marijuana legalization." Rabe does say that DataTrek is not advocating purchasing public marijuana companies. However, she believes it’s important to keep apprised of this industry, in the event it becomes relevant again. Here is a chart showing the year-to-date performance of the ETFMG Alternative Harvest ETF MJ.P compared to the S&P 500 .SPX : (Terence Gabriel) ***** WEDNESDAY DATA: HOME IS WHERE THE START IS (1000 EDT/1400 GMT) Data released on Wednesday gave further credence to the notion that the U.S. housing market has the foundation to rebuild faster than other economic sectors. Groundbreaking on new homes in the U.S. USHST=ECI rose by 4.3% in May, according to the Commerce Department, in a slight bounce from April's record-shattering 30.2% plunge, bringing the total to 974,000 units on a SAAR basis.*:nL1N2DT2II This is well short of the more robust rebound to 1.1 million units that analysts expected. That said, building permits USBPE=ECI , considered by many to be a better indicator of underlying trends, saw a healthier 14.4% bounce to 1.22 million SAAR. "We look for strong demand, improving homebuilder confidence and an ongoing shortage of supply to support growth in housing starts over the rest of the year," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics. In a separate report, mortgage demand jumped by 8% last week, according to the Mortgage Bankers Association (MBA). The average 30-year fixed contract rate USMG=ECI dropped by 8 basis points to 3.30%, prompting an increase in applications to purchase homes USMGPI=ECI and refinance existing mortgages USMGR=ECI . Purchase applications increased to the highest level in over 11 years and for the ninth consecutive week," said Joel Kan, associate vice president of Economic and Industry Forecasting at MBA. "The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence." Before mandated lockdowns brought the economy to a grinding halt, housing stocks had been outperforming the broader market. But the while pandemic reversed that trend, a lifting of restrictions helped yesterday's homebuilder sentiment data sail past analyst estimates to land firmly in positive territory. "The housing market is on track for the fastest and most complete recovery of any sector in the economy," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The 60bp drop in rates in recent months has more than outweighed the impact of the huge wave of job losses, which appears mostly to have hit younger renters rather than potential homebuyers." Here's a look at the Philadelphia SE Housing index .HGX and its 12-month performance relative to the S&P 500: The S&P 500 is seesawing in early trading, but now up 0.1%, as fresh stimulus and economic green shoots do battle with lingering pandemic fears. .N (Stephen Culp) ***** MAJOR AVERAGES CAN TRY TO SCORE FOUR (0857 EDT/1257 GMT) With equity index futures pointing modestly higher in premarket trade, the major averages can each attempt to rise for a fourth straight day. This as hopes for an economic recovery from the coronavirus-led slump continue to build, even as six U.S. states saw a record rise in new COVID-19 cases. .N Meanwhile, trend-followers are taking notice that the S&P 500's .SPX rising 50-day moving average ended Tuesday at about 2,926, or only about 14 points shy of the descending 100-day moving average, at about 2,940. With the 50-day rising about 12 points a day and the 100-day falling about 2 points, they should flirt with each other during Wednesday's session. As of Tuesday's close, there was a 487 point disparity between these two moving averages on the Dow .DJI . Given their rates of ascent and descent, it may take about 4 days or so for them to intersect. The 50-day moving average on the Nasdaq .IXIC crossed above the 100-day moving average on June 9. Meanwhile, Fed-Chair Powell warned in a virtual hearing with U.S. lawmakers on Tuesday that a full recovery is unlikely until the public is confident that the disease in under control. The second day of his virtual testimony will begin at 1200 EDT/1600 GMT. Here is your premarket snapshot: (Terence Gabriel) ***** <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ premarket06172020 Housing starts MBA Housing stocks MJSPX06172020 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own) (( 646-223-4122))
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