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LIVE MARKETS-Market Pac-Man will ultimately digest the supply

Mon 29th March, 2021 4:08pm
* Major U.S. indexes red; Nasdaq off ~1% * Energy weakest major S&P 500 sector * Europe STOXX 600 up ~0.2% * Dollar edges up; gold down, crude declines * U.S. 10-Year Treasury yield ~1.70% March 29 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at MARKET PAC-MAN WILL ULTIMATELY DIGEST THE SUPPLY (1101 EDT/1501 GMT) Brian Reynolds, chief market strategist at Reynolds Strategy, took a look at why U.S. share prices have been struggling since late February. His conclusion, it's not a lack of demand, but instead, it's the record-setting supply surge. According to Reynolds, the increase in supply, including the SPAC and NFT wave, has been unprecedented. In fact, he says that the gross issuance in this most recent quarter alone, which is still not yet officially in the books, is on track to be greater than any year before 2008. Additionally, the last three quarters of 2020 were so strong for gross issuance that the year ended with a record $312.2 billion coming to market. However, to put the most recent surge in perspective, if this quarter's current pace were to be maintained, then 2021 would nearly double the 2020 record. On it's face, the supply surge could appear to be a negative for stocks. However, as Reynolds sees it, it also means that, "with stocks at an all-time high, there is tremendous underlying demand for equities." He says that the only other time he could find, with this combination of gross and net issuance, was at the tail end of the 2008 financial crisis. Back then, he says there was a record-setting amount of issuance that offset buybacks, as is happening now at the end of another crisis. Eventually, Reynolds says that issuance in the last cycle was ultimately absorbed by the intense demand for stocks, and a powerful 11-year bull market emerged. "We are not quite ready to say this one will last another 11 years, but we do think the underlying demand for stocks is likely to make this another powerful bull market." (Terence Gabriel) ***** CANAL CLEARED, BUT U.S. STOCKS STUCK IN THE MUD (1016 EDT/1416 GMT) Major U.S. indexes are red in early trade Monday. .N This as global banks said they faced potential losses from a hedge fund's default on margin calls.*:nL1N2LR003 Additionally, crude CLcv1 is falling as traffic in the Suez Canal resumes.*:nL1N2LR07Q With this, energy .SPNY is taking the biggest hit among major S&P 500 .SPX sectors. Financials .SPSY are also among the losers, with banks especially weak .SPXBK . Regarding the hedge fund fallout, Thomas Hayes, Chairman, Managing Member, at Great Hill Capital in New York said, "It probably will be contained, but you might see aftershocks. As Buffett likes to say, ‘you never know who's swimming naked until the tide goes out.’" Here is where markets stand early in the U.S. session: (Terence Gabriel, Herbert Lash) ***** SPDR S&P 500: WITHOUT THRUST, CAN THERE BE TRUST? As the end of March nears, the SPDR S&P 500 ETF Trust SPY.P is on track for a record high monthly close. With this, raw monthly SPY volume is on pace for its highest reading since June of last year. That said, one measure that incorporates both price and volume, the Money Flow index (MFI), may be casting some doubt over the underlying thrust behind the SPY's record highs: Recently, in December, on a monthly basis, this oscillator neared the 80 overbought threshold, but it has since backed away, even with the SPY poised for another all-time high monthly close this month. Of note, since 2007, SPY declines of varying degree have been preceded by protracted monthly MFI divergence. Just in terms of more recent history, despite new SPY highs in late 2018 and early 2020, MFI failed to confirm strength, and in both instances, ultimately, the SPY suffered a major sell off. Additionally, the 80 barrier may be another issue in itself, because pushing above this level, let alone pegging above it, has proved to be no easy feat for this measure. In the 329 months since readings began in late 1993, the MFI has only ended a month above 80 around 9% of the time. The average reading has been about 58. Therefore, December's reading, just over 77, may mark another high, and with further deterioration, the SPY may become increasingly vulnerable to another sharp drawdown.*:nL1N2LM102 (Terence Gabriel) ***** FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:*:nL1N2LR0XL <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SPY03292021 earlytrade03292021 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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