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LIVE MARKETS-Running with the bulls can get you trampled

Mon 29th March, 2021 5:14pm
* Major U.S. indexes red; Nasdaq off >1% * Energy, financials weakest major S&P 500 sectors * Europe STOXX 600 up ~0.2% * Dollar ~flat; gold down, crude up slightly * U.S. 10-Year Treasury yield ~1.69% 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 markets.research@thomsonreuters.com RUNNING WITH THE BULLS CAN GET YOU TRAMPLED (1205 EDT/1605 GMT) As market participants widely anticipate a strong rebound in economic growth this year due to vaccine rollouts, pent-up demand and the relaxation of government lockdowns, Morgan Stanley chief U.S. equity strategist Michael Wilson warns of a hotter, but shorter economic cycle. In a note on Monday, Wilson notes the bullish view isn't necessarily wrong, but the market may already be reflecting the recovery from last year's recession given its advance "but with violent rotations that have left many portfolios gored like the annual running of the bulls in Spain." Wilson notes that as demand returns in force, supply shortages are likely, which could lead to higher costs or missed sales, with not all of the increased costs being passed on. In addition, with March marking the 12-month peak rate of change in many economic series and other variables such as equity inflows. The firm found that slowing rates of change in areas such as inflation, PMIs and GDP favors quality and something Wilson believes could happen in 2021. As such, Morgan Stanley downgraded consumer discretionary .SPLRCD to underweight and upgraded staples .SPLRCS to neutral. (Chuck Mikolajczak) ***** 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. urn:newsml:reuters.com:*:nL1N2LR003 Additionally, crude CLcv1 is falling as traffic in the Suez Canal resumes. urn:newsml:reuters.com:*: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. urn:newsml:reuters.com:*:nL1N2LM102 (Terence Gabriel) ***** FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE: urn:newsml:reuters.com:*:nL1N2LR0XL <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SPY03292021 https://tmsnrt.rs/2P8P5rC earlytrade03292021 https://tmsnrt.rs/31sZnFh ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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