Live Markets: Investor optimism sinks to almost 30-year low -AAII
14/04/2022 19:28
* S&P, Nasdaq in the red, Dow up
* Energy up most among S&P sectors; tech biggest loser
* STOXX 600 close up 0.7%
* Dollar, crude up; gold, bitcoin slide
* U.S. 10-year Treasury yield at 2.83%
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INVESTOR OPTIMISM SINKS TO ALMOST 30-YEAR LOW -AAII (1430
EDT/1830 GMT)
Optimism among individual investors has fallen to a level
not seen in nearly 30 years as both neutral and bearish
sentiment rise, results show from the latest Sentiment Survey
from the American Association of Individual Investors.
Bullish sentiment, or expectations stock prices will rise
over the next six months, fell 8.9 percentage points to 15.8%.
That's among the 10 lowest readings in the survey's history,
which began in 1987. Optimism was last lower at 14.0% on Sept.
4, 1992.
Bullish sentiment is below its historical average of 38.0%
for the 21st consecutive week and is below 27.9%, an unusually
low level, for the 11th time out of the last 14 weeks.
Neutral sentiment, or expectations that stock prices will
stay essentially unchanged over the next six months, rose 1.8
percentage points to 35.7%. This is the fourth consecutive week
that neutral sentiment is above its historical average of 31.5%.
Bearish sentiment, expectations that stock prices will fall
over the next six months, jumped 7.0 percentage points to 48.4%.
The rise keeps pessimism at an unusually high level for the 10th
time in 13 weeks. It also keeps bearish sentiment above a
historical average of 30.5% for the 20th time out of the last 21
weeks.
Historically, the S&P 500 index has gone on to realize
above-average and above-median returns during the six- and
12-month periods following unusually low readings for bullish
sentiment and for the bull-bear spread, AAII said.
(Herbert Lash)
*****
FED'S QT COULD WEIGH ON U.S. TREASURY YIELDS -EVERCORE (1415
EDT/1815 GMT)
The Federal Reserve will soon start reducing its balance
sheet and effectively become a net seller of Treasury
securities, as the U.S. central bank stops replacing debt that
matures.
One consequence of what is called quantitative tightening,
says Evercore ISI fixed-income strategist Stan Shipley, is that
private demand for Treasuries will need to increase 28% to
replace what previously was supplied by Fed purchases.
Without the Fed, the 10-year Treasury yield could rise to
more than 3% to induce investors to buy debt, Shipley says in a
research note.
But as pointed out in the U.S. March budget release, there
will be less cash flow drain by the government deficit, which
suggests that net Treasury issuance will slow further, the
Evercore analyst says. Net debt issuance by the Treasury has
already fallen, from a a running rate of more than $4.2 trillion
to $1.9 trillion through March.
"Less government security issuance will reduce one source of
upward pressure to the 10-year Treasury that is still well below
fair value metrics," Shipley says.
The good news on the reduced budget gap and debt issuance is
that it will offset the $720 billion annual QT in Treasury
securities that the Fed outlined.
The Treasury market is also going to face a stock vs flow
debate. Though the flow from QT will push yields up for probably
the next three years, the existing holdings of Treasury
securities, or stock, by the Fed will remain high and weigh down
those yields. This should keep the 10-year yield below fair
market metrics well into 2023.
"Though both the flow and stock are influential, the Fed's
flow of Treasury holdings is more important."
(Gertrude Chavez-Dreyfuss)
*****
RETAIL INVESTORS NERVOUS BUT WILL STAY THE COURSE - ETORO
SURVEY (1350 EDT/1750 GMT)
Retail investors are less confident in the global economy's
health and are as worried as the Street about inflation. But few
are changing their portfolios or investment strategies,
according to a survey from trading platform eToro.
The survey of 8,500 retail investors across the globe found
only 35% of respondents felt confident in the U.S. economy,
while 24% felt confident in the strength of the global economy,
down from 36% last quarter, said retail investor-focused eToro.
Around 55% of investors see inflation as the biggest
external risk to their investments over the next three months,
and the remainder see international conflict as the biggest
risk.
Still, over half of investors surveyed said they did not
reposition their portfolios to protect from external risks, and
nearly one in three said they expect to invest more money over
the next 12 months.
That seems to be playing out in stock markets, with research
firm TipRanks reporting that retail investors were buying the
dip in Q1 while institutional investors were selling assets.
Further proof of a disconnect between retail investors and
others, unlike in the first quarter of 2020 where many
executives bought the dip in their own companies, "we do not see
executives from growth-trending companies buying the dip, which
is a disturbing signal," said Uri Gruenbaum, chief executive
officer of TipRanks.
In a big shift, 31% of eToro survey respondents say they
plan to invest in cryptocurrency assets like bitcoin BTC=BTSP ,
up from 18% six months ago.
Unsurprisingly, crypto assets are more popular with a
younger set of investors, but 11% of those 55 and older said
they expect to invest as well.
(Lisa Mattackal)
*****
DIVIDENDS SHINE IN A WEAK EQUITY ENVIRONMENT (1245 EDT/1645
GMT)
With the S&P 500's outlook this year calling for losses for
the first time since 2018, and expectations for returns over the
next decade are negative to low single-digit gains, total return
is paramount, Goldman Sachs says.
The benchmark's dividend yield is a historically low 1.3%,
or the fourth percentile of such yield since 1953. The payout
ratio is "bumping along" at a record low after two years of
dividend growth dramatically lagging that of profits, Goldman
says.
Sectors that are positively correlated to inflation, with
growing yields, may be the best option in an environment of
scarce yield where inflation risks loom large.
Since 1936, dividends have contributed 36% of total returns,
Goldman observes.
Cash is king with the Fed in tigtening mode, while dividends
provide inflation-protected yield. Based on history, S&P 500
dividend payouts have nowhere to go but up, Goldman says.
(Herbert Lash)
*****
NASDAQ, S&P 500 FALL AS GROWTH STOCKS TUMBLE (1215 EDT/1615
EDT)
The Nasdaq and the S&P 500 were down in midday trading on
Thursday, with rising U.S. Treasury yields pressuring megacap
growth stocks, while several Wall Street banks reported mixed
earnings on the last day of a holiday-shortened week.
Twitter Inc TWTR.N rose after Tesla Inc TSLA.O CEO Elon
Musk offered to buy the social media company for about $41
billion. The electric-car maker's shares fell, however.
Five of the 11 major S&P 500 sectors slid, with technology
.SPLRCT and consumer discretionary .SPLRCD stocks leading
losses.
Megacap growth names such as Amazon.com Inc AMZN.O and
Apple Inc AAPL.O fell as Treasury yields rose after data
showed initial claims for state unemployment benefits were
higher than expected, while the rise in retail sales showed a
decline after gasoline at record-high prices is stripped out.
Declining issues outnumbered advancers for a 1.16-to-1 ratio
on the NYSE and a 1.35-to-1 ratio on the Nasdaq.
The S&P index recorded 27 new 52-week highs and six new
lows, while the Nasdaq recorded 49 new highs and 89 new lows.
(Gertrude Chavez-Dreyfuss)
*****
FILL 'ER UP: RETAIL SALES, JOBLESS CLAIMS, UMICH, ET AL
(11:21 EDT/1521 GMT)
A beggar's feast of data provided sensory overload on
Thursday, ending the holiday-shortened weak with familiar common
themes: the gas pump is king and main street is hiring.
Receipts at U.S. retailers USRSL=ECI increased by 0.5% in
March, according to the Commerce Department. urn:newsml:reuters.com:*:nL2N2WB24I
While the number missed consensus by a hair, it stands on
the shoulders of February's upwardly revised 0.8% growth.
The increase was almost entirely attributable to rising
prices at the gasoline pump. Stripping away the 8.9% increase in
the rate of wallets being emptied at filling stations, retail
sales actually fell 0.3%. urn:newsml:reuters.com:*:nW1N2WC000
Sticker shock at the Chevron station appears to be
convincing consumers to pull back on spending in other areas.
Non-store retail sales, which include internet shopping, plunged
by 6.4%.
With year-on-year headline CPI reaching a blistering 8.6% -
the highest it has been since 'Raiders of the Lost Ark' was
selling tickets and popcorn - Americans are spending a lot more
for less.
But Ted Rossman, senior industry analyst at Bankrate, helps
us see the report through rose-ish tinted glasses:
"We continue to see evidence of a resilient consumer,"
Rossman writes, in convenient foreshadowing of the UMich data to
follow.
"It’s frustrating to be paying so much more for gas,
groceries and housing," he adds. "But most Americans are
actually doing pretty well financially."
Core retail sales, which excludes building materials,
autos/parts, gasoline, and food services - and corresponds most
closely to the personal expenditures component of GDP -
unexpectedly inched 0.1% lower, defying the 0.2% gain analysts
expected.
The number of U.S. workers filing first time applications
for unemployment insurance USJOB=ECI rose by 18,000 last week
to 185,000, a number which remains below the level economists
associate with healthy labor market churn and speaks to the
ongoing worker drought.
That drought is evident in job openings hovering near record
high despite a 3.6% unemployment rate. Employers are hiking
wages and avoiding handing out pink slips.
"The uptick in jobless claims is a seasonal adjustment
issue; the trend continues to fall, slowly," says Ian
Shepherson, chief economist at Pantheon Macroeconomics. "Claims
are now so low that a further big decline is unlikely."
Ongoing claims USJOBN=ECI , reported on a one-week lag,
declined to 1.475 million, edging further below the pre-pandemic
level of 1.7 million.
The cost of goods imported from U.S. trading partners
USIMP=ECI jumped by a hotter than expected 2.6% on a monthly
basis and a scorching 12.5% year-on-year. urn:newsml:reuters.com:*:nL2N2WB260
It was the largest monthly increase since April 2011, and
was largely driven by spiking gasoline prices in the face of
Russia's war on Ukraine.
Import prices remain, along with recently released CPI, PPI
and other indicators, cruising at an altitude far above the
Fed's average annual 2% inflation target.
See the graphic of assorted inflation indicators below (and
grab your surfboard - the wave is rad:
The mood of the U.S. consumer has surprised analysts by
brightening considerably this month, according to the University
of Michigan's preliminary April reading.
UMich's Consumer Sentiment index USUMSP=ECI jumped 6.3
points to 65.7, a move mostly attributable to the 9.8 point
surge in the near-term expectations component.
The current conditions segment rose a more modest 0.9 points
and near- and long-term inflation expectations held firm at 5.4%
and 3.0%, respectively.
The unexpected veer toward optimism could likewise be traced
to the petrol pump.
"Retail gas prices have fallen since the March peak, and
that fact was immediately recognized by consumers," Richard
Curtin, chief economist at UMich's Surveys of Consumers. "There
are still significant sources of economic uncertainty that could
easily reverse the April gains, including the impact on the
domestic economy from Putin's war, and the potential impact of
new covid variants."
In more ancient news, the value of goods piled up in the
store room of U.S. businesses USBINV=ECI increased by 1.5% in
February, a stronger reading than the 1.3% forecast and a modest
acceleration over January.
This is a positive sign that the supply chain is slowly
becoming untangled, allowing U.S. firms to replenish their
stocks.
It also bodes well for first quarter GDP, at which the
Commerce Department is expected to take its first stab on April
28.
Wall Street was mixed in late morning trading, as benchmark
U.S. Treasury yields resumed their uphill climb, once again
pressuring market-leading growth stocks.
(Stephen Culp)
*****
WILL BACK-TO-BACK RALLIES SNAP WALL STREET'S DOWNWARD TREND?
(0900 EDT/1300 GMT)
Pre-market trade in futures on Thursday indicate a weak
market and may cast in doubt a halt in the downward trend on
Wall Street despite the strong rally the day before.
Nasdaq futures NQcv1 were down 0.24%, while S&P 500
futures EScv1 fell 0.25%.
Advancing stocks made up more than 80% of volume on the New
York Stock Exchange .AD.N on Wednesday for the first time
since March 16th, says BTIG research.
But typically strong upside volume needs to be seen
back-to-back to suggest a durable low is in place, says Jonathan
Krinsky, chief market technician at BTIG.
"Ideally we would like to see a follow-through day with
another 80% upside day, something we haven't seen since July
'21," Krinsky said.
"Of course the March 16th event didn't get that and still
led to a strong rally, but that rally eventually ran out of
steam," he said.
S&P e-mini futures remain within a downtrend channel and
need to clear the 4,450-4,460 range to break out of that, he
said.
While a breakout wouldn't necessarily change a cautious
medium-term outlook, in the short-term it would be respected, he
said.
(Herbert Lash)
*****
For Thursday's posts prior to 0900EDT/1300 GMT click here:
urn:newsml:reuters.com:*:nL5N2WC2WB
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Money markets bet ECB will raise rates fast https://tmsnrt.rs/3HJBEDn
SNapshot 140422 https://tmsnrt.rs/3LV9Bnc
USjobmarket https://tmsnrt.rs/3KIQ4Gm
USrateswap https://tmsnrt.rs/38Shk7h
Retail sales https://tmsnrt.rs/37e3I5Z
Jobless claims https://tmsnrt.rs/3xt4fLV
Inflation https://tmsnrt.rs/3M5UxTL
UMich https://tmsnrt.rs/3M2CxJZ
Business inventories https://tmsnrt.rs/3ObYVCv
Market snapshot April 14 https://tmsnrt.rs/37RNb7G
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