Live Markets U.s.: Equities stare down "frightening" valuations

Brookline Bancorp

22/07/2020 19:08

* Dow, S&P 500 near flat; Nasdaq slips
    * Utilities lead sector gains; energy biggest decliner
    * Dollar down, crude flat, gold rises; U.S. 10-yr T-Nt yld
~0.59%

    July 22 (Reuters) - Welcome to the home for real-time
coverage of U.S. equity markets brought to you by Reuters stocks
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caroline.valetkevitch.thomsonreuters.com@reuters.net
    
    
    EQUITIES STARE DOWN "FRIGHTENING" VALUATIONS (1405 EDT/1805
GMT) 
    Lori Calvasina, head of U.S. equity strategy at RBC Capital
Markets in New York, writes in a note this week she expects
choppy market conditions to extend into the second half of the
year, and sees valuations as "one of the biggest problems" for
the U.S. stock market right now.
    "Valuations are frightening, with one of our models now
above Tech bubble highs," she writes, noting that as of
mid-July, the S&P 500 was trading at 26 times 2020 EPS and
nearly 22 times 2021 EPS, based on RBC's models and data.
    "Our bottom up combo model is now also 1.9 standard
deviations above its LT average, above the 1.5 reading seen at
the end of 2019, a little above its Tech bubble high and in a
range consistent with modest single digit declines in the S&P
500 over the next 12 months," she adds.
    The S&P 500 technology index  .SPLRCT , up roughly 19% since
Dec. 31, continues to lead sector gains for the year.
    Calvasina has raised her year-end target on the S&P 500
 .SPX  to 2,900 from 2,750, but that's still below the 3,260
level, or where the index roughly sits in Wednesday afternoon
trading.
    Calvasina cautions, "We continue to see downside risk to the
US equity market in the back half of the year."
    
    (Caroline Valetkevitch)
    *****

    GROWTH WIDENS GAIN OVER VALUE TO HISTORIC LEVELS (1340 EDT/
1740 GMT)
    Notwithstanding a recent rotation out of work-from-home
stocks and into some of Wall Street's laggards, fueled by
expectations of a faster-than-previously-expected economic
recovery from the coronavirus, growth's lead over value is
continuing to expand, and it is unclear what that means for the
stock market's future direction.
    In the 100 trading sessions through Monday, the S&P 500
growth index  .IGX  rose 14%, compared with an 8% drop in the
S&P 500 Value index  .IVX . The gap of 22.5 percentage points
between the two was the largest since at least 1996, according
to a note on Wednesday from Bespoke Investment Group. 
    In December 1999, the spread reached 22.1 percentage points,
before the dot-com bubble burst. And in March 2009 the spread
reached 17 percentage points, just before Wall Street began its
recovery from the financial crisis and kicked off an 11-year
bull market, according to Bespoke.
    "The last two times the performance spread between the S&P
500 Value and Growth indices was anywhere close to as wide as it
is now represented one of the worst and the best entry points
for the broader market in the last 25 years," Bespoke wrote.
"Make sense of that."
    
    (Noel Randewich)
    *****
    
    EARNINGS - IS THAT WHERE ALL THE BETS ARE? (1305 EDT/ 1705
GMT)
    In Wednesday's lackluster market, companies due to report
earnings after the bell were showing far bigger moves both on
the upside and the downside than the broad market indexes.
    Out of a list of 57 companies expected to report after the
bell, 26 were showing gains and the remainder were declining.
While the S&P 500 was up just 0.3%, only ~25 of the stocks due
to report later in the day had moves up or down that were less
than 1%. 
    The outperformers in the group were Meritage Homes  MTH.N ,
up 4.2%; SL Green Realty  SLG.N , up 3.3%; and Discover
Financial  DFS.N , up 2.2%. 
    The biggest laggards were First Internet Bancorp  INBK.O ,
Central Valley Community Bancorp  CVCY.O , Texas Capital
 TCBI.O  and Brookline Bancorp  BRKL.O , all down more than 3%. 
    Big name companies Tesla  TSLA.O , up 1%, and Microsoft
 MSFT.O , up 0.7%, were gaining ground, while in the battered
hospitality sector, Las Vegas Sands  LVS.N  was suffering, down
1.7%.
    
    (Sinéad Carew)
    *****
    
    NASDAQ LOSES STEAM, LAGS OTHER INDEXES (1218 EDT/1618 GMT)
    The Nasdaq was bouncing between slight gains and losses,
underperforming the other two major stock indexes in choppy
midday trading Wednesday after losing most of its early steam.
The S&P 500  .SPX  and Dow  .DJI  both were up about 0.4% amid
hopes for further stimulus for the U.S. economy.
    Utilities  .SPLRCU  led sector gains for the S&P 500, while
technology  .SPLRCT  dropped to the fourth-biggest gainer among
the sectors.
    Shares of Amazon.com  AMZN.O , down about 1%, weighed the
most on the Nasdaq, extending Tuesday's losses. Amazon shares
jumped 7.9% on Monday.
    On the flip side, Microsoft  MSFT.O  shares were up 1.3%
ahead of its results due after the bell.
    Energy  .SPNY  remained the biggest drag on the S&P 500. 
    Here is a midday market snapshot:
    
 
 
 
    (Caroline Valetkevitch)
    *****    
    
    
    HOME SALES: KEEPING THE WOLF AT BAY (1105 EDT/1505 GMT)
    Two data sets released on Wednesday reiterated the notion
that the U.S. housing market is built of brick, withstanding the
huffing and puffing of the pandemic recession better than other
sectors.    
    Sales of pre-owned homes  USEHS=ECI  soared by 20.7% in
June, according to the National Association of Realtors (NAR),
the biggest monthly jump on record.  urn:newsml:reuters.com:*:nL2N2ET0RN
    Existing home sales rose to a seasonally-adjusted annualized
rate of 4.72 million units, slightly below the 4.78 million
economists expected.
    Still, the number remains well below February's pre-pandemic
reading of 5.76 million.
    "The sales recovery is strong, as buyers were eager to
purchase homes and properties that they had been eyeing during
the shutdown," writes Lawrence Yun, chief economist at NAR.
"This revitalization looks to be sustainable for many months
ahead as long as mortgage rates remain low and job gains
continue."
 
    Speaking of low rates, a separate report showed mortgage
demand increased by 4.1% last week, according to the Mortgage
Bankers Association (MBA).
    Applications for loans to purchase homes  USMGPI=ECI  and
refinance existing mortgages  USMGR=ECI  both ticked higher,
even as the average 30-year fixed contracted rate  USMG=ECI 
inched up 1 basis point to a still-historically-low 3.20%.
    "The clear message from the rising trend in mortgage
applications is that we should expect further increases in sales
over the next few months," says Ian Shepherdson, chief economist
at Pantheon Macroeconomics. 
    "This might seem hard to square with the surge in
unemployment," Shepherdson adds. "But the wave of job losses
among the relatively young workforce in the leisure and
hospitality sector has mostly hit renters; the median age of a
U.S. homebuyer is about 47." 
 
    The Philadelphia SE Housing index  .HGX  was last up a
respectable 2.7%, handily outperforming the broader market.
    That broader market oscillated in morning trading, bouncing
from red to green and back, range-bound close to zero. 
    (Stephen Culp)
    *****
    
    STOCKS RISE EARLY WITH TECH STRENGTH (1014 EDT/1414 GMT)
    The three major U.S. stock indexes are slightly higher in
early trading Wednesday as technology shares rise, and as
investors are optimistic about further stimulus for the economy.
That said, gains may be limited by rising U.S.-China tensions.
    The Dow  .DJI  and S&P 500  .SPX  started the day lower but
soon turned positive, while the Nasdaq  .IXIC  has climbed
further. Investors are hopeful that more stimulus may be on the
way for the U.S. economy.
    Technology shares led sector gains on the S&P 500, with
Microsoft  MSFT.O , due to report after the bell, giving the
index its biggest boost. Second-quarter results from S&P 500
companies so far have been mostly better than expected.
 urn:newsml:reuters.com:*:nL2N2ES155
    Meanwhile, Washington has told China to close its consulate
in Houston, both countries said on Wednesday, deepening a
deterioration in bilateral relations. A source said Beijing was
considering shutting down the U.S. consulate in Wuhan.
 urn:newsml:reuters.com:*:nL3N2ET1XV
    Here is the early market snapshot:
    
 
 
 
    (Caroline Valetkevitch)
    *****
       
    NASDAQ 100: QUARREL WITH THIS LADY MAY END BADLY (0900
EDT/1300 GMT)
    The Nasdaq 100  .NDX  has been on a tear since its March
trough. The index of the one hundred largest non-financial
companies on the Nasdaq surged more than 63% from its March low
into its July 13 intraday record high. (Click on chart below)
    That said, since early June, the CBOE Nasdaq 100 Volatility
index  .VXN  has been less than cooperative. Indeed, its
bubbling rise may be a warning that the NDX may soon be divorced
from its record highs.
    Indeed, after steadily falling from its mid-March spike
high, the VXN bottomed at 25.53 on June 5. Since then, and
despite a few hiccups along the way, the Nasdaq 100 has
continued to advance to fresh record levels.
    However, the implied volatility measure remains above a
positively sloped support line, and has yet to violate its June
5 low.
    Of note, since early 2018, five significant NDX selloffs
from record-high levels, ranging from 12% to 31%, were preceded
by VXN strength.
    Thus, unless the VXN calms, and breaks below its June
trough, the NDX may soon find itself partnered with a bear.
 urn:newsml:reuters.com:*:nL2N2ES0M7  urn:newsml:reuters.com:*:nL2N2EL0TL  urn:newsml:reuters.com:*:nL1N2EF0Q1
    
 
 
 
    (Terence Gabriel)
    *****
 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
NDX07222020    https://tmsnrt.rs/30DDD8S
Early US stocks snapshot    https://tmsnrt.rs/3eMhIRT
Existing home sales    https://tmsnrt.rs/3joyn1D
Mortgages    https://tmsnrt.rs/2ZR824E
Midday US stocks snapshot    https://tmsnrt.rs/3juSBXv
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)