Live Markets: Growth stock underperformance dragging down S&P 500

Commerce

02/06/2022 17:12

* Major U.S. indexes now positive; Nasdaq out front, up >1%
    * Materials lead S&P sector gainers; utilities weakest group
    * Euro STOXX 600 index ends up ~0.6%
    * Dollar falls; crude, gold, bitcoin rise
    * U.S. 10-Year Treasury yield edges up to ~2.92%

    June 2 - 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
  
    
    GROWTH STOCK UNDERPERFORMANCE DRAGGING DOWN S&P 500 (1205
EDT/1605 GMT)
    The seven biggest growth stocks account for 43% of the
losses in the S&P 500 year-to-date and large cap stocks could
remain under pressure until their earnings improve, according to
DataTrek.
    “Every Big Tech name is lagging the broad market this year,
and with an aggregate 24 percent weighting in the S&P 500 their
underperformance is having a measurable impact,” DataTrek
co-founders Nicholas Colas and Jessica Rabe said in a note on
Thursday.
    Losses in Apple  AAPL.O , Microsoft  MSFT.O , Google parent
Alphabet  GOOGL.O , Amazon  AMZN.O , Tesla  TSLA.O , Facebook
parent Meta Platforms  FB.O  and Nvidia  NVDA.O  account for six
points of the S&P 500’s  .SPX  14% year-to-date decline.
    These stocks could remain suppressed until their earnings
improve, DataTrek said. “Until Big Tech can beat estimates and
analysts raise their numbers in response, these names will
likely walk a rocky road.”
    Stocks initially dropped on Thursday after Microsoft lowered
its profit forecast, showing the impact that earnings revisions
are having on investor confidence and stock market valuations.
 .N 
    On the upside, recent price declines reflect concerns over
lofty valuations, but “none of these stocks represent broken
companies,” DataTrek said.
    Stabilizing Treasury yields, with 10-year yields  US10YT=RR 
falling to 2.92% from a three-and-a-half year high of 3.20% last
month, could also help growth companies.
    “Our view is that the Treasury market is starting to
understand that the famous “Fed Put” has shifted from stocks to
long-term bond prices. There is simply too much government,
business and individual debt in the American economy to allow
10-year yields to go much past 3 percent for too long,” DataTrek
said.
    
    (Karen Brettell)
    *****    
    IS THE SPAC PARTY OVER? (1135 EDT/1535 GMT)
    Special purpose acquisition companies (SPACs) are struggling
to hold their own in 2022 as volatile market conditions, high
share redemption and increased regulatory scrutiny all play
spoilsport to a space that was abuzz with activity as recent as
last year.
    Business magazine Forbes and online ticketing company
SeatGeek are among the high-profile names that recently canceled
their plans to go public through blank check deals.  urn:newsml:reuters.com:*:nL4N2XO2KE
    Meanwhile, the few companies that have managed to list their
shares on Wall Street through SPAC deals have failed to perform
as high investor withdrawals before the merger sent their shares
tumbling. 
    Here is a list of stock performances of some of the recently
de-SPACed companies in 2022:
    
   Listing through SPACs in    Listing Month     Stock market
             2022                                performance
                                                 since debut
 Dave Inc  DAVE.O                 January                  -73%
 MSP Recovery  MSPR.O               May                 -87.60%
 Inspirato  ISPO.O                February                 -53%
 MoonLake Immunotherapeutics       April                   -45%
  MLTX.O                                       
 Terran Orbital  LLAP.N            March                   -45%
 Prenetics  PRE.O                   May                 -35.40%
 Allego Holding  ALLG.N            March                    29%
 Forge Global  FRGE.N              March                 98.20%
 
    The De-SPAC index  .DESPACTR , which tracks performance of
25 of largest U.S.-listed firms that debuted after a SPAC
merger, has slumped near 50% so far this year.   
    

    (Bansari Mayur Kamdar)
    *****    

    CHURNING CEMENT: ADP, JOBLESS CLAIMS, LAYOFFS, ET AL (1115
EDT/1515 GMT)
    A truckload of data, concentrated due to the
holiday-shortened week, was dumped on market participants on
Thursday, and it added to the growing pile of indicators that
show persistent tightness in the labor market ahead of Friday's
jobs report.
    The non-government workforce grew by 128,000 in May,
according to payrolls processor ADP's National Employment index
 USADP=ECI .  urn:newsml:reuters.com:*:nL1N2XO21A
    The number undershot expectations by a mile and follows the
downwardly adjusted 202,000 April gain.
    More glaringly, the print falls 60.6% short of the 325,000
private sector job adds analysts expect the Labor Department's
more comprehensive May employment report to show on Friday.
    "Labor market continues to see demand and supply imbalances.
We expect job growth to remain on an upward trajectory," writes
Rubeela Farooqi, chief U.S. economist at High Frequency
Economics. "But the pace is likely to slow as the Fed continues
to raise rates over coming months."
    It must be noted that the ADP report has a spotty track
record as a jobs report predictor.
    The hit-and-miss (mostly miss) relationship between the two
is illustrated by the graphic below:
    
    
    The number of U.S. workers filing first-time applications
for unemployment benefits  USJOB=ECI  unexpectely inched down to
an even 200,000 last week instead of holding steady at 210,000
as economists predicted.  urn:newsml:reuters.com:*:nL1N2XO24Z
    The number is at the absolute bottom rung of the range many
associate with healthy labor market churn and, together with
Tuesdays JOLTS report - which showed job openings still hovering
near record highs - shows a stubborn, persistent tightness in
the labor market.
    "Demand for labor is strong, layoff activity is low, and
conditions are tight," says a note by Thomas Simons and Aneta
Markowska, economists at Jefferies. "The consistent decline in
continuing claims also adds credence to the argument that the
labor market is very tight ... more people are finding jobs than
losing them."
    This has resulted in red-hot wage growth which, while
supporting consumer spending power is also tossing gasoline on
the inflation fire and fueling the Fed's hawkishness.
    Indeed, referring to Friday's employment report, Ben
Jeffery, strategist at BMO Capital Markets says "we will be more
focused on average hourly earnings and any greater evidence that
the peak acceleration in wages is in the rearview mirror."
    Ongoing claims  USJOBN=ECI , reported on a one-week lag,
fell more than expected, dropping 2.5% to 1.309 million,
dropping further below the 1.7 million pre-COVID level.
    
    
    Meanwhile, job cuts announced by U.S. firms pulled back by
14.7% to 20,712 in May.
    Year-to-date, planned layoffs  USCHAL=ECI  are down 48% from
the same period last year, according to executive outplacement
firm Challenger Gray & Christmas (CGC).
    Even so, a blizzard of pink slips struck the tech, fintech
and construction subsectors last month. In May, tech layoffs
were up 781%, fintech surged 268% and construction rose 145%
compared with their Jan through April totals.
    "Many technology startups that saw tremendous growth in
2020, particularly in the real estate, financial, and delivery
sectors, are beginning to see a slowdown in users, and coupled
with inflation and interest rate concerns, are restructuring
their workforces to cut costs and shore up capital," writes
Andrew Challenger, CGC's senior vice president.
    Cost-cutting was, by far, the most common reason provided.
    
    
    The Labor Department also took its second stab at
first-quarter labor cost and productivity growth.
    The data showed a hotter-than-previously-reported 12.6% jump
in unit labor costs  USLCA=ECI  on a quarterly annualized basis,
and a slightly shallower 7.3% decline in productivity
 USPROR=ECI .  urn:newsml:reuters.com:*:nW1N2XP000
    The drop in productivity could be partly attributable to
post-pandemic demand shifting from goods to services - as
generally lower-paying service sector jobs are, as a rule,
deemed less productive than other sectors, at least according to
the Labor Department's yardstick.
    "Through the quarterly volatility, the data show a slowing
trend in productivity but an acceleration in labor costs,"
Farooqi helpfully outpoints.
    
    
    And on a final note, stepping away from the labor market,
new orders from U.S. factories  USFORD=ECI  rose by an
underwhelming 0.3% in April, missing consensus and marking a
sharp deceleration from the prior month's 1.8% increase.
 urn:newsml:reuters.com:*:nW1N2XP004
    The data is consistent with recent survey reports (PMI,
Empire State, Philly Fed), all of which have pointed to a
slowdown in manufacturing, as sector responsible for about 11%
of U.S. GDP.
    On a positive note, new orders for capital goods excluding
aircraft and defense items - the so-called 'corecap' measure
seen by many as a harbinger of U.S. business spending plans -
was upwardly revised to 0.4% from 0.3%.
    
    
    Wall Street is a mixed bag in late morning trading, with the
Nasdaq, and S&P 500 in positive territory, and the Dow now
around flat.
    Economically sensitive chips  .SOX  and transports  .DJT 
are having a better day than most, while Tesla  TSLA.O  is
providing the biggest boost.
    Microsoft  MSFT.O  and Apple  AAPL.O  are the heaviest
drags.
    
    (Stephen Culp)
    *****
    
    WALL STREET MIXED AS INFLATION STILL RATTLES (1035 EDT/1435
GMT)
    Wall Street is mixed on Thursday as inflation concerns are
front and center after data showed demand for labor remained
strong and oil prices rose, despite an OPEC+ agreement to boost
crude output to compensate for a drop in Russian production.
    Materials  .SPLRCM  is leading three of the 11 S&P 500
sectors higher, while healthcare  .SPXHC  is taking the biggest
hit. 
    Growth stocks  .IGX  are off 0.1%, while value shares  .IVX 
are off 0.6%. 
    In the middle of sector performance is energy  .SPNY , down
around 1% after the Organization of the Petroleum Exporting
Countries and allies agreed to boost production by 648,000
barrels a day in July and August, a source said.  urn:newsml:reuters.com:*:nL8N2XP36P
    The number of Americans filing new claims for unemployment
benefits unexpectedly fell last week in a sign of a tight labor
market. Weekly unemployment claims report from the Labor
Department, showed state jobless benefits rolls declining to
their lowest level since 1969 in the second-half of May.
 urn:newsml:reuters.com:*:nL1N2XP0TE
    Shares of Microsoft Corp  MSFT.O  are off about 3% after the
company cut its fourth-quarter forecast for profit and revenue,
citing a hit from a stronger dollar.  urn:newsml:reuters.com:*:nL4N2XP2H6
    Below is a snapshot of market prices:
    

    (Herbert Lash)
    *****    
    
    U.S. STOCKS INFLOWS REVIVE IN MAY AMID BEARISH SIGNALS (1003
EDT/1403 GMT)
    U.S. equity flows rebounded strongly in May, more than
offsetting the outflows from the prior month, according to Citi
Research, as investors took advantage of the pullback in stock
prices. 
    The S&P 500 fell as much as 7.5% in May before recovering in
the final days to end the month flat on waning fears that the
Federal Reserve's rate hikes will tip the economy into a
recession.
    Money came back into the more heavily traded Large Cap Core
ETFs, as dip buying was on display, Citi analysts noted in their
monthly ETF flows report.
    Retail buyers too returned after a two week absence,
injecting a net inflow of $2.8 bln into the stock market in the
week ended June 1, in line with the one-year average, JPM
analyst Peng Cheng wrote in a separate note published on
Wednesday.
    Despite last week's rebound it remains a painful year for
stock markets with the benchmark S&P 500 index down 14%.
    Younger cohorts of retail investors that use leverage via
margin accounts have deleveraged so sharply that all the
previous post-pandemic increase has been unwound, noted JPM
analysts, citing their analysis of NYSE margin accounts and
options flows data.
    Equity funds globally, including the equity portion of
hybrid funds, have lost $5 trillion of assets under management
this year, effectively reversing most of $6 trillion increase in
2021, according to J.P.Morgan calculations. 
    Bank of America strategists likened the recent climb in
stocks to a bear market rally, suggesting there are reasons to
be constructive in the near-term, but volatility is likely to
last.
    BofA's Sell Side Indicator (SSI), which tracks the average
recommended allocation to stocks by U.S. sell-side strategists,
hit a two-year low in May, for a fifth consecutive month of
declines.
    
    (Medha Singh)
    *****
 
    S&P 500: THAWING OUT? (0900 EDT/1300 GMT)
    From its Jan. 3 record close to its May 19 closing low, the
S&P 500  .SPX  collapsed 18.7%. Although the benchmark index has
yet to confirm an "official" bear market by ending down 20% or
more from its record close, the devastation within the index has
been pretty severe when looking at the percentage of S&P 500
companies trading above their 200-day moving average (DMA):
    
    
    On May 20, this measure fell to 24.6%, which was the lowest
level since early-May 2020.
    Back in May 2020, the SPX was in the early stages of the
recovery off it pandemic-crash bottom. On March 23, 2020, the
SPX ended down nearly 34% from its record close and the
percentage of SPX stocks trading above this long-term moving
average was down around 4%.
   With more similar SPX declines in percentage terms, of 14.2%
into its early-2016 trough and 19.8% into its late-2018 low, the
measure bottomed in the 9% to 19% area.
    Thus, it now remains to be seen if the recent low just under
25% proves to be sufficiently washed out. That said, from its
early-2021 high, the measure is still showing lower peaks and
troughs.
    Still, with the SPX's recent strength  urn:newsml:reuters.com:*:nL1N2XN0PG
 urn:newsml:reuters.com:*:nL1N2XO0MY, the measure has warmed up a bit and is now just
over 30%. A rise to challenge just its March 2022 high, would
put it closer to 60%. 
    Meanwhile, the SPX ended Wednesday about 8% below its
200-DMA, which now resides around 4,450 - click here for some
commentary on S&P 500 action when the index is trading below its
200-DMA:  urn:newsml:reuters.com:*:nL2N2WX0N9
        
    (Terence Gabriel)
    *****
    
    FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300
GMT - CLICK HERE:  urn:newsml:reuters.com:*:nL8N2XP1QZ
    
      
    


    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
SPXstocksabove200dma    https://tmsnrt.rs/3ao3t9G
Early market prices    https://tmsnrt.rs/3xa7nvu
ADP    https://tmsnrt.rs/3xbjOY2
Jobless claims    https://tmsnrt.rs/3PPUiPk
Challenger Gray    https://tmsnrt.rs/3m8jZx1
Productivity and labor costs    https://tmsnrt.rs/3akJZ5t
Factory orders    https://tmsnrt.rs/3aDAfnd
Many companies listed recently through SPAC deals struggle to
perform    https://tmsnrt.rs/3xb11vV
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)