Live Markets: Chips and FANG stocks rebound in volatile session
14/02/2022 18:36
* DJI, S&P 500 decline, Nasdaq advances
* Energy weakest major S&P sector; cons disc leads gainers
* Dollar, bitcoin, gold, crude all up slightly
* U.S. 10-Year Treasury yield rises to ~2.00%
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CHIPS AND FANG STOCKS REBOUND IN VOLATILE SESSION (1330
EST/1830 GMT)
U.S. chipmakers are rebounding on Monday, with so-called
FANG stocks also getting a lift following a recent selloff
caused by nervousness related interest rates.
The Philadelphia Semiconductor Index .SOX up around 0.6%
at mid-day, is outperforming the Nasdaq's .IXIC 0.4% gain and
the S&P 500's .SPX 0.2% loss for the session. Earlier, the SOX
index gained as much as 2%.
The NYSE FANG+TM index .NYFANG is up around 0.8%, with
Amazon rallying 2.4% and Alphabet GOOGL.O up 1%. Nvidia
NVDA.O , a component of the SOX index and the NYSE FANG+TM
index, is rising 1.5% ahead of the graphic chipmaker's quarterly
report on Wednesday.
The chip index's rise follows a 4.9% drop on Friday, when
Wall Street was slammed by fears of war between Russia and
Ukraine. Sentiment improved on Monday after comments from a
Russian official eased worries about a possible invasion on
Ukraine. urn:newsml:reuters.com:*:nL4N2UP3B1
Micron Technology MU.O is climbing 0.3% after Wedbush
upgraded the company to "outperform" from "neutral", with
analyst Matt Bryson pointing to higher NAND memory chip prices.
Intel INTC.O is near unchanged ahead of its investor day
on Thursday, when analysts will look for signs of improved
competitiveness after the chipmaker fell behind rivals in
manufacturing technology.
With Monday's gain, the SOX index remains down about 13% in
2022, and up about 6% over the past 12 months. While a global
shortage of chips has helped many semiconductor makers, some
investors are wary of potential over-expansion of production
capacity in the industry.
(Noel Randewich)
*****
RISING RATES FUELING TECH SECTOR VOLATILITY (1210 EST/1710
GMT)
Nicholas Colas, co-founder of DataTrek Research, is taking a
look at rising interest rates and their affect on tech stock
valuations.
Colas notes that common wisdom, and basic finance, says that
when rates go up, stocks with "a long tail of future expected
earnings will tend to decline."
However, he also says that a market historian might come up
with a different answer. For example, Colas says that from July
2016 to October 2018, the U.S. 10-year Treasury yield went from
1.4% to 3.2%. However, the Nasdaq Composite .IXIC advanced 48%
during that two-year period as U.S. “Big Tech” hit its stride.
Therefore, as Colas sees it, rising rates "don’t necessarily
help or hurt valuations," but they "definitely increase" tech
sector volatility.
Here is a chart of ratio of NASDAQ 100 expected volatility
.VXN to S&P 500 expected volatility .VIX with the U.S.
10-Year Treasury yield US10YT=RR overlayed:
Colas notes that NASDAQ 100 expected volatility is the same
as that for the S&P 500 "much more often than you would think."
However, he also outpoints that from 2002 to 2016, lower
yields helped reduce Nasdaq volatility to levels similar to the
S&P 500. From 2017 to 2019, higher yields ushered in higher
Nasdaq volatility. More recently, with yields rising again,
Nasdaq volatility is up.
Colas has two takeaways:
First off, as long as the 10-year Treasury yield continues
to climb, expect U.S. tech stocks to show incremental volatility
relative to the S&P 500.
Secondly, once the 10-year Treasury yield does stabilize,
U.S. tech stock volatility vs the broader market should start to
decline.
"For many investors, that will be a welcomed change and
should encourage capital flows back into tech names. We don’t
think we’re there yet, but like all market cycles this shift
will eventually have its day."
(Terence Gabriel)
*****
BOFA SEES 10% UPSIDE TO EUROPEAN BANK EARNINGS (1111
EST/1611 GMT)
European banks are tanking amid market jitters of a possible
Russian invasion of Ukraine, but for BofA Securities the current
rate outlook means there's another 10% upside to the sector's
earnings.
"As rates-driven earnings upgrades are capital-free, this
has translated quickly into €20bn more shareholder payouts for
2022E alone", said analysts at the U.S. investment bank, which
have upgraded bank earnings three times since rate expectations
began to move in September.
With central banks set to start a mammoth tightening, BofA
is eyeing central bank balance sheet reductions of $800 billion
a year from next month, down from the $10 trillion expansion
over the last few years.
"Expansion by design compressed long bond yields.
Normalisation should enable banks to realise the benefits of
duration, absent for years,” they added.
With virtually all STOXX 600 constituents flashing red and
the overall index down 2%, banks .SX7P are coming out worst
with a 3.1% drop. The slide marks a reversal from last week when
they gained 3.9%, outperforming the STOXX index by more than
double.
(Lucy Raitano)
*****
EUROPEAN EARNINGS: 2022 UPGRADES COMING? (1015 EST/1515 GMT)
Tensions over Ukraine and rate jitters are the No.1 worry
for equity investors these days and that has clearly made it
hard for markets to fully enjoy the good news coming from the
earnings season, especially on the Old Continent.
But once (and if) the dust settles, prices may start to
better reflect the strong corporate profitability numbers.
In Europe, where four out of ten companies have already
reported, growth remains strong at 74% and the breadth of beats
at 65% remains at historical highs, according to Bernstein.
"These are strong numbers and along with the exceptional
numbers reported in Q1 and Q2 of this year are among the highest
in our post 2012 quarterly earnings season dataset," said
strategists at the U.S. investment house.
"The bar on full year earnings growth remains very low by
historical standards with analysts forecasting only 6.5% growth
for 2022, leaving plenty of room for upside to estimates," they
also said, adding that "Further upgrades to earnings should
provide additional fundamental support for European equities."
(Danilo Masoni)
*****
MIGHT U.S. STOCKS LAPSE INTO LIMBO? (0956 EST/1456 GMT)
U.S. stock indexes are mixed in early trade on Monday amid
concerns about higher interest rates, while comments from a
Russian official eased worries about a possible invasion on
Ukraine. .N
So far, the Nasdaq .IXIC is posting a gain, while small
caps .RUT , FANGs .NYFANG , transports .DJT and chips .SOX
are among outperformers. The S&P 500 .SPX is around flat,
while banks .SPXBK , and the DJI .DJI are down.
Regarding expectations for action early in the week, Mike
O'Rourke, chief market strategist at JonesTrading, wrote in a
note on Sunday that after Friday's sharp weakness, and in the
absence of a weekend Russian invasion of the Ukraine, one would
typically expect an immediate bid to the market.
However, he adds that with reports that the Biden
Administration is saying the invasion could happen "as early as
Tuesday" it is likely to leave investors in a state of limbo.
O'Rourke also wrote that "If Wednesday comes and there is no
change in Ukraine's status in one way or the other, one has to
ask if the Biden Administration becomes the 'boy who cried
wolf.'"
Here is where markets stand in early trade:
(Terence Gabriel)
*****
NASDAQ 100 FUTURES BOUNCE, BUT STILL BATTERED (0900 EST/1400
GMT)
U.S. equity index futures have bounced off their overnight
lows. This despite rising geopolitical tensions between Russia
and the West which pose a double whammy for investors already
worried about aggressive policy tightening by the Federal
Reserve to combat surging inflation. .N
Indeed, CME Nasdaq 100 futures NQcv1 fell as low as 14,031
in overnight trade on Monday, putting them down around 1.5% from
Friday's close, and more than 16% from their November 22
intraday peak. However, they now stand around 14,200, or just
slightly red on the day:
Of note, so far the futures are holding support at their
January 27 close of 13,986.75. This ahead of the January 24
intraday low at 13,706.
Meanwhile, traders are watching closely the behavior of
momentum oscillators. Of concern, since diverging into the
November peak, the daily RSI has been unable to muster enough
strength to move back above the 70.00 overbought threshold.
Doing so could signal the futures have regained sufficient
thrust to sustain a greater recovery.
That said, in the event of equal or lower NQcv1 lows vs the
late-January close, traders would also watch to see if the RSI
can form a higher trough vs its late-January low, which was its
most oversold reading since late-February 2020.
In that event, a bullish convergence could suggest the
futures were especially ripe for a more significant low to form.
Additional support is at the May 2021 low of 12,896.50 and
the 38.2% Fibonacci retracement of the entire March
2020-November 2021 advance at 12.873.57.
Since the futures broke sharply lower in early January, the
descending 30-day moving average, now just over 15,000, has been
capping strength. urn:newsml:reuters.com:*:nL1N2UM0SM
(Terence Gabriel)
*****
FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE: urn:newsml:reuters.com:*:nL8N2UP3S2
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
NQcv102142022 https://tmsnrt.rs/3h15bxP
earlytrade02142022 https://tmsnrt.rs/3Bi6Hou
VXNVIX10Y02142022 https://tmsnrt.rs/3rLptS2
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)