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Trader at the New York Stock Exchange on Trust Day.
Courtesy of NYSE
The sleep giant that Big Tech has woken up to – and that has been good news for the stock market that was starting to look a little tired.
It was only in our column on January 18th that we marveled at the S&P 500’s ability to get nearly 8% from August 31 despite the FAANGs plus
Microsoft
(ticker: MSFT) sitting out the rally. That all changed last week when the tech titans suddenly found themselves back in fashion.
The
Dow Jones business average
rose just 182.72 points, or 0.6%, to 30,996.98 last week, and
S&P 500
received 1.9%, to 3841.47. The tech-heavy
Nasdaq Composite
it jumped 4.2%, to 13,543.06, the biggest gain since the week ended on November 6th.
Credit
Netflix
(NFLX), which rose 13% last week after sending in far more registrants than Wall Street had modeled, to help soar Nasdaq . But this was not the only FAANG in motion, with the rest of the group—
Facebook
(FB),
Amazon.com
(AMZN),
Apple
(AAPL), and parent Google
Alphabet
(GOOGL) – saves a gain of more than 8%. They were aided by job prospects after Netflix’s release and by the fact that 10-year Revenue results stopped going up. Rising yields signal a stronger economy and make fast-growing companies look so attractive on a valuation basis.
Of course, the Federal Reserve will have something to say about that after this week ‘s Federal Open Market Committee meeting. Fed Chairman Jerome Powell and his colleagues had to fear an early halt to buying their tie earlier this month, so don’t expect him to get a grip on the boat. If anything, he will continue to call on the federal government to help curb the economy with another round of stimulus – and promise to hold on for as long as the economy needs it.
“[We] expects Chairman Jerome Powell to use his press conference after the meeting to reinforce the message that the Fed would tighten ‘no time,’ ‘wrote Capital Economist economist Paul Ashworth. “The Fed clearly sees its short-term tensions over the last few years as a mistake and is much more likely to make a mistake this time around – to avoid another ‘tantrum taper’ in the bond markets. ”
But what is really needed now is progress in the fight against Covid-19. As the virus goes, so does the market. In 2020, that meant looking at the change in the number of Covid cases for evidence that the reopening was continuing sharply. Now, the market is taking things away from the pace of vaccinations, especially the percentage of the population receiving the vaccine each week, explains
UBS
strategic Keith Parker.
The small company
Russell 2000
This has been particularly in response to an acceleration in dosing rates – the number of people receiving the vaccine now exceeds 900,000 per day – and could gain momentum if the number continues that goes up. According to Parker ‘s mathematics, a doubling of the index rate could rise 6% to 9% more by the middle of the second quarter, and the S&P 500 3% to 5%.
“The current number of U.S. doses dispensed indicates potential for doubling the pace, although there are still bottles,” he writes. “Removing bottles to dispense doses would bring an upside-down issue near term in our view.”
That doesn’t mean we shouldn’t expect a correction – and probably soon. Lori Calvasina, RBC Capital Markets ’chief U.S. equities strategist, notes that the S&P 500 has been following a recession-like pattern since 1990, one that sees a resurgence occur in three stages: initial recovery, consolidation period, and second recurrence.
The first recovery lasted an average of 10 months, with an average yield of 48%. This was followed by a consolidation period lasting from two to seven months which saw stocks fall by an average of 17%. This was followed by another rally that saw stocks gain an average of 19%.
The typical kick from the March lows has lasted about 10 months and gained just over 71%. If the market follows the historical pattern, it should pull back before spring – but that will be a buying opportunity. “My view is that we will see a continuation of the recovery rather than a double-dip recession,” Calvasina says. “If you think so, you have to buy the dip. ”
But it may also be time to add a little protection to your folder. The market demand for cycling-driven, high-beta stocks has meant that stocks with low volatility have been left behind. The return difference is between the U.S. MSCI Lowest Volatility Index, which has a portfolio of low volatility stocks, and the MSCI USA Index is now at its widest level since 1999, says John Kolovos, head of stock -technical technician at Macro Risk Advisors. The ownership of some of these left-wing companies could be the way to add a little ballast to a package for fear of falling, Kolovos says.
“Buy some resources, buy staples,” he explains. “These are the ones who are most overwhelmed in an environment where there is too much market.”
Just be sure to resell them once the correction is over.
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Write to Ben Levisohn at [email protected]