A good explosion of good news on the pandemic and the economy on the bond market began last week. Stocks hit as a father catching a running hook that comes with a low knee strike.
Below are ideas from Wall Street strategists on how you can position for clearer developments. Plus, following tumbles for
Tesla
(ticker: TSLA) and Bitcoin, I asked a woman who placed a big bet on both – and won – the bull issue to get out of here.
Last week, I noticed a fourth-quarter earnings for
S&P 500
companies seem to have grown from a year ago, despite expectations for an 11% decline – one of the ups and downs surprises in decades. Meanwhile, 45 million Americans have now received at least the first of two pictures of the Covid-19 vaccine. Tens of millions more can carry antibodies from diseases, reported or not. A new single-shot vaccine appears to be effective. And a $ 1.9 trillion stimulus package could become law by mid-March.
The economy this year should “run hotter than at any time in the last 35 years,” he wrote
Credit suisse
U.S. stock chief Jonathan Golub last week. Investors have complained that faster growth could stop inflation; higher inflation could make the Federal Reserve less willing to keep interest rates close to low levels; and without the Fed actively moving savers out of investment accounts and into stocks, the market may sell.
On Tuesday, stocks did just that until Fed Chairman Jerome Powell spoke sharply to the economy, which seemed to reassure investors, which meant rates would remain low for years to come. On Thursday, bond yields were spinning – although by being “spiky” I mean I rose sharply to still poor levels.
The question now is whether that is an obstacle or the beginning of something more permanent. Paul Donovan, chief economist at
UBS
Global Wealth Management, expects inflation to be “higher but not high” this year, with little challenge for investors. Partly, that’s because as economies reopen, pent-up demand flows more toward services than goods. “He’s an unusual person who posts pictures of a new washing machine on an Instagram feed,” he writes.
Service providers are usually better than manufacturers at increasing supply quickly.
UBS ‘Donovan colleague David Lefkowitz, head of stocks in America, notes that last-half rates rose more than a percentage point over three months at the end of 2016, when stock did not fall above 2% peak to pool, and in mid-2013, after that the S&P 500 ended the year up 33%. He says pockets of stock, such as utilities, staples, property investment trusts, and growth stock, have historically been worse.
High stodgy yields are known to decline as bond yields rise, but that latter group, growth stock, may look strange. Higher yields are not as smooth as the “discounted cash flow” valuations relied on by growth managers, if not Robinhood meme-slingers. So sections of
AT&T
(T) and an Atlanta-based facility
Southern Company
(SO) was relatively weak last week, but Tesla and
Virgin Galactic
(SPCE) got clobbered.
What to buy now? Lefkowitz advocates consumer choice, energy, finance, business, and healthcare, and prefers small and midsize companies to large ones. Credit Suisse’s Golub is bullish, predicting that the S&P 500 index will rise 12% from here this year. He praises what he calls super-cyclicals, or companies that stand to get the most out of reopening economies. To find them, his analysts created a so-called economic acceleration index, made up of measures such as Treasury yields, high-yield spreads, and commodity prices, and then found shares that showed the relationship. strongest to this index. The list includes a casino operator
Las Vegas Beach
(LVS), oil giant
Occidental Petroleum
(OXY),
Citigroup
(C), and tractor manufacturer
Deere
(DE).
Savita Subramanian, chief stock strategist at BofA Global Research, expects a slight decline for the S&P 500 from here through December, and is particularly down on the growth stock of large firms. “Farewell to TINA,” she wrote last week, referring to “there is no other choice,” cried the battles of investors who buy stock for lack of better options.
The Treasury’s 10-year yield, Subramanian notes, recently traded above the S&P 500 share yield. It believes the pressure point for investors is moving money back into bonds as a result of Finance. 10-year high of 1.75% – about a quarter of a point higher than recent levels.
Some growth investors are uncertain. I spoke to Catherine Wood last week. She is running
ARK Innovation
(ARKK), a trading fund that returned 152% last year, outperforming its peers by more than 100 percentage points. Tesla is the main asset – it bought more last week, and when investors heard, the stock kicked. In other assets, Wood has uploaded
Grayscale Bitcoin Trust
(GBTC). What’s her bull issue from here?
For Tesla, the cost of making batteries is falling, and electric cars become much cheaper than gasoline ones. In addition, the industry will move to autonomous driving, where Tesla has a big start. Her bear’s case suggests that the autonomous movement is not yet happening. If that plays out, she says she still expects Tesla to have more than double the value over the next five years. Her bull case, she’s redesigning now. “He should be out in the next few weeks,” she says.
And Bitcoin? It was recently valued at just over $ 850 billion. Wood reports on a collaboration in 2015 with economist Arthur Laffer where the two concluded that the cryptocurrency met monetary requirements: “And I said, ‘Art, how big could this be? And he said, ‘Well, how big is the U.S. currency base? ‘”
If you ask, St. Louis Federal Reserve Bank puts it at $ 5.2 trillion.
Write to Jack Hough at [email protected]