Top News  Shutterstock The major stock averages closed the week higher as U.S. economic data underscored a recovery that's building momentum. For the week, the Nasdaq gained 1.1%, the Dow rose 1.2%, and S&P 500 increased 1.4%, its sixth weekly gain in the past seven. The S&P′s strong performance in recent weeks has pushed its year-to-date gains to more than 11%. Retail sales, housing starts and jobless claims all came in better than the market was anticipating, while investors took a pop in March consumer inflation in stride. Bonds were more volatile though, with strong buying, possibly due to short-covering, pushing yields down after Thursday's retail sales figures. Yields then rebounded on Friday. Cryptocurrencies also garnered a good deal of attention. Bitcoin rose to a record high as trading platform Coinbase started trading through a direct listing. Turkey banned crypto payments, but many pointed to Coinbase's debut as another step forward in crypto going mainstream. | | Top News Shutterstock The major stock averages closed the week higher as U.S. economic data underscored a recovery that's building momentum. For the week, the Nasdaq gained 1.1%, the Dow rose 1.2%, and S&P 500 increased 1.4%, its sixth weekly gain in the past seven. The S&P′s strong performance in recent weeks has pushed its year-to-date gains to more than 11%. Retail sales, housing starts and jobless claims all came in better than the market was anticipating, while investors took a pop in March consumer inflation in stride. Bonds were more volatile though, with strong buying, possibly due to short-covering, pushing yields down after Thursday's retail sales figures. Yields then rebounded on Friday. Cryptocurrencies also garnered a good deal of attention. Bitcoin rose to a record high as trading platform Coinbase started trading through a direct listing. Turkey banned crypto payments, but many pointed to Coinbase's debut as another step forward in crypto going mainstream. | |
| Economy Retail inflation for March came in hotter than expected, but that didn't jolt the markets. The number was one of the most-anticipated inflation reports in recent memory as the market looks for insight on just how much the Federal Reserve will accommodate higher prices. The headline CPI rose 0.6% for the month and was up 2.6% year over year. The core rate rose 0.3%, up 1.6% year over year.
Economists say that inflation numbers are expected to have a kind of sticker-stock effect in the coming months because of base effects. The year-over-year numbers will appear to be large because the comparable 2020 months were at the heart of the economic shutdown. There are also fundamental concerns, though, with supplier demand outstripping supply, as seen in the ISM numbers, heightening concerns about bottlenecks, That, and pent-up demand for services, could find its way into retail prices.
Controlling the narrative. The Federal Reserve has been keen to tamp down these inflation worries, stressing that the upward pressure on prices would be "transitory." Also, the White House Council of Economic Advisers published a blog yesterday to deliver the "transitory" message. Fed speakers have also been at pains to remind the market of its new policy to let inflation run hot for a time to balance persistent inflation below its 2% target. Fed chief Jay Powell said in his weekend interview that inflation would need to be above 2% for a time, Vice Chairman Richard Clarida said the FOMC would need to see inflation above 2% for "at least a year" to change policy and Dallas Fed President Robert Kaplan says inflation could top 2.5% before settling down.
Macquarie analyst Viktor Shvets likens the current concerns about stimulus and rebounding employment boosting inflation (Phillips Curve) to the expired Norwegian Blue in Monty Python's Dead Parrot Sketch. Economics "as a profession seems to be stuck with a dead or non-existent parrot, refusing to accept that unlike 1950s-60s, there are no longer any meaningful trade-offs between inflation, wages and unemployment, and that it is next to impossible to estimate capacity constraints," Shvets wrote in a note.
"We do not anticipate that an inflationary pick-up (mostly due to base effect, demand normalization and supply bottlenecks) would be sustainable, and cheap global products (from textiles to mobile phones, and from batteries to cars) would still be available to the US consumers," he added. "The peak of inflationary and reflationary momentum should pass by the middle of 2022 (Q2)."
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| Cryptocurrency Trading platform Coinbase (NASDAQ:COIN) rose 30% of the first day of its direct listing, but that was disappointing for some investors as shares closed more than $100 below the high price at which it opened.
"Today's listing is a milestone, but it's not as important as every new day in front of us," CEO and co-founder Brian Armstrong wrote in a blog. "Coinbase has an ambitious mission: to increase economic freedom in the world. Everyone deserves access to financial services that can help them build a better life for themselves and their families. We have a lot of hard work to do to make this a reality."
Heading into Coinbase's debut, Bitcoin (BTC-USD) hit a new record high above $63,000, while Dogecoin (DOGE-USD) soared. But worries about a bubble in crypto assets persist. Bank of America's latest fund managers survey indicates an overwhelming contention that Bitcoin is in a bubble. 74% of those surveyed say the crypto is now in a bubble, compared with just 7% who see equities in a bubble (most think stocks are in a late-stage bull market). Bitcoin was the second-most crowded trade behind long tech, according to respondents.
But Coinbase's strong first day may help calm some broader market nerves. Morgan Stanley says "the underperformance in IPOs and SPACs is a signal that the excessive liquidity provided by the Fed is finally being overwhelmed by supply." "My experience is that when new issues underperform this much, it's generally a leading indicator that equity markets will struggle more broadly," chief equity strategist Michael Wilson writes. "When combined with the fact that leverage in the system is very high, it could spell more trouble for riskier, more speculative investments." | |
| Cryptocurrency As interest in crypto rose this week, so did trading volumes, leading to problems for trading platforms, Coinbase experienced an outage, as did Robinhood (RBNHD).
A day after it went public, Coinbase tweeted: "Due to an issue with the recent network upgrade, we've temporarily disabled ETH and ERC20 withdrawals from Coinbase and Coinbase Pro. Receives of these assets may also be delayed. We're working on a fix, and we'll send an update as soon as we have one." "Like others, we were experiencing unprecedented demand for Robinhood Crypto services, which created issues with crypto trading. We've resolved the issue and apologize for the inconvenience," Robinhood tweeted.
Meanwhile, HSBC (HSBC) is prohibiting its customers from buying shares of Coinbase as it sticks to a policy of avoiding virtual currencies. "HSBC has no appetite for direct exposure to virtual currencies and limited appetite to facilitate products or securities that derive their value from virtual currencies," HSBC told Coindesk. "This is not a new policy."
And Reddit's (REDDIT) WallStreetBets forum, which rose to prominence propelling the GameStop squeeze, is grappling with its own policy against crypto discussion. On Thursday, WSB reinstated a ban on all cryptocurrency discussion less than 24 hours after it allowed a crypto discussion thread with limits. The subreddit allowed a daily crypto discussion thread limited to Bitcoin, Ethereum and Dogecoin on Wednesday after Coinbase started trading, but kept in place a "crypto spam" ban. Bloomberg published an article late Wednesday entitled "WallStreetBets Bows to Crypto Wave, Allows Bitcoin Discussion." Yesterday, WSB moderator bawse1 posted: "Due to the article that was written @bloomberg who somehow felt that 'WallStreetBets Bows to Crypto' ... Crypto discussion is banned indefinitely. I've read a lot of dumb articles written about wsb. This one takes the cake."
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| Economy Retail sales for March jumped nearly 10%, while core retail sales, excluding autos, rose 8.4%, both well ahead of economists' forecasts. The S&P broke out of its malaise after the report Thursday and there are hopes that it could restart the reflation trade.
"The reflation trade has been taking a spring break," says UBS Global Wealth Management CIO Mark Haefele. "We believe investors should continue to position for reflation" as vaccinations roll out and economies recover, he adds, according to Bloomberg. Financials (XLF), Industrials (XLI) and Energy (XLE) are likely to outperform in that scenario. Barclays strategist Emmannuel Cau says value is attractive as a hedge to overheating, but he's less positive on leisure, food retail and autos.
The Fed's Beige Book, out Wednesday, said the U.S. economy is accelerating to a moderate pace, while some of the sectors hit hardest by the pandemic are showing signs of recovery. "Reports on tourism were more upbeat, bolstered by a pickup in demand for leisure activities and travel which contacts attributed to spring break, an easing of pandemic-related restrictions, increased vaccinations, and recent stimulus payments among other factors," the report said. Economic growth and consumer spending "accelerated over the last 6 weeks and pent-up demand for leisure activity and travel are starting to materialize," DataTrek Research writes "Inflation has picked up and companies face both labor shortages and supply chain disruptions. In the end, we continue to agree with the Fed that near-term inflation is transitory rather than structural, so we don't think Chair Powell will view these inflationary pressures as a major red flag."
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| Stocks Shares of Alibaba (BABA) are up more than 5% this week after China's decision to fine the company 4% of 2019 revenue allowed it to move forward. The State Administration for Market Regulation (SAMR) said Saturday that it had determined that Alibaba had been abusing market dominance since 2015 by forbidding its merchants from using other online e-commerce platforms. Alibaba said in a statement that it accepts the penalty and "will ensure its compliance with determination".
The $2.75B fine was the highest ever antitrust penalty imposed by China.
But investors are bidding the stock higher, with the fine not material to the company's finances and the cloud of regulatory action removed. "Despite the record fine amount, we think this should lift a major overhang on BABA and shift the market's focus back to fundamentals," Morgan Stanley wrote in a note on Sunday. "The final ruling leans significantly towards what investors had been considering the best case outcome," Macquarie says.
U.S. megacap tech companies are also facing investigations into their practices DataTrek Research listed tech regulation as one of five scenarios that could be the catalyst for a bear market. It noted that Alibaba and Tencent (TCEHY) haven't really underperformed the broader Chinese market, but rather "the Chinese government's sudden increase in tech sector regulatory scrutiny is hitting overall investor confidence."
The relatively benign outcome for Alibaba could increase confidence for U.S. Big Tech to weather any political storm from Washington.
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| U.S. Indices
Dow +1.2% to 34,201. S&P 500 +1.4% to 4,185. Nasdaq +1.1% to 14,052. Russell 2000 +1.0% to 2,266. CBOE Volatility Index -2.6% to 16.25.
S&P 500 Sectors
Consumer Staples +1.3%. Utilities +3.7%. Financials +0.7%. Telecom 0.1%. Healthcare +2.9%. Industrials +0.6%. Information Technology +1.1%. Materials +3.2%. Energy +0.2%. Consumer Discretionary +2.%.
World Indices
London +1.5% to 7,020. France +1.9% to 6,287. Germany +1.5% to 15,460. Japan -0.3% to 29,683. China -0.7% to 3,427. Hong Kong +1.1% to 29,009. India -1.5% to 48,832.
Commodities and Bonds
Crude Oil WTI +6.3% to $63.08/bbl. Gold +1.9% to $1,776.9/oz. Natural Gas +6.3% to 2.686. Ten-Year Treasury Yield +0.4% to 132.3.
Forex and Cryptos
EUR/USD +0.76%. USD/JPY -0.77%. GBP/USD +0.96%. Bitcoin +3.9%. Litecoin +25.6%. Ethereum +16.7%. Ripple +18.4%.
Top Stock Gainers
China Green Agriculture (NYSE:CGA) +69%. Ballantyne Strong (NYSEMKT:BTN) +63%. General Finance (NASDAQ:GFN) +62%. Mackinac Financial (NASDAQ:MFNC) +54%. PLBY Group (NASDAQ:PLBY) +49%.
Top Stock Losers
Tian Ruixiang Holdings (NASDAQ:TIRX) -82%. GreenBox POS (NASDAQ:GBOX) -40%. KLX Energy Services Holdings (NASDAQ:KLXE) -40%. Sequential Brands (NASDAQ:SQBG) -38%. Briacell Therapeutics (NASDAQ:BCTX) -37%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section. | |
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