Need to Know: Here are the 2 big signals that stocks need to keep moving higher, says Credit Suisse’s top equity strategist
Here are the 2 big signals that stocks need to keep moving higher, says Credit Suisse’s top equity strategist
By Barbara Kollmeyer
Critical information for the U.S. trading day
AFP via Getty Images
Technology stocks look set to keep heading lower, as S&P 500 futures are down, while the Dow has been seesawing. Monday’s action saw investors rotate into value or cyclical stocks, which have been beaten down by the COVID-19 pandemic and would benefit in an economic upturn.
Naturally, strategists have been pleading for investors not to get ahead of themselves, given a laundry list of uncertainties — e.g. how much fiscal stimulus we’ll get and how much longer we’ll live with the pandemic — hanging over this market.
Our call of the day comes from Jonathan Golub, chief U.S. equity strategist at Credit Suisse, who said he is looking for two signals that will tell him whether the current market direction that is seeing value stocks and small-caps, which also benefit in a better economic climate, will keep winning at the expense of tech.
“I’m looking at the direction of interest rates and the direction of the VIX,” Golub told clients on a call late on Monday to discuss Pfizer’s vaccine news with a team of top pharmaceutical analysts.
“In order for stocks to go higher and for the pro-cyclical trade to continue to work, you want to see the 10-year bond yield BX:TMUBMUSD10Y push toward 1.25%, or continue to move higher, and you want to see the VIX move back toward or below 20,” said Golub. “That would be the real metric to tell you whether or not the value trade has legs.”
The VIX VIX, or the Cboe Volatility Index, measures stock-market volatility and has been coming off a pre-election run-up that sent it to 35. Its long-term average is 19.
The 10-year bond yield, meanwhile, jumped 13.6 basis points to an eight-month high of 0.957% on Monday, the biggest daily rise in months. Stronger economic growth, or perceptions of, mean higher yields and lower prices, as the two move in opposite directions. The yield was holding just under that level on Tuesday.
Note that some caution was heard at the end of Monday by the Federal Reserve, over market expectations about an economic rebound.
“Given the high level of uncertainty associated with the pandemic, assessing valuation pressures is particularly challenging, and asset prices remain vulnerable to significant declines should investor risk sentiment fall or the economic recovery weaken,” the central bank said in its financial stability report released after the close of markets.
Tech stocks YM00ES00NQ00 are in for a rough day, while it is mixed elsewhere and European equities XX:SXXP have moved higher. Asian stocks had a mixed day. Oil prices CL.1 are set to add to the biggest gain in six months.
Shares of Eli Lilly LLY are up after the drugmaker’s COVID-19 antibody treatment was approved for emergency use by the Food and Drug Administration on Monday. Meanwhile, Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, said Pfizer’s PFEcoronavirus vaccine could start its rollout by the end of the year. The U.S. counted another 130,000 daily cases on Monday.
The European Commission said it has told Amazon that it believes the e-commerce giant broke antitrust rules, and has opened a second probe into potential preferential treatment for Amazon’s own offers and some sellers.
Shares of Beyond Meat BYND are tumbling, after the plant-based meat company’s results fell well short of Wall Street’s expectations.
Earnings are ahead from home builder D.R. Horton DHI.
A new survey shows small-business owners grew more anxious in October. Job openings are still to come.
Thomas Lee, founder of Fundstrat Global Advisors, said he has been expecting that once investors become convinced of a “road map” out of the pandemic, markets will get a “violent rotation into epicenter stocks,” aka cyclicals.
What we saw on Monday was a 10%-ish “baby step” in that direction, he told clients in a note. “And as the chart below shows, today’s rally barely closes any relative performance gap YTD [year-to-date] between FANG and epicenter stocks,” he said. FANG is a reference to highly-traded tech companies, such as social media giant Facebook FB, tech giant Apple AAPL, streaming platform Netflix NFLX and Alphabet’s Google GOOGL.
But Lee suggested investors still hold on to those big tech players that have become part of our lives — Amazon AMZN, videoconferencing software Zoom ZM, Netflix, etc. and will continue to do so.
NASA identifies 300 million habitable planets.
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