It's just a period of market normalization

10/12/2021 | 09:16am

U.S. stock futures are slightly up as tech stocks bounce back. Rising energy prices worsen concerns about inflation, while another missed debt payment from China Evergrande dampened the mood. Oil prices continue to rise, with the WTI at its highest level since 2014.

Investors are awaiting the start of the third-quarter earnings season, which kicks off tomorrow with large U.S. banks, to gauge the impact of inflation and supply chain disruptions on companies.

It was really easier to invest in the first half of the year: everything was going up or almost. Now, equity markets alternate between highs and lows due to a lack of visibility on the economic outlook.

Investors don't like to see stock market indexes close at their lowest point of the session, especially when they have been rising for part of the day. This is the scenario that played out yesterday in New York It's hard for investors to see how the year-end forecasts of companies and beyond can remain unaffected by the current headwinds.

This does not mean that we are heading for disaster, but rather towards a normalization in several areas after the Covid shock. The head of strategy at Goldman Sachs thinks that equity markets will move forward "as investors become increasingly convinced that the current pace of inflation is transitory". His counterpart at JP Morgan even advises his clients to buy the dip.

The expression "buy the dip" means to take advantage of a market downturn to buy. The principle of a stock market dip is that you don't know how deep it is beforehand. So when the person you're talking to recommends buying the dip, either he's very well informed and you should definitely listen to him, or he's acting on a hunch and you should be a little more careful. But unfortunately, more often than not, it’s the hunch type.

"Buy the dip" is an expression that we don't hear much anymore, as stock markets have mostly been going up in the past years. Another one is more popular: “there is no alternative to equities”, traditional investors believe (I say traditional because cryptocurrency fans are saying otherwise). This is the "TINA" concept ("there is no alternative"), which benefits stocks, whose potential/risk ratio has been considered unbeatable for several years.

 

Today's economic highlights:

British employment figures for September, the ZEW confidence index of German financiers in October and the JOLTS survey on job openings in the United States are the main indicators of the day.

The dollar is worth EUR 0.8668. The ounce of gold is stagnating between USD 1750 and USD 1760. The barrel is firm at $80.40 for WTI and $83.44 for North Sea Brent. The 10-year yield reaches 1.61% (+1 point) for US debt and -0.12% (unchanged) for German debt. The Dutch signature rises to 0 for the first time since March. Bitcoin is trading  at USD 57,072.

 

On markets:

* Merck & Co - The World Health Organization (WHO) said Tuesday it is awaiting full clinical data on the U.S. drugmaker's oral COVID-19 treatment a day after it was submitted for approval in the United States.

* Texas Republican Governor Greg Abbott issued an executive order Monday prohibiting government and private companies from mandating COVID-19 vaccination.

* CureVac fell 14.8 percent to $36.80 in premarket trading after the German company announced that it was withdrawing its application to European authorities for approval of its first-generation experimental vaccine against COVID-19. This vaccine had shown in June an efficiency of only 48%.

* The European Commission is expected to open an in-depth investigation into Nvidia's proposed $54 billion takeover of Arm, three sources close to the matter said, as the concessions proposed last week by the U.S. group were deemed insufficient.

* Southwest Airlines said Monday it expects flights to resume normally this week after more than 2,500 cancellations since Saturday due to adverse weather conditions and air traffic problems in Florida.

 

Analyst recommendations:

  • Amkor Technology: Credit Suisse downgrades to neutral from outperform. PT up 7.6% to $27
  • Carvana : Wedbush upgrades to outperform from neutral, adjusts pt to $360 from $350
  • Cigna : UBS adjusts price target on cigna to $244 from $285, maintains buy rating
  • Duck Creek Technologies: DA Davidson adjusts pt to $52 from $50, maintains buy rating
  • Fevertree: HSBC downgrades from Buy to Hold with a target of GBP 2550.
  • ForgeRock: Cowen starts forgerock at outperform with $45 price target
  • Halliburton: Coker & Palmer raised the recommendation on Halliburton Co. to sector outperform from sector perform. PT up 2.8% to $24.
  • Kilroy: Deutsche Bank upgrades to hold from sell. PT up 7.2% to $73
  • Kirby: Stifel raised its recommendation to buy from hold. PT lifted 24% to $65
  • Nike: Goldman Sachs reinstated coverage of Nike Inc. Class B with a recommendation of buy. PT set to $1726
  • NIO : Citic Securities initiates coverage with buy rating, $45 price target
  • On Holding: Credit Suisse initiated coverage of On Holding AG Class A with a recommendation of outperform. PT set to $38
  • Polymetal: Deutsche Bank starts tracking to Hold with a target of GBp 1200.
  • Protagonist Therapeutics : Northland Capital Markets upgrades to outperform rating from market perform, lifts price target to $40 from $25
  • Reinsurance Group: Keefe, Bruyette & Woods raised its recommendation to outperform from market perform. PT up 20% to $142
  • SVB Financial: Jefferies adjusts price target to $782 from $665, maintains buy rating
  • The Weir Group: Berenberg starts tracking as Buy with a target of GBP 2060.
  • Trex: Baird cut its recommendation to neutral from outperform. PT up 4.8% to $108

 

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