Today on Wall Street: At the start of a shift

05/19/2021 | 08:58am

Wall Street is still in the red due to ongoing fears that rising inflation will force the Fed to change its accommodative policy. Tech stocks are going down as yields on Treasury notes surge, because higher interest rates hit the value of their future profits.

Investors are eagerly awaiting the release of the minutes the Fed's April policy meeting, due later today, to get more clues about its stance on inflation, although the meeting happened before the higher-than-expected inflation figures last week.

Yesterday, Wall Street ended in the red due to weak housing starts data. The atmosphere is quite typical of this spring period, which follows the publication of annual results and first quarter results. Pockets of volatility remain in certain sectors or asset classes. This did not prevent a rather unusual session yesterday, with some sharp sell-offs in cyclical stocks that have been popular lately. The following explanations will shed some light on this situation.

Managers remain "unambiguously bullish", according to Bank of America's latest monthly survey of investors it works with. Some 69% of them are betting on a context of overgrowth and overinflation, but this does not worry them too much. They are directing their flows towards commodities rather than equities, for which they prefer an "end-of-cycle" positioning: banks and mining companies are favored, but everyone had already noticed this, despite the turmoil of the previous day's session. The survey also shows a drying up of bearish bets on consumer staples (food and beverages, personal and home care) and a definite appetite for European stocks and the UK (equities and sterling). More interestingly, while value remains the favorite theme for investors, the value of so-called high quality stocks is soaring, as is the value of high dividends. On the other hand, the appetite for small caps is slowing sharply, as is the overweighting of technology stocks, which is the lowest it has been in three years.

These trends shed light on what appears to be the beginning of a more qualitative shift. In particular, the shift in investment flows to slightly less cyclical sectors, more defensive stocks and those that offer high dividends. On this last point, I would add that professional investors are also tracking stock buybacks. A scourge for some, a source of accelerated appreciation for others, they have quickly returned to the landscape after having bottomed out a year ago. U.S. companies have authorized $504 billion in share buybacks so far this year, according to Goldman Sachs. More than at the peak of 2018, when the Trump administration promoted the repatriation of multinationals' assets to US soil.

 

Today's economic highlights:

Today on the agenda are April inflation in the UK and the EU, weekly US oil inventories and the minutes of the latest Fed meeting.

The dollar is down to EUR 0.8187 USD. The ounce of gold is trading around USD 1865. Oil is losing ground after its recent gains, at USD 67.42 for Brent and USD 64.21 for WTI. U.S. debt is yielding 1.64% over 10 years. Bitcoin is falling to USD 36,500.

 

On markets:

* Target gained 2% in premarket trading after reporting better-than-expected quarterly same-store sales and saying it expects sales growth in the final two quarters of the year, while analysts were expecting a decline.

* Lowe’s- The home improvement retailer reported a larger-than-expected 25.9% year-over-year jump in quarterly same-store sales on Wednesday, but its shares fell 2% in premarket trading as its performance lagged that of main competitor Home Depot, which reported quarterly sales up 31% year-over-year on Tuesday.

* KKR announced on Wednesday its intention to delist British infrastructure group John Laing via a bid of about £2 billion.

* Southwest Airlines lowered its second-quarter cash burn forecast by $1 million a day, as the airline said expected improved demand will more than offset higher fuel prices.

* Take-Two Interactive software - The video game publisher reported better-than-expected quarterly results Tuesday night, but its full-year revenue forecast was below consensus. The stock gained 2% in pre-market trading.

 

Analyst recommendations:

  • Adidas: Morgan Stanley upgrades from Underweight to Overweight in line with EUR 295 target.
  • Apple: Barclays retains his Neutral opinion on the stock. The target price is now set at USD 134 compared to USD 138.
  • Bank of America : Oppenheimer adjusts PT to $48 From $49, maintains Outperform rating
  • Bayer: J.P. Morgan upgraded from neutral to overweight with a EUR 67 target.
  • Britvic: Jefferies remains Buy with target price raised from GBP 950 to GBP 1050.
  • Citigroup : Oppenheimer lowers PT to $118 From $122, stays Outperform 
  • Costco Wholesale : Jefferies lifts PT to $445 From $410, maintains Buy rating
  • Easyjet: Bernstein advises its customers to buy the stock. The target price is still at GBp 1150.
  • Elementis: Jefferies remains Buy with a price target raised from GBp 155 to GBp 170.
  • Gap : Credit Suisse upgrades Gap to Neutral from Underperform, PT set at $34 from $23
  • GlaxoSmithKline: Deutsche Bank maintains its Sell rating on the stock. The target price is unchanged at GBp 1200.
  • Goldman Sachs : Oppenheimer lowers PT to $484 From $500, maintains Outperform rating
  • The Home Depot : RBC Capital increases PT to $386 From $377, stays Outperform
  • International Consolidated Airlines Group IAG: Bernstein keeps Buy rating. The target price remains unchanged at GBp 250.
  • London Stock Exchange: JP Morgan is positive on the stock with a Buy rating. The target price continues to be set at GBp 8635.
  • Morgan Stanley : Oppenheimer lowers PT to $98 From $101, maintains Outperform rating
  • Ryanair Holdings: Bernstein has Buy rating. The target price is unchanged and still at EUR 18.50
  • UBS: Deutsche Bank upgraded from Hold to Buy, targeting CHF 17.
  • Vodafone: Deutsche Bank advises its customers to buy the stock. The target price continues to be set at GBp 230.
  • Walmart: RBC is Buy. The target price is revised upwards from USD 173 to USD 163.

 

 

Romain Fournier
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