Today on Wall Street: The investor dilemma

06/22/2021 | 09:07am

Wall Street was slightly up in pre-market trading today, as investors await Federal Reserve Chairman Jerome Powell's testimony before the House Select Subcommittee on the Coronavirus Crisis, due later today. The prepared statement highlights a "sustained improvement" in the US economy, as well as transitory inflation.

Equity indices yesterday erased some of their losses from Friday, when investors started to fear the start of a correction. It is not easy to find a guideline on markets at the moment. Equity indices rebounded yesterday, some quite vigorously like the US triplet. Investors have regained a marked appetite for cyclical stocks, whereas they were no longer in the spotlight a few days ago. They rushed back into banks, oil companies, basic materials and industrials. Investors looking to capture the trends of the moment are between two minds: While they are attracted to the most volatile part of market, they are also looking at more defensive stocks, just in case. 

Such a rotation could have a cost and it looks quite high. The four sectors that benefited from a "flight to quality" last week have an average P/E of 25.9 times 2022. So they are generously valued. AlphaValue's work shows that these sectors have raised their earnings forecasts only slightly (or even lowered them, as in pharmaceuticals) over the past few months. Conversely, the worst-performing segments of the previous week (oil, auto, mining and banking) have an average P/E 2022 of 10.9x even though they have raised their forecasts by 50% over the past six months. "Buying quality stocks with some degree of protection is 2.5 times more expensive than surfing cyclical and value stocks," summarizes AlphaValue. 

So obviously, this is a classic pattern: quality assets are more expensive and there is nothing revolutionary about that. But at this stage of the cycle, with an economic growth phase confirmed - at least according to central bankers and forecasters - rushing to the defense may be a bit out of sync with the usual schedule. 

Yesterday, Christine Lagarde and Jerome Powell each aimed to reassure on the growth outlook, with some success given the trajectory of indices. The Bitcoin market and its peers remained nervous after Beijing implemented stricter regulation against the cryptocurrency mining industry. Since reaching nearly $65,000 in April, Bitcoin has given up roughly half its value, while remaining on stratospheric levels compared to prices at the beginning of the previous year. 

The Fed Chairman is still to speak later today in front of the American congressmen, without changing one bit what he explained yesterday. Macroeconomics will become denser tomorrow with the first PMI indicators for June, then on Thursday with a large series of statistics in the United States and the decision of the Bank of England on its rates. 

   

Economic highlights of the day 

The May housing data and the Richmond Fed manufacturing index are due. 

The dollar stabilized at EUR 0.8410, while the ounce of gold stands at USD 1778. The oil barrel is reaching USD 7458 for Brent and around USD 72.69 for WTI. The yield on US debt is back up to 1.49% on 10 years. Bitcoin is down to USD 29,403. 

 

On markets: 

* The Boeing Company announced Monday the departure, without giving a reason, of its lobbyist Tim Keating, who helped the aviation group through its worst crisis in history after the crashes of two 737 MAX aircraft. 

* Moderna - The European Union has decided to exercise a purchase option in a supply contract with the U.S. laboratory for an additional 150 million doses of COVID-19 vaccine, the European Commission announced Tuesday. 

* The Blackstone Group The private equity group has completed the purchase of Home Partners of America, a specialist in the sale and rental of single-family homes, for $6 billion, The Wall Street Journal reported Tuesday. 

* Delta Air Lines plans to hire more than 1,000 pilots by next summer, according to an internal memo seen by Reuters on Monday, pointing to a rebound in demand in the airline industry as it works to recover from the impact of the coronavirus health crisis. 

* Alphabet - The European Commission announced on Tuesday it was opening a formal investigation into Google's advertising activities to determine whether the search engine has breached EU competition rules by favoring its own advertising technology services. The European Court of Justice on Tuesday also ruled that operators of online platforms such as YouTube are not liable for the illegal uploading of content by their users. 

* Translate Bio and Sanofi announced Tuesday the start of Phase I clinical trials of their mRNA flu vaccine. 

* Full Truck Alliance - The Chinese startup specializing in connecting carriers and customers, which calls itself the "Uber of trucks," goes public on the New York Stock Exchange on Tuesday after raising nearly $1.6 billion in its public stock offering. 

 

Analyst recommendations: 

  • Boston Properties, Inc. : Wolfe Research adjusts pt to $137 from $142, maintains peer perform rating 
  • CareTech: Berenberg remains Buy with a price target raised from GBp 600 to GBp 700. 
  • CBRE : Wolfe Research adjusts price target to $108 from $112, maintains outperform rating 
  • EasyJet: Citigroup downgrades from neutral to sell. 
  • Ford Motor Company : Wells Fargo adjusts price target to $18 from $17, maintains overweight rating 
  • Fortinet, Inc. : Cowen adjustsprice target to $270 from 250, keeps outperform rating 
  • Land Securities Group: J.P. Morgan upgrades from neutral to overweight, targeting GBp 850.   
  • Paramount Group : Wolfe Research adjusts price target to $12 from $13, maintains peer perform rating 
  • Reckitt Benckiser Group: Barclays advises its customers to buy the stock. The target price is slightly modified from GBp 10400 to GBp10600. 
  • Rio Tinto plc: JP Morgan maintains its Buy rating on the stock. The target price is being increased from GBp 7610 to GBp 8310. 
  • MetLife, Inc : Citigroup adjusts price target on to $70 from $69, maintains buy rating 
  • The British Land Company: J.P. Morgan upgraded from neutral to overweight with a target of GBp 600. 
  • Uber Technologies : BofA Securities says it is a "top catalyst stock" for h2 2021. 

 

Romain Fournier
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