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Make room for Tesla
US investment policy notes
CFRA
December 23: On Monday, December 21st,
Tesla
(ticker: TSLA) replaced
Investment and apartment management
(AIV) in the S&P 500. Tesla was added to the S&P 500 Automobile sub-industry index within the S&P 500 Consumer Discretionary sector. Since Tesla is now the fifth largest company in the
S&P 500
at market value, the sector’s weights will change – one quite dramatically. In particular, the discretionary consumer sector grew 13.6% from its representation on December 18 on the S&P 500 from 11.2% to 12.8% exposure from the date of Tesla’s entry on December 21. In order to make room for Tesla, all other sectors initially shrunk from just 1.2% for energy, to up to 1.9% for finance and materials.
—Sam Stovall
Green light for bank repurchase
Ivan Feinseth Market View 360
Tigress Financial Partners
December 22: Last Friday, the Federal Reserve announced the results of its second round of stress tests, allowing the country’s largest banks to resume stock repurchases in the first quarter of 2021, subject to certain limitations, provided the fourth quarter results meet the required levels. The sum of ordinary dividends and share repurchases cannot exceed the average net income reported quarterly throughout 2020. The good news is that the strong banking results throughout this year, with levels of feared loan losses that never materialized, helped improving bank profits, along with their currently cheap levels of valuation versus book value. Expectations are that the six largest banks will be able to repurchase a total of $ 11 billion in shares in the first quarter of next year.
All the major banks won yesterday with the news, along with many banks announcing new stock repurchases.
JPMorgan Chase
(JPM) announced a $ 30 billion repurchase. Morgan Stanley (MS) announced a $ 10 billion share buyback. Both
Citigroup
(C) and
Goldman Sachs
(GS) said it would resume share repurchases next year. The news and announcements highlight the strength of the financial sector and a significant shift in business trends.
—Ivan Feinseth
Do not fear the increase in bond yields
Paulsen perspective
The Leuthold Group
December 22: The relationship between bond yields and the stock market changes dramatically, depending on whether the 10-year bond yield is above or below 3%. When bonds yielded more than 3% (almost three-quarters of the time since 1900), the stock market did better when yields fell (+ 11.7% annualized return) and struggled when yields increased (-0, 2% annualized return).
However, with yields below 3%, its impact is almost the opposite. Stocks increased by only an average annualized pace of + 4.2% when yields fell from sub-3% levels (only a third of the gain experienced when bond yields fell by more than 3%) and, surprisingly, when yields rose by sub-3%, the stock market rose by an average annualized clip of + 16.8%! In addition, the frequency of monthly stock market advances, when yields go up, is also shockingly different. The stock market rose 52% of the time, when yields rose from levels above 3%. But when yields rose from an initial level below 3%, the stock market rose 68% of the time!
—James W. Paulsen
Market Mania!
Cross Chains
Crosscurrents Publications
December 21: We can now safely say that the current environment is the biggest stock market craze in history, even bigger than the crazy 20s that ended in the Great Depression of 1929-1932 and, yes, even bigger than the fantastic technology craze. which took over the country at the peak of March 2000. We can make this statement based on assessment measures, such as CAPE (cyclically adjusted price gain index) by Robert Shiller, now at 33.77, the second highest in history, and the S&P 500 P / E index at 37.38, also the second highest in history. In this case, we are ignoring the large increase in P / E that occurred in 2008, as profits fell sharply. Neither the crazy twenties nor the fantastic craze for technology can even remotely match the longevity of that period, despite the sudden and notable breakdown of 38% in 27 sessions that began in February. It was certainly not a typical year!
The last two overly excited periods that ended in 2000 and 2007 were followed by the worst bear markets in decades, both 50% below their peak. We are sure that a replay will take place. If our historical and long-term technical studies are successful, stocks are expected to reach 51.5% of last Friday’s peak.
—Alan M. Newman
Stocks outside the U.S. look attractive
The market strategy radar screen
Oppenheimer Asset Management
December 21: The fall of the US dollar this year has increased returns for American investors in most foreign stocks and indices linked to foreign stock markets. In many markets, returns in local currency are substantially less than returns quoted in dollars.
The strength of the dollar in recent years has been derived from several factors, including the relative strength of the US economy, the dollar as a safe haven asset and the favorable yield differential of US Treasury bonds compared to international sovereign yields.
In our opinion, the recent weakening of the dollar presents American investors with the opportunity to buy foreign shares before what we hope will be a domestic and global economic recovery as the world moves (with the help of efficacy vaccines) towards a post Environment Covid 19.
While we cannot predict with certainty that the dollar will remain at recent levels or even move lower than current levels, past history suggests that as the U.S. moves toward economic recovery in a post-crisis environment, American consumers’ appetite for imported goods and leisure and business trips to foreign destinations are likely to boost foreign currencies, helping foreign countries – especially those that are export oriented and those that are travel destinations for American citizens – to move forward towards economic recovery and expansion at a faster pace, which in turn could boost foreign stock prices.
—John Stoltzfus
Bitcoin reaches $ 50,000
Actions strategy
BTIG
December 20: Over the three years since the bubble burst in late 2017 / early 2018, the cryptocurrency has matured, with digital assets gaining acceptance from consumers and businesses, and increasing interest from institutional investors and governments. The same is true of the cryptocurrency financial markets – the number of open-ended Bitcoin futures contracts is six times higher in 2020 than in early 2018, as a two-way market develops.
Towards 2021, the main fundamental drivers – asset diversification, rising rates and deficits, a new management more sympathetic to the asset class and the comfort of younger investors with technological innovation and greater tolerance to volatility, whether in stocks or cryptocurrencies – set the stage for Bitcoin will reach $ 50,000 next year.
—Julian Emanuel, Michael Chu
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