US equities appear to start on the back foot on Monday, ahead of key inflation data and earnings reports later in the week.
Fears of rising COVID-19 cases and vaccination problems, after a Chinese government official said his vaccine’s effectiveness is low, put capital markets under pressure.
However, the partial reopening of the United Kingdom and the optimistic comments of Federal Reserve Chairman Jerome Powell gave some positivity. Investors will also be expecting consumer price data on Tuesday and gains from major banks JPMorgan Chase, Goldman Sachs and Wells Fargo later this week.
After a delay on Friday, the US Department of Labor said output prices, a key measure of inflation, rose 1% in March – the highest annual increase since 2011.
In ours call of the dayGoldman Sachs strategists said inflation is higher in the coming months, which could boost companies with high pricing power.
“Don’t fight the Fed” is an investment game that investors have learned to ignore at their own risk. What the central bank wants is usually what it gets, sooner or later, “strategists said, noting that the Fed’s intervention a year ago triggered the 80% rally that lifted the S&P 500 SPX.
at a historical level. The index has risen 10% year-over-year and is now trading at Goldman’s mid-year target of 4,100 – the bank’s year-end target implies a 5% gain.
The Fed now wants higher inflation, they said. The investment bank’s economic team expected inflation values to rise in the coming months, reaching a high of 2.3% in April, before falling below 2% by 2023.
In terms of impact on equities, Goldman said it’s about margins, adding that some companies protect margins by transferring higher costs to their consumers.
Strategists, led by David Kostin, said that companies with low pricing power have historically outperformed as the S&P 500 profit margins expand. In contrast, companies with high pricing power have “suddenly” in the last year. However, rising inflation could mean that it is about to change, and companies with high pricing power will benefit, strategists said.
Goldman examined stocks with high pricing power – large and stable gross margins relative to industry peers. The screen produced 55 shares, including video game company Activision Blizzard ATVI,
tobacco giant Philip Morris PM,
consumer goods companies Colgate-Palmolive CL,
and Procter & Gamble PG,
and the drug manufacturer Zoetis ZTS,
Technology companies, such as Aspen Technology AZPN,
Adobe ADBE,
and Oracle ORCL,
and Etsy ETSY retailers,
and DG General Dollar,
also presented.
Separately, with the start of profit seasons in the first quarter next week, Goldman expected an aggregate 5% increase in sales and a 19% increase in earnings per share (EPS). But that won’t matter much, his strategists added. “The trajectory of the economic recovery will continue to make backward metrics less relevant to the future-oriented market,” they said.
The next issue to dominate investor talks is President Joe Biden’s plan to raise the corporate tax rate to 28 percent, Goldman said. Full adoption of Biden’s proposals would lead to a 12% annual S&P 500 EPS increase of 1222, which will drop to just 5%, they added.
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Higher producer prices are positively related to S&P 500 earnings, according to this chart from Jeroen Blokland, senior portfolio manager at Robeco Asset Management.
markets
US ES00 futures,
NQ00,
showed earlier Monday with the Dow futures YM00,
involving a 40-point loss for DJIA Dow Jones Industrial Average,
at the opening. European stocks also declined at the start of trading, while Asian markets fell overnight, while investors monitored the rise in coronavirus cases and slow vaccination launches.
Buzz
Powell said it would take some time for the central bank to reach the economy in a 60-minute interview on Sunday.
Microsoft technical giant MSFT,
is in advanced talks to buy the speech recognition company Nuance Communications NUAN,
in a transaction valued at about $ 16 billion, according to several reports on Sunday.
Pub gardens, hair salons, gyms and non-essential shops will open in England on Monday for the first time since early January, as the UK takes the next step on its path to reopening.
Alibaba 9988,
shares rose 7% in Hong Kong trading after the e-commerce giant was fined $ 2.8 billion by China’s antitrust watchdog. The company’s US deposit collects BABA,
were over 6% higher in premarket trading.
Italian diagnostic specialist DiaSorin DIA,
announced an agreement to buy the test kit manufacturer COVID-19 Luminex Corp. LMNX,
for about $ 1.8 billion.
Random readings
Drinkers face the cold for pints at midnight, while pubs in England reopen.
The best winner of the supporting actress Bafta, Yuh-Jung Youn, calls the British a “snob”.
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