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This comment was recently published by money managers, research firms and market newsletter editors and was edited by Barron’s.
Make room for Tesla
Notes on US investment policy
CFRA
December 23: Monday, December 21,
adze
(ticker: TSLA) replaced
Investment and apartment management
(AIV) in the S&P 500. Tesla was added to the S&P 500 Automotive sub-industry index in the S&P 500 Discretionary Consumer sector. Because Tesla is now the fifth largest company in the world
S&P 500
depending on the market value, the sector weights will change – quite a dramatic one. In particular, the consumer discretionary sector grew by 13.6% from its December 18 representation in the S&P 500 by 11.2% to the 12.8% exposure since Tesla’s December 21 entry. To make way for Tesla, all other sectors were initially reduced from just 1.2% for energy to 1.9% for finance and materials.
“Sam Stovall.”
Green signal for bank redemptions
Ivan Feinseth Market View 360
Tigress financial partners
December 22: At the end of Friday, the Federal Reserve announced the results of the second round of stress tests, allowing the largest banks in the country to resume share buybacks in the first quarter of 2021, subject to certain limitations, as long as the results IV meet the required levels. The amount of common dividends and share repurchases cannot exceed the net income reported quarterly during 2020. The good news is that strong banking results throughout this year, with dreaded levels of loan losses that never materialized, contributed to improve banks’ profits, currently cheap valuation levels compared to the book value. The top six banks are expected to buy back a total of $ 11 billion in stock in the first quarter of next year.
All major banks won the news yesterday, along with many banks announcing new share buybacks.
JPMorgan Chase
(JPM) announced a $ 30 billion buyback. Morgan Stanley (MS) has announced a $ 10 billion buyback. Both
City Group
(C) and
Goldman Sachs
(GS) said it would resume share buybacks next year. News and announcements highlight the strength of the financial sector and a significant change in business trends.
– Ivan Feinseth.
Don’t be afraid to increase bond yields
Paulsen’s perspective
Leuthold Group
December 22: The relationship between bond yields and the stock market changes dramatically, depending on the 10-year bond yield exceeding or below 3%. When bonds reached more than 3% (almost three-quarters of the time since 1900), the stock market did best when yields fell (+ 11.7% annualized yield) and struggled when yields rose ( -0.2% annualized yield).
However, with yields below 3%, their impact is almost the opposite. Stocks rose at just an average annualized rate of + 4.2% when yields fell from levels below 3% (only a third of earnings when bond yields fell by more than 3%) and surprisingly, when yields rose from below 3%, the stock market grew at an average annualized clip of + 16.8%! Moreover, the frequency of monthly advances on the stock market, when yields increase, is also shockingly different. The stock market rose 52% while yields rose from levels above 3%. But when yields rose from an initial level below 3%, the stock market grew 68% of the time!
—James W. Paulsen
Market Mania!
Cross currents
Crosscurrents publications
December 21: We can now safely say that the current environment is the biggest stock market craze in history, bigger than even the Roaring 20s that ended in the Great Depression of 1929-1932, and yes, even bigger than the fantastic technological craze the nation peaked in March 2000. We can make this statement based on valuation measures, such as the CAPE Robert Shiller (cyclically-adjusted earnings ratio), now at 33.77, the second highest in history, and the S&P 500 P / E ratio at 37.38, also the second highest in history. In this case, we ignore the huge increase in P / E that took place in 2008, as earnings contracted precipitously. Neither Roaring Twenties nor fantastic technological mania can even remotely match the longevity of this period, despite the sudden and remarkable 27% collapse of the 38 sessions that began in February. It was definitely not a typical year!
The last two overly enthusiastic periods ending in 2000 and 2007 have both been followed by the worst bear markets in decades, both down 50% from their peak. We are confident that a resumption will take place. If our historical and long-term technical studies expand, the stocks are heading for a 51.5% success compared to last Friday’s peak.
—Alan M. Newman
Non-US stocks look attractive
Market strategy radar screen
Oppenheimer Asset Management
December 21: The decline of the US dollar this year has increased the return of US investors in most foreign stocks and indices related to foreign stock markets. In many markets, local currency yields are substantially lower than dollar price yields.
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 the US Treasury compared to international sovereign yields.
In our view, the recent weakening of the dollar offers US investors the opportunity to buy foreign stocks ahead of what we expect to be both an internal and global economic recovery as the world moves (with the help of effective vaccines) to a Covid environment 19.
Although we cannot predict with any certainty that the dollar will remain at recent levels or even fall below current levels, past history suggests that as the US moves towards an economic recovery in a post-crisis environment, US consumer appetite for imports of goods and leisure and business travel to foreign destinations are likely to increase foreign currencies, helping foreign countries – especially those that are export-oriented and those that are US citizen travel destinations – to move toward economic recovery and expansion in a faster pace, which in turn could raise foreign stock prices.
“John Stoltzfus.”
Bitcoin is heading for $ 50,000
Capital strategy
BTIG
December 20: In the three years since the bubble burst in late 2017 / early 2018, cryptocurrency has become major, with digital assets gaining acceptance from consumers and businesses and increased interest from institutional investors and governments. So are the financial markets of cryptocurrencies – the interest rate on Bitcoin is six times higher in 2020 than at the beginning of 2018, as a two-way market develops.
In 2021, the key factors – asset diversification, rising rates and deficits, a received administration that is more sympathetic to the asset class and the comfort of newer investors with technological innovation and greater tolerance of volatility, regardless of stocks or of cryptocurrencies – set the stage for Bitcoin to reach $ 50,000 next year.
—Julian Emanuel, Michael Chu
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