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* Wall Street opens lower, small caps weak
* Euro STOXX 600 index down ~0.1%
* Dollar, gold dip; crude inches lower
* U.S. 10-Year Treasury yield ~1.58%
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SAILING THROUGH THE RETURN DISPERSION DOLDRUMS (1103
EDT/1503 GMT)
Wall Street is coasting past closing highs on a regular
basis, stock market volatility is down, volume is low and return
dispersion is below its long-term average.
Goldman Sachs' Weekly Kickstart note addresses this dip in
return dispersion (RD) - or the range of potential returns -
drilling down to sectors and stocks, identifying those with "the
best combination of micro-driven returns and high idiosyncratic
risk."
While RD rose in 2020 to its highest level since the Great
Recession, "low volatility has outweighed low correlations among
stocks, driving return dispersion back below the long-term
average," writes David Kostin, chief U.S. equity strategist at
Goldman.
On the sector level, communication services,
energy and tech currently have the widest
3-month return dispersion, the note says, while the same
measurement is tightest for "macro-driven" sectors like
utilities and financials.
Kostin notes that fund performance, which is "often
strongest during periods of high return dispersion, as the
stock-picking opportunity set is wide and rewards effective
bottom-up stock pickers." As such, fund performance has been
mixed amid dropping RD.
Tax reform, infrastructure legislation and pricing power are
likely to be the "key catalysts" that could push RD higher, the
broker says.
Goldman has applied a "dispersion score" to the S&P 500
constituents. The stocks that score the highest are likely to
have "heightened responses to idiosyncratic company-specific
news," they also offer "the best alpha generation opportunities
for investors," Kostin says.
The table below, courtesy of Goldman, shows the 25 stocks
"with the best combination of micro-driven returns and high
idiosyncratic risk," according to the broker (click to enlarge):
(Stephen Culp)
*****
SLUGGISH START ON WALL STREET (0958 EDT/1358 GMT)
Major U.S. averages are modestly lower out of the gate on
Wall Street, despite an earnings season that has begun to pick
up steam.
Trading volume has also fallen off a cliff, topping 10
billion shares across all U.S. exchanges only once in the prior
eight sessions, a level not seen since the waning days of 2020.
Tesla is weighing on both the S&P 500 and
Nasdaq following a crash in Texas that resulted in the
deaths of two men, while bitcoin recovered only
slightly from a sharp drop over the weekend.
The majority of S&P sectors are in the red, led lower by
industrials while energy is the best
performing group as oil prices are being buoyed by a weaker
dollar.
Below is your market snapshot:
(Chuck Mikolajczak)
*****
EUROPEAN AIRLINES: THE BALANCE SHEET DILEMMA (0930 EDT/1330
GMT)
When will Europeans fly again? The uncertainty over when air
travel can resume to normal levels is providing a headache for
CFOs in the industry.
As HSBC analysts note, many airlines will eventually need to
beef up their balance sheets but the resurgent pandemic means
the timing to do so and deploy capacity is more than tricky.
Looking into easyJet, the team at HSBC says "an
early move to raise equity would potentially offer peace of mind
in the event of extended travel restrictions, greater strategic
optionality and a quicker dilution of the founder Stelios
HajiIoannou, who has said he will not participate in any rights
issue".
Then again, moving before the expected bounce back could be
a costly choice for shareholders.
"An earlier capital raising would likely be more dilutive
than a later one when the recovery of aviation is clearer", they
note, stressing they expect demand to be robust once
restrictions are lifted.
At the moment, HSBC expects travel restrictions to ease and
capacity to rise late in May.
(Julien Ponthus)
*****
NASDAQ COMPOSITE: GENERALS IN THE TRENCHES (0900 EDT/1300
GMT)
The Nasdaq Composite has rallied strongly so far in
April. The tech-laden index is up 6%, putting it on track for
its biggest monthly advance since November of last year.
However, since the Composite's February top, a measure of
internal strength, the Nasdaq daily Advance/Decline (A/D) line
, has been coiling in a contracting range, and is so far
failing to confirm the most recent push higher in the Composite:
Although IXIC ended Friday less than 0.4% from its February
12 record high close of 14,095.47, the A/D line is remains well
below its mid-March and early-February highs.
Ultimately, to add confidence in the sustainability of any
Nasdaq thrust into fresh record high territory, traders will
want to see the A/D line surpass its 2021 highs.
Of note, recent Nasdaq strength has no doubt been
underpinned by large-cap tech, the generals, outperforming
small-cap tech, the troops. Indeed, the Technology Select Sector
SPDR Fund is up around 7.5% this month, while NYSE
FANG+TM index has advanced around 8.5%. Meanwhile, the
Invesco S&P SmallCap Info Tech ETF is up just a little
over 3%.
Unless, broad market strength more resolutely returns, the
A/D line may remain on the back foot. In that event, the burden
on the generals in the trenches may grow more intense, leaving
their flanks especially exposed to a bearish counterattack.
(Terence Gabriel)
*****
FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
