* Major averages in red, Nasdaq down 1%
* Materials weakest major S&P sector; utilities lead gainers
* Euro STOXX 600 index off ~1.1%
* Dollar, crude up; gold, bitcoin down
* U.S. 10-Year Treasury yield ~1.35%
Sept 8 - Welcome to the home for real-time coverage of
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BOFA REVISES S&P 500 TARGET, SEES LITTLE TO GET EXCITED
ABOUT (1050 EDT/1450 GMT)
While BofA raised its S&P 500 target for this year and set
one for 2022, its research note with subdued tones including
this subhead: "Should you keep dancing if the music slows down?"
BofA Equity & Quant Strategist Savita Subramanian increased
her year-end target for the S&P to 4250 from 3800. But this
implies a ~6% decline from Tuesday's closing price. Subramanian
also set a year-end 2022 target of 4600, which would be just 2%
higher from here.
"We see little to get excited about," wrote Subramanian,
noting that valuations suggest negative 10-year returns and that
euphoric sentiment, margin risk and record duration pose
additional risks.
The sell side indicator is closer to a sell signal than at
any point since 2007, according to the strategist who also
points out that wage, input cost inflation and supply chain
shifts "are starting to weigh on margins" while interest rate
risk is at a record high and valuations "leave no margin for
error."
Despite the gloom, Subramanian still sees opportunities for
investment. For example, the strategist says
"inflation-protected yield is the scarce resource in a low rate
world where inflation is brewing" as bonds offer yield with no
inflation protection and commodities offer inflation exposure
but no yield. And she notes that stocks sit in the middle and
recommends dividend growth stocks in sectors that benefit from
inflation such as energy, financials and materials.
Also Subramanian says small caps will likely outperform from
here as they are more sensitive to U.S. GDP and capex, and
"current valuations suggest gains" over the next 10 years.
(Sinéad Carew)
*****
NASDAQ SLIPS AFTER STRING OF RECORD HIGHS (1010 EDT/1410
GMT)
The Nasdaq is lower in early trading Wednesday, a
day after the index registered a fourth-straight record closing
high, while the S&P 500 and Dow are roughly flat.
Materials is the weakest major S&P 500 sector
followed by technology, while utilities are
out front of gainers.
Energy shares are higher along with oil prices.
Shares of tech heavyweight Apple are down 0.6%
early.
Adding to recent worries was Friday's weak August payrolls
data and concern about the impact of the Delta variant and the
pandemic.
Here is the early U.S. market snapshot:
(Caroline Valetkevitch)
*****
WHEN DO EU BANK RALLIES TEND TO END? (0935 EDT/1335 GMT)
A snippet of information from a KBW note suggests that
European bank rallies tend to end when share prices in the
sector reach 10 times earnings and the relative P/E to the
market hits 80%.
The good news here is that valuations in the rate-sensitive
industry are still well behind those levels with prices, at 8.1
times 2023 expected earnings and relative P/E at only 55%.
And that good news looks even better now that debate at
central banks over tapering is heating up, with the potential to
boost bond yields after the summer blues.
On the eve of an ECB meeting, where the central bank could
unveil plans to slow down its massive bond purchases, analysts
at KBW affirmed their overweight.
"EPS upgrades continue, entering the 41st consecutive week,
and are partly powered by revenue upgrades," they write.
"Valuation remains very supportive... Additional dividends
and payouts in the rest of the year will help support the sector
and aid in the re-rating," they add.
And KBW is not alone.
UBS Global WM advises investors to position for reopening
and recovery and says financials should be among the winners of
a broadening upturn. Morgan Stanley too is positive on
financials, especially banks.
(Danilo Masoni)
*****
WHAT ROTATION INTO VALUE? (0900 EDT/1300 GMT)
Amid the economic re-opening, one lay-up was supposed to be
value over growth. Indeed, growth peaked vs value on Sept. 1,
2020, and then collapsed into a March 8, 2021 low.
However, since that early-March trough, growth's fire has
been rekindled. In fact, the S&P 500
Growth index/S&P 500 Value Index ratio is now back
to within 1% of its September-2020 record high:
This with the SPDR Growth ETF up nearly 24%
year-to-date vs a 17% rise for the SPDR Value ETF.
However, of note, the growth ETF's biggest exposure, which was
in tech end-August, is actually underperforming the
SPYV's heaviest weighting, which is in financials, so
far this year.
Tech was more than half of the SPYG weighting end-August,
and is now up 22% year-to-date (YTD), vs financials, which were
just over 21% of the SPYV end-August, but are now up 28% YTD.
Looking at it another way, however, SPYG's top-5 holdings
(FAAMG stocks), which account for nearly 40% of the ETF's
weight, are posting an average gain of 33% in 2021. The SPYV's
top-5 holdings, which only account for 11% of that fund's
weighting, are showing an average 2021 gain of about 19%.
In any event, since early August, and perhaps surprisingly,
growth's recent outperformance over value has coincided with
around a 20 basis point rise in the U.S. 10-Year Treasury yield
. Of note, however, after also putting
in a low in early August last year, the yield then rose into the
ratio's Sept. 1 top.
Therefore, even if the ratio manages to now poke to a new
high, a further yield rise may send growth, once again, sharply
reversing to the downside vs value.
(Terence Gabriel)
*****
FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300
GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)