* Major US stock indexes down around 2% each
* All major S&P 500 sectors lower
* Dollar up, crude near flat; gold down
* US 10-yr Treasury yield ~1.01%
Jan 27 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
S&P 500 DOWN 2%, ADDS TO DECLINES POST FED (1425 EST/1925
GMT)
U.S. stocks added a bit to their sharp declines Wednesday
afternoon, with the S&P 500 down about 2% just after the
release of a statement from the Federal Reserve, which stood by
its pledge to keep economic pillars in place until there is a
full rebound from the pandemic-triggered recession.
The Fed left interest rates near zero and made no change to
its monthly bond purchases.
"Today's FOMC statement reaffirmed the Fed's commitment to
ultra-accommodative monetary policy, which is particularly
important given mixed signals recently regarding the outlook for
QE," Jason Pride, CIO of private wealth at Glenmede, wrote in a
note just after the Fed statement.
He added: "The statement itself really did not contain much
new information, but it did put a lid on fears that the Fed may
be considering tapering asset purchases sooner than expected. If
anything, the Fed added a statement recognizing that the pace of
recovery has moderated in recent months."
Indexes were already sharply lower before the Fed statement.
Frenzied buying in recent days in certain stocks like
Gamestop has driven concerns among some market watchers
about the possibility of a market bubble.
Here is the afternoon snapshot:
(Caroline Valetkevitch)
*****
APPLE EYES A RELATIVE HURDLE ON THE CHARTS (1340 EST/1840
GMT)
Apple is expected to release its quarterly numbers
after the close on Wednesday. Analysts are looking for Q1
revenue of $103.3 billion and EPS of $1.41. For Q2, these
numbers are expected to drop to $74.5 billion and 91 cents.
In any event, just as the Q1 report is due to come out,
Apple's relative strength line vs the Nasdaq 100 is once
again nearing what may be an important hurdle in the form of a
more than 30-year resistance line:
Indeed, when the AAPL/NDX ratio flirted with this barrier in
late August/early September of last year, it failed
to sustain several modest 1-day breakouts above the line. The
stock then topped and suffered a significant decline.
From its early-September high, Apple lost more than 23% of
its value into its late-September trough. Meanwhile, the Nasdaq
100 lost as much as 14%. And although, AAPL then managed to claw
its way higher, it did not bottom in relative strength vs the
NDX until late November.
Therefore, the ratio, which now stands at 1.077%, may need
to overwhelm the resistance line, which comes in around 1.087%,
and the September high, at 1.092%, in order for Apple to sustain
a leadership position within the NDX.
Otherwise, both the stock, and the index, may be close to
another bout of instability.
(Terence Gabriel)
*****
WHAT DOES THE TRADING FRENZY MEAN FOR BROADER MARKETS? (1311
EST/1811 GMT)
As the buying frenzy in certain stocks extends into
Wednesday, with shares of GameStop and AMC Entertainment
Holdings surging for a fourth day, there's a debate over
how much this is weighing on the broader U.S. market.
All three major U.S. stock indexes were down more than 1% on
Wednesday, and their moves have been muted in recent days.
Indexes finished slightly lower on Tuesday.
GameStop shares are up more than 1,600% for the year so far,
while AMC is up more than 600% in that time. The S&P 500
is up less than 1% since the end of 2020, while the Russell 2000
small-cap index is up roughly 8%.
The wild trading has sparked a debate among investors as to
what the trading frenzy means and whether these massive share
moves should be considered ominous signs for the market.
"At some point in time valuation is going to matter and it
won't matter what social media is cheering the stock on," said
Matthew Keator, managing partner at The Keator Group in Lenox
Massachusetts.
Some don't expect the buying frenzy to be long lived.
"This retail-driven short squeeze is kind of taking these
exaggerated moves to new levels that I have never seen before.
It is sort of remarkable," said Eric Kuby, chief investment
officer at North Star Investment Management in Chicago. But, he
said, "this is something that is not going to continue much
longer because it is completely decoupled from any kind of
economic reality."
(Caroline Valetkevitch, and Global Finance & Markets
Breaking News team)
*****
THE BIGGER BLACKROCK GETS, THE MORE CRITICS WANT (1115
EST/1515 GMT)
The bigger BlackRock Inc gets, the harder it becomes
for the world's largest asset manager to satisfy all critics.
That's one takeaway from reviews of the annual letter that
BlackRock CEO Larry Fink sent to other leaders of companies held
in his funds, which totaled $8.7 trillion at Dec 31 up from $7.4
trillion a year earlier. Released on Tuesday Fink's letter urged
companies to spell out plans to operate in a world aiming for
net-zero emissions by 2050.
Shareholders focused on environmental issues welcomed the
attention, but a number urged BlackRock to take further steps
like setting goals for portfolio companies on areas like carbon
emissions or the racial diversity of their workforces.
"Fink's inadequate letters demonstrate a series of
too-small, too-slow steps," said Eli Kasargod-Staub, executive
director of Majority Action, a liberal shareholder advocacy
group, via e-mail.
Meanwhile Justin Danhof, general counsel for conservative
think tank the National Center for Public Policy Research, said
Fink missed a chance to pressure Chinese companies with high
carbon emissions and little focus on environmental or social
concerns.
Illinois State Treasurer Mike Frerichs said he welcomed
Fink's letter but hoped Fink will weigh in more matters like
pushing companies to disclosure more about their political
spending.
"For a company that has such a wide impact, in so many
companies, we think they ought to be speaking on all these
issues," Frerichs said in an interview.
A BlackRock spokesman declined to comment beyond Fink's
letter.
(Ross Kerber)
*****
DEMAND FOR CAPITAL GOODS HEATS UP, BUT COOLS FOR MORTGAGES
(1015 EST/1515 GMT)
U.S. businesses are increasing their spending on big-ticket
manufactured goods, but mortgage demand is souring a tad,
according to economic data released on Wednesday.
New orders for core capital goods manufactured by U.S.
factories rose by 0.6% December per the Commerce
Department, inline with consensus.
The core data excludes aircraft and defense orders, which
dropped by 51.8% and 5.3%, respectively. Those declines kept the
headline durable goods gain earthbound, rising by a
more modest 0.2%, below the 0.9% analysts expected.
The plunge in aircraft orders was attributable to
cancellations afflicting Boeing Co.
The core number, which builds on the previous month's
upwardly revised 1% advance, is widely seen as a barometer for
U.S. business spending plans.
"The manufacturing sector recovery is robust, supported by
strong domestic spending in goods and the global industrial
upturn, led by China," writes Ian Shepherdson, chief economist
at Pantheon Macroeconomics. "We see no reason to expect this
favorable outlook to change in the near-term, but the fate of
the U.S. economy overall is much more contingent on the services
sector, still hamstrung by Covid."
In a separate report, demand for home loans fell last week
as interest rates crept higher, according to the Mortgage
Bankers Association (MBA).
As the average 30-year fixed contract rate edged
up 3 basis points to a still-low 2.95%, the mortgage market
index fell by 4.1%, with declines in applications to purchase
new homes and refinance existing loans.
The housing market has benefited in recent months from
spiking demand as homebuyers flee to the suburbs in search of
lower population density and home office space. But that surge
has driven supply to record lows, sending home prices beyond
many potential homebuyers' reach.
"We expect some easing in the pace of home sales in 2021
relative to their late 2020 pace as sharply higher home prices
and record-low inventories increasingly crimp sales," says Nancy
Vanden Houten, lead economist at Oxford Economics. "However, low
mortgage rates and unmet demand should still support a healthy
pace of sales and we expect sales will increase for the year
overall."
Investors were in a selling mood in morning trading, sending
all three major U.S. stock indexes sharply lower.
(Stephen Culp)
*****
HOW TO ESCAPE THE RISING RATES/FALLING EQUITIES TRAP (0928
EST/1428 GMT)
It would probably happen or at least some analysts think so:
investors will have to face rising yields and higher inflation
sooner or later and this might damp equity valuations.
Saxo Bank sees a protection against this kind of scenario
also in stocks, focusing on a commodity sector basket.
"Part of the commodities trade during reflation is also the
overweight emerging markets; these are more resource-driven
economies and benefit from reflation, as long as interest rates
rise slowly and the U.S. dollar remains weak," Peter Garnry,
head of equity strategy says in a research note.
Saxo Bank sees a heating up of the economy at end-2021, as
policymakers will continue to stimulate aggressively until low
unemployment is restored.
They do not think stocks are overvalued right now as
investors are interested in an "excess yield" on government bond
rates. But the scenario will change with a reflation trade and
rise in government bond yields.
A 100-basis points upward move in the U.S. 10-year yield
could translate into a 15-20% decline in Nasdaq 100 stocks, the
most rate-sensitive of all the major equity indices.
In the chart is a gauge of the underlying inflation by Saxo.
(Stefano Rebaudo)
*****
NYSE COMPOSITE: ABOUT TO FEEL GRAVITY'S PULL? (0910 EST/1410
GMT)
The NYSE Composite, an index of all common stocks on
the NYSE, including ADRs, REITS, tracking stocks and foreign
listings, advanced more than 70% off its March 2020 trough,
hitting a record closing high last week.
Although only down about 1.7% so far from that high, a
noticeable divergence on a measure of internal strength suggests
the NYA may be vulnerable to a much deeper decline:
Indeed, the McClellan Summation (McSum), a breadth/momentum
measure based on advancing and declining issues, has
rolled under its mid-December high, broken below its 10-day
moving average, and fallen to an 8-week low.
Of note, since early 2018, three major NYA declines
(12%-39%), and a number of sharp pullbacks (5%-8%), were all
preceded by a multi-week McSum divergence.
Therefore, unless this measure quickly rights itself, and
moves above its mid-December peak, the NYA may be vulnerable to
increasing downside pressure.
Meanwhile, the Nasdaq's McSum has yet to diverge
from the Composite. That said, the measure recently
became severely overheated, hitting all-time highs. It has since
turned down, and given premarket Nasdaq Futures weakness
, it may be poised to fall for a third straight day, and
break its 10-DMA.
(Terence Gabriel)
*****
E-MINIS FALLING EARLY (0850 EST/1350 GMT)
U.S. stock index futures are down early on Wednesday
following mixed corporate results and as investors awaited the
Federal Reserve's policy statement later in the day.
S&P 500 e-minis and Dow e-minis are down
more than 1% each.
Of note though, Microsoft Corp shares are up before
the opening bell following its upbeat results late Tuesday.
Recent frenzied trading in certain stocks like Gamestop
has driven concerns among some market watchers about a
market bubble and a possible pullback. Even the S&P 500's
forward price-to-earnings ratio has been trading well above its
long-term average of about 15.
(Caroline Valetkevitch)
*****
FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)