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NEED TO KNOW
Stock sellers are picking up where they left off on Friday, as the market
appears to be waking up from its August slumber with a vengeance.
Caution continues to ooze from Wall Street ahead of the Jackson Hole meeting, on
worries summer gains were just due to a bear market rally cloaked in false
dovish hopes.
As Goldman Sach’s chief U.S. equity strategist David Kostin told clients after
the S&P 500 took just 17 weeks to reach his year end target of 4,300, “upside
seems limited while downside risks loom.” His concern is that we could be
walking into a 2000 trap, where the market declines even after hiking stops if
the U.S. enters recession.
That brings us to our call of the day from Morgan Stanley strategist Andrew
Sheets who says investors should consider cash as a viable investment strategy,
even if that hasn’t seemed like such a winning proposal in the past.
“Holding cash…was an explicitly defensive decision for much of the last 12
years. Of course it offered a worse return than anything else in the market,”
Sheets told clients in the bank’s Sunday note. That strategy also proved
expensive, with the dollar underperforming both the S&P 500 and U.S. 10-year
Treasury note between 2010 and 2020 (barring 2013 and 2018), he added.
“But the idea that holding cash means paying for insurance is no longer
accurate,” said Sheets, who notes that U.S. 6-month Treasury bills yields (3.1%)
are the highest since late 2007, offering 157 basis points more than S&P 500
dividends, 21 basis points more than 10-year Treasurys and just 60 basis points
under the U.S. aggregate bond index
“For USD investors, cash has ceased to be a material drag on a portfolio’s
current yield,” he said. Even holding cash in Europe, which used to be extremely
costly, is no longer, as German 6-month bill yields are positive for the first
time since 2014.
Streets said that on a cross-asset basis, U.S. dollar cash offers a high current
yield, liquidity, and a better 12-month total return than Morgan Stanley’s own
implied forecasts for U.S. equity, U.S. Treasurys, investment grade and high
yield credit — “with considerably less volatility.”
This is why Morgan Stanley’s core optimized fixed-income portfolios are
overweight short-dated fixed income, he said. Against other currencies the
dollar also holds up, and the bank’s foreign exchange experts see more of that
strength ahead, especially against the euro which was once again tapping parity
on Monday as worries over Europe winter fuel shortages build.
The market
Stocks are under pressure, with bond yields rising and reflecting a cautious
mood and oil prices dropping. Investors continue to push the dollar higher.
Elsewhere, it was a choppy day in Asia and Europe stocks are under pressure.
The euro has touched parity against the dollar, as Europe natural gas prices
soar on news of a three-day shutdown at the end of the month for a vital Russian
pipeline.
The buzz
Among data and events this week, we’ll get PMI numbers, second quarter GDP, the
Fed’s favorite inflation indicator and the central bank’s Jackson Hole meeting,
with Chairman Jerome Powell due to speak Friday morning.
On the meme-stock beat, AMC Entertainment is tumbling ahead of the start of
trading for preferred equity units, or ApesL, and London-based Cineworld
confirmed it was considering a U.S. bankruptcy filing. Stock in fellow meme, Bed
Bath & Beyond is also dropping.
CEO Elon Musk said the Tesla will raise the price of its ‘Full Self-Driving’
feature to $15,000.
Joining CVS Amazon is reportedly among the bidders for healthcare
company Signify Health
China’s central bank cut its loan prime rate, a move aimed at pumping up its
shaky real-estate market. Meanwhile, power rationing in the drought stricken
southwest affecting industrial companies and Tesla in Shanghai, has been
extended.
Retail and tech names will be reporting this week, with Zoom Video and Palo Alto
Networks due after Monday’s close. Macy’s Dick’s Sporting Goods Dollar Tree and
Dollar General Peloton Nvidia Salesforce and Marvell among other highlights.
A group of Apple workers are reportedly pushing back against a return-to-office
order for next month.
Fans rushing to watch HBO’s “Game of Thrones” prequel “House of the Dragon,”
which has a $100 million market campaign behind it, sent the app crashing.
Best of the web
As war nears six-month mark, top Russian diplomat warns of a long conflict ahead
Americans see a threat to democracy as No. 1 issue, new poll finds
The crypto geniuses who vaporized a trillion dollars.
The chart
RBC Capital’s head of U.S. equity strategy, Lori Calvasina, argues stocks can
and have put in major bottoms even amid falling earnings forecasts, with her
chart below showing those moments in history. While Calvasina remains concerned
that likely further moves down for 2022 and 2023 EPS forecasts could make for a
more volatile stock market, she doesn’t think that will lead to carving out a
new low for equities.
Top tickers
These were the top searched tickers on MarketWatch as of 6 a.m. Eastern Time:
Ticker Security name AMC Entertainment Bed Bath & Beyond GameStop Tesla
GigaCloud Technology Apple NIO Endo International Amazon Best Buy
Random reads
“I don’t want to be part of a slow decline. Why a 3-star Michelin chef is
quitting
You gotta fight for your right to have fun.
Need to Know starts early and is updated until the opening bell, but sign up
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sent out at about 7:30 a.m. Eastern.
Microsoft may earn an Affiliate Commission if you purchase something through
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