Stocks whipsawed as tech and financials fall

Stocks whipsawed as tech and financials fall

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It’s hard to imagine a more dramatic roller-coaster ride for investors than the year 2020. The Covid-19 whipsaw felt the Great Recession and the Dot Com Bubble wrapped together and compressed into 12 months. That experience should provide a lesson for investors in 2021:

Predicting the future is a risky game.

“The S&P 500 dropped over 33% in March, we just went through a contested presidential election, and we’re still in the midst of a global pandemic that is only getting worse. And yet the S&P 500 has been hitting all-time highs.

No one could have foreseen that, and no one knows what 2021 will bring,” says Kansas-based financial planner Desmond Henry. “If 2020 has proved anything, it’s that the market is impossible to predict, so that’s why I don’t try.

If anything, 2020 should teach investors that well-established principles, investing for the long-term with a low-cost diversified portfolio and only checking your investment balance occasionally, are the best advice.

“I advise my clients not to get caught up in the latest hot stocks, sectors, or investment trends, Henry says.

If you panicked when the market dipped in March and sold your investments, you’d have missed out on a full recovery—including 60% growth since March’s nadir. That’s why Henry recommends clients “keep a well-diversified portfolio to weather whatever the markets bring next rather than trying to predict what’s going to happen next.”

Still, it’s impossible to ignore the trends that may impact investors in 2021. Here are the top ten trends that may affect the stock market and your investments in the new year.

1. The Biden Impact

January will be dominated by news of the incoming Biden administration. Plenty has been written about President-elect Joe Biden’s plan to raise taxes on the wealthy and its potential impact on stocks. But the market reacted favorably to Biden’s apparent victory on election night and continued to rally as the election results became clearer in the following days.

While Wall Street initially seemed to hope for a blue wave, the market’s recent performance seems to show it also s gridlock, meaning the markets will probably react favorably regardless of the outcomes of Georgia’s run-off U.S. Senate races.

2. Beginning of the End of Covid-19

The approval and gradual distribution of Covid-19 vaccines will be a major obsession in early and mid 2021. Will the vaccines work as advertised? Will they be rapidly distributed around the country and around the world?

There will be inevitable hiccups. But as better weather returns to the U.S., normalcy could begin to gradually return. At the same time, markets will be watching for Congress to pass additional stimulus to provide a lifeline for small businesses and consumers until vaccines really start to slow the spread of the virus.

How quickly the pandemic fades will have enormous macro economic impacts, and these will hit every single investment sector. Some will be more obvious than others, so they each merits their own discussion.

3. Covid-19 Vaccine to Boost Pharmaceutical Stocks

If the pharmaceutical industry manages to get Covid-19 under control during 2021, it will be a triumph for science. Public companies involved in the effort will be handsomely rewarded.

Some winners will be obvious, vaccine makers Pfizer (PFE) or Moderna (MRNA)—but companies working on therapeutic drugs Regeneron (REGN) will benefit, too.

There will be less obvious winners, too. Just one example: Distributing the vaccine will require an enormous logistics effort. Some vaccines require well-below-freezing transport, for example, so firms that sell cooling technology stand to benefit.

4. Pent-up Demand for Travel Stocks

Plenty of other sectors are set to jump if the world starts returning to normal in 2021. Pent-up demand for travel could drive a gold rush for long-punished airline stocks, hotels and even cruise lines.

And all that increased economic activity will do wonders for hard-hit tourist cities around the country and around the world, too. How much? Seth Carpenter, chief U.S. economist at UBS, predicted in November that early vaccine successes could mean near-zero Covid cases in the U.S. before summer, which would add 1 to 1.25% to U.S. GDP.

5. Hunger for Restaurant Stocks

Fast casual restaurant chains are set to benefit from the potential return to normality. Many have limped along with take-out orders—but on the day Pfizer announced its vaccine had 90% efficacy in Phase 3 trialsl, there was a widespread rally among chain restaurants, representing almost every kind of cuisine.

To offer just a sample platter: Darden (Olive Garden and Longhorn Steakhouse) (DRI), Ruth’s Chris Hospitality Group (RUTH), Cracker Barrel (CBRL), Cheesecake Factory (CAKE), Denny’s (DENN) and Dave & Buster’s (PLAY) all saw double-digit percent gains that day.

6. Beware the Work from Home Stocks

On the other hand, plenty of firms that saw surprising gains in 2020 might be imperiled by a potential return to normalcy after Covid-19. We also got a taste of this with Pfizer’s announced breakthrough vaccine trial. Work-from-home darling Zoom (ZM) lost nearly 20% at one point.

Food delivery services fell sharply, too, as did similar stocks.

Zoom isn’t going anywhere, and neither is the work-from-home crowd. But that November day should be a cautionary tale that growth in this sector is probably entering a new phase.

7. Be Mindful of the Rotation

New investing phases are normal. In the stock market, they are called “rotations.” Money runs after gains in certain sectors until a rally there becomes exhausted, and then money runs to other sectors.

It’s not uncommon for a surge in high-risk / high-reward tech investment to be followed by a rush to boring utility stocks. It’s ly that investors will rotate into different sectors in 2021.

8. Slowing Tech Stocks

Analysts have long predicted a slowdown in tech stocks, which had an excellent year in 2020—so well that the B word for bubble was frequently bandied about in market coverage.

The long bull market for tech stocks is bound to end eventually. Factors that could be in play in 2021 include the potential for messy antitrust litigation against Google (GOOG) and other tech giants.

It’s unclear how a Biden administration will handle the Trump administration’s lawsuit against Google.

But there seems little doubt that state attorneys general will continue to pursue litigation against giant tech firms.

9. FAANG Stocks Are Long in the Tooth

The slowing tech and rotation trends both lead us to the FAANG stocks and their outsized market impact over recent years. FAANG is a Wall Street nickname for (), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google (now called Alphabet)—athough Microsoft (MSFT) is sometimes substituted for Netflix to make FAAMG.

However you name it, this basket of tech giants represent about 20% of the value of the S&P 500. More important, during 2020 they represented a giant portion of the gains seen in the S&P 500.

By the end of November, for example, the S&P 500 was up about 13% for the year. But Microsoft and Google were up 36% each, was up 40%, Netflix was up 55%, Apple was up 67% and Amazon was over 70%.

It’s a good bet that this story could change in 2021. What remains to be seen is if the FAANG names can continue to rise rocket ships. If they don’t, will investors look to rotate their money into other tech stocks or into other sectors? Or will stagnated FAANG growth drag down the broader market?

News in any direction could have large implications for your investment portfolio.

10. Don’t Overreact to the News, But Be Ready for the Unexpected

Predictions are hard, but it’s easy to predict something unexpected will happen in 2021. That’s why the most important advice is to avoid the temptation to over-focus on the short term.

“I believe in focusing on your goals and working back from there versus reacting,” says certified financial planner (CFP) Bobbi Rebell, host of the Financial Grownup podcast. “So no change driven by outside factors,” the events you might hear about in the news.

The new year also offers investors a chance to take stock of how they handled the unexpected events of the past 12 months and consider making changes, she says.

“Do you have enough savings that are liquid for things …a pandemic?” says Rebell. If not, it might be time to bulk up your emergency savings. And if you found yourself overly stressed or panic selling over the past year, you may want to adjust your investment strategies to include more fixed-income investments in the new year.

In a world where uncertainty is more a feature than a bug, it’s important to be prepared for market highs and lows, even within the span of the same year. While one can hope nothing as dramatic as a pandemic hits in 2021, Henry expects investors should be ready for another roller-coaster ride next year.

“One reality that I think investors need to become more comfortable with is increased volatility in their investment portfolios. While 2020 is an outlier in terms of the wild ups and downs, volatility is something every investor is going to have to get used to,” he says.

The best way for most investors to handle volatility is a diversified portfolio of exchange-traded funds (ETFs) tailored to your goal timeline and risk tolerance.


Stock Market News: Cronos Gets Whipsawed; Kraft Heinz Takes Big Charges

Stocks whipsawed as tech and financials fall

Thursday morning saw some solid gains for the stock market, as investors were a bit more upbeat about the prospects for the U.S. economy to escape the recessionary fears that have arisen lately.

Macroeconomic machinations in the currency markets are getting a lot of attention, but the doomsday scenarios that have gotten discussed more frequently in recent days appear far less ly. As of 11:30 a.m. EDT, the Dow Jones Industrial Average (DJINDICES:DJI) was up 217 points to 26,224.

The S&P 500 (SNPINDEX:GSPC) picked up 36 points to 2,920, and the Nasdaq Composite (NASDAQINDEX:IXIC) rose 120 points to 7,983.

Earnings remain center stage in assessing individual stocks, and in some cases, reactions from shareholders can be unpredictable.

Cronos Group (NASDAQ:CRON) saw its stock fluctuate wildly in both directions after it released its second-quarter financial report, but for Kraft Heinz (NASDAQ:KHC), the news was all negative as investors wrestle with whether the food giant can regain its former glory.

Cronos Group goes through highs, lows after earnings

Shares of Cronos Group were down 4% after the Canadian cannabis company reported its second-quarter financial results. The move lower came after the stock had jumped as much as 8% in pre-market trading Thursday morning.

Image source: Cronos Group.

At first glance, Cronos Group's financials looked solid. Revenue tripled from year-ago levels to 10.2 million Canadian dollars, and unit sales volume jumped to 1,584 kilos.

Net income soared to CA$251 million, even though that was due solely to a massive revaluation on Cronos' derivative liabilities, as its weaker stock price cut the value of warrants that major shareholder Altria Group owns.

Yet on reflection, investors seemed nervous about all the things that Cronos is juggling.

The company opened its Cronos Device Labs global research and development center in Israel, acquired a new fermentation facility, and looked to take advantage of hemp opportunities in the U.S.

by acquiring CBD assets from Redwood Holding. Combined with partnerships with Altria and Gingko Bioworks, Cronos has a lot of irons in the fire right now.

Cronos has been volatile over the past year, and its stock has seen an extensive pullback since the early part of 2019. To regain its momentum, it'll have to post strong financials on an operating basis, and that'll take time for the cannabis cultivator to accomplish.

Kraft Heinz can't satisfy investors

Shares of Kraft Heinz slumped 15%, hitting their lowest levels since the two companies merged back in 2015. The food giant disappointed investors with its first-half performance, and the future doesn't look bright for the company after it had to take massive impairment charges.

Fundamentally, Kraft Heinz just isn't executing the way investors want to see. Preliminary results showed a 4.8% drop in revenue for the first half of 2019 compared to the year-earlier period, and net income got cut in half.

Even on an adjusted basis, earnings per share fell 24% from year-ago levels, as Kraft Heinz encountered difficult promotional conditions in North America and had to cut prices on certain products to reflect lower U.S. commodity costs.

Moreover, an accounting investigation forced Kraft Heinz to revalue its goodwill and other intangible assets. Writedowns in the two areas added up to $1.22 billion, due largely to the need to use new operating forecasts for key international markets in making predictions over the next five years.

Kraft Heinz has been hard-pressed to deliver good news in any part of its business lately, and investors are losing patience with the food company. With the stock having lost more than half its value in less than a year's time, time's running out for Kraft Heinz to mount a full recovery.

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Why Are Tech Stocks Falling?

Stocks whipsawed as tech and financials fall

The tech-heavy index fell 2.63 percent to commence the trading week on a weaker note, in contrast to the Dow Jones index, which inched up 0.09% on Monday.

The Nasdaq 100’s year-to-date climb has also slid below the gains seen in the Dow and the S&P 500 so far in 2021:

  • Dow Jones: +3.72%
  • S&P 500: +3.45%
  • Nasdaq 100: +2.36%

To be clear, the upward trend for the Nasdaq 100 remains intact, even as it looks destined to test its 50-day simple moving average (SMA) as a support level.

“Tech stock fans can take heart that previous forays below the 50-SMA have proved fleeting; such has been the resilience of tech stocks.”

The Nasdaq 100 minis still have to break below the 12,750 region in order to post a lower-low to potentially bring its upward trend to a shuddering halt.

But what could make things different this time?

The reflation trade

  1. Investors are expecting the US economy to outperform as it continues its post-pandemic recovery.

                                                                                                              This recovery has been aided by trillions of dollars in support measures, both from the US government (fiscal policy) and from the central bank (monetary policy), as well as the roll the Covid-19 vaccine.

    The rosier economic outlook has prompted a rise in Treasury yields (10-year Treasury yields have risen to a one-year high), which could eventually prompt investors to prefer treasuries over stocks.

  2. As economic activity is restored, this is expected to lead to faster inflation.

          More importantly, some investors think that the inflation will actually stick this time around, as opposed to the languid price pressures that have kept the Federal Reserve from consistently achieving its 2% inflation target since adopting that goal in 2012.

  3. Should inflationary pressures continue building, that may bring forward the Fed’s timeline for easing up on its support measures for financial markets.      Note that the US central bank has been purchasing about $120 billion in bonds per month since the pandemic. An overheating US economy may warrant a pullback in these asset purchases, which could then pave the way for an interest rate hike. Once this flow of easy money is constrained, that removes a major tailwind for many corporations that have thrived under such easier financial conditions.

What does the reflation trade mean for specific sectors?

“The reflation trade suggests that stocks that are more exposed to the economic cycle stand to benefit at the expense of tech counters, which had been darlings amid the pandemic.”

Here’s a snapshot of the reflation trade as per Monday’s price action within the S&P 500:

  • Energy: +3.47%(ConocoPhillips: +5.08%; Schlumberger: +5.44%)
  • Financials: +0.98%(JPMorgan: +0.94%; Bank of America: +1.77%)
  • Consumer discretionary: -2.15%(Amazon: -2.13%; Tesla: -8.55%)
  • Information technology: -2.26%(Apple: -2.98%; Microsoft: -2.68%)

Also note that the concerns surrounding overstretched tech valuations are now coming to the fore.

Even after Monday’s declines, the Nasdaq Composite Index now has a PE ratio of 70.43, which is still more than double its average of 33.22 from the past decade. That’s in contrast to the S&P 500’s current PE ratio of 31.7, while the Dow Jones index’s PE ratio stands at 28.26.

“In other words, non-tech stocks have plenty of room to catch up, while tech counters could have more downside to explore, as funds are rotated away from tech amid the reflation trade.”

To be clear, this does not herald the capitulation of tech stocks

Rather, it may be the case that tech stocks are set to lag behind other sectors that are exposed to the traditional “Main Street” economy that are more ly to benefit from more fiscal stimulus.

And as if to prove the point further, at the time of writing, the futures contracts for the Nasdaq 100 are edging lower while their counterparts for the Dow and the S&P 500 are little changed.

“This suggests that the reflation trade is set to persist for a while longer, with tech stocks ly to languish investors’ favour for the time being.”

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U.S. stocks close sharply higher in volatile trade as bond yields steady after strong jobs report

Stocks whipsawed as tech and financials fall

U.S. stock benchmarks rebounded sharply Friday afternoon in whipsaw trade, as the rise in bond yields steadied, after a stronger-than-expected monthly jobs update from the Labor Department that offered evidence of an economy recovering from the effects of COVID-19.

All major sectors in the S&P 500 index gained while the tech-heavy Nasdaq climbed more than 1.5% as giants Inc. and Apple Inc. recovered but the index still closed lower for the week.

How are stock benchmarks performing?

  • The Dow Jones Industrial Average DJIA, +0.51% closed higher by 572.16 points, or 1.9%, around 31496.30, after trading as high as 31,580.33 and a low at 30,766,81 and posted a 1.82% this week
  • The S&P 500 index SPX, +0.60% added 73.

    47 points to close at 3,841.94, a gain of 2% and a0.81% gain for this week 

  • The Nasdaq Composite Index COMP, +0.63% gained 196.68 points, or 1.6%, to settle at 12,920.15, its best one-day rebound in about a year but still ended down 2.

    06% this week 

On Thursday, the Dow ended 345.95 points, or 1.1%, lower at a one-month nadir of 30,924.14, the S&P 500 fell 51.25 points, or 1.3%, to 3,768.47, the Nasdaq Composite Index slid 274.28 points, or 2.1%, to reach 12,723.

47, its lowest in three months and within 27 basis points of a 10% correction.

For the week, the Dow gained 1.8% and the S&P 500 added 0.8%. The Nasdaq was 2.1% lower for the week, but Friday’s rebound put it back above water for the year to date, if barely.

What drove the market?

Markets are wrestling with good news on the economic front and what that means for bond yields after the U.S. created 379,000 new jobs in February—marking the biggest increase in four months. Economists surveyed by Dow Jones had expected 210,000 jobs to have been added. The unemployment rate slipped to 6.2% from 6.3%, although economists widely believe the real rate is much higher.

“It’s kind of a tug-o-war,” explained Randy Frederick, vice president trading and derivatives at Schwab Center for Financial Research, told MarketWatch via email.

“Is good news good news, even if it means higher rates? I’m not sure the market has answered this question just yet,” he said.

The jobs data suggest that vaccination distribution and fiscal stimulus from Congress is providing a jolt to the economy and may push up inflation in the aftermath of the recession caused by the public health crisis .

“At a time when the market was already grappling with the steep rise in bond yields, the significant upside surprise to nonfarm payrolls will not be welcomed by bond investors,” wrote Seema Shah, chief strategist, at Principal Global Investors.

Friday afternoon, the yield on the 10-year Treasury note TMUBMUSD10Y, 1.674% was down about 1 basis point to 1.553%, after a sharp rise this week in the wake of comments from Federal Reserve Chairman Jerome Powell on Thursday that were seen as insufficiently concerned about the possibility of inflation as the economy recovers with help from another dose of fiscal stimulus from Washington.

However, Powell did say that the bond market selloff during the past few weeks has his attention and the central bank wouldn’t sit back and let the financial market conditions tighten broadly.

Meanwhile, the President Joe Biden’s $1.9 trillion COVID-19 financial aid plan is inching through the Senate and is expected to gain approval sometime over the weekend.

Friday’s jobs report is great for the economy but more complicated for markets, said Brad McMillan, chief investment officer for Commonwealth Financial Network.

“Implications for the markets are mixed,” McMillan said. “Faster job growth means rates are ly to keep edging up, as faster growth ly means more demand for capital, and potentially more inflation. That is hitting valuations for both bonds and stocks, which should be a headwind for markets,” he added.

The market’s volatility reflects a so-called rotation highflying technology stocks, viewed as expensive by some measures, to other areas of the market considered undervalued, including energy and financials, amid the rise in bond yields.

Which stocks were in focus?

  • Chevron Corp. CVX, +0.61% said Friday it has entered an agreement to acquire the 33.925 million shares of Noble Midstream Partners it doesn’t already own in an all-stock deal. Shares climbed 4.2%.
  • Hibbett Sports Inc. HIBB said Friday it had net income of $23.9 million, or $1.39 a share, in its fiscal fourth quarter to Jan.

    30, up from $6.0 million, or 34 cents a share, in the year-earlier period. Its shares were off 3.9%.

  • Shares of Norwegian Cruise Line Holdings Ltd. NCLH dropped 12.3% Friday, after the cruise operator said it started a public offering of 47.58 million shares.
  • Shares of Big Lots Inc.

     BIG ticked up Friday, after the discount retailer reported a fiscal fourth-quarter profit that beat expectations and same-store sales that missed, amid a weaker-than-expected December, but provided an upbeat first-quarter outlook. Shares closed 2.2% higher.

  • GameStop Corp. GME, +16.

    21%  shares closed 4% higher in choppy trade, notching a weekly gain of over 35%, and just missed closing with a market cap of $10 billion.

How did other assets fare?

  • The dollar rose 0.3%, as measured by the ICE U.S. Dollar Index DXY, to 91.92.
  • Oil futures rose after the Organization of the Petroleum Exporting Countries said it would roll over current production cuts through April, the U.S. benchmark CL.1 gained 3.5% or $2.22, to trade at $66.05 a barrel, following a gain of over 4% on Thursday. Crude for April delivery CLJ21 rose $2.26, or 3.5%, to settle at $66.09 a barrel, the highest since 2019.
  • Gold futures GC00 lost $2.20, or 0.1%, to settle at $1698.50.
  • Equities finished lower in Europe, with the pan-European Stoxx 600 index SXXP booking a 0.8% loss and London’s FTSE 100 UKX finishing 0.3% lower.
  • Stocks pulled back in Asia: the Shanghai Composite SHCOMP ended Friday trade less than 0.1% lower, Hong Kong’s Hang Seng Index HSI lost 0.5%, and China’s CSI 300 000300 fell 0.3%, while Japan’s Nikkei 225 NIK shed 0.2%.


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