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LIVE MARKETS-Tailwinds building for large-cap growth

· 03/16/2021 13:49
LIVE MARKETS-Tailwinds building for large-cap growth

Nasdaq off highs, now up just 0.4%; S&P slips, Dow dips

Comm svcs, tech lead S&P sector gainers

Cyclicals falter; energy down most

Dollar ~flat; gold edges lower, crude down

U.S. 10-Year Treasury yield ~1.62%

- 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


Saira Malik, CIO, Head of Global Equities at Nuveen, is out this week with some comments on where there may be opportunities in this market.

Malik says that there are select opportunities in some growth and technology-oriented companies made attractive by the recent correction.

She also believes U.S. small caps are favorable as they are poised to benefit from the economic re-opening and stimulus. Additionally, she says technology and consumer-related industries within emerging markets appear attractive.

Looking specifically at large-cap growth, Malik says there are three major tailwinds: faster secular growth, improving profitability, and now, an attractive entry point.

According to Malik, there are opportunities in "dominant consumer-focused companies and select megacap technology areas that could experience faster growth over the next 5 years than the last 10 years."

Additionally, she says the digital winners have driven an expansion in the free cash flow margin of large stocks from 4% (the 50-year average) to between 12% and 15% today. To her, this provides another potential catalyst for growth as these companies can deploy free cash flow through increased dividends, share buybacks, and acquisitions.

Malik also highlights that growth stocks have sold off this year as Treasury yields have risen. However, she believes it is likely a one-time adjustment that has already occurred.

She notes many growth stocks have already fallen between 15% to 20%. "This could represent an attractive entry point, as we expect Treasury yields could pause given that the Fed should remain on hold and non-U.S. bond yields are even further depressed."

(Terence Gabriel)



It's fair to say that the mood was not the same on both sides of the Atlantic today.

European stocks closed up 0.9% with the STOXX 600 ending the session just 7 points from its 433.90 record high, while at the same time the Dow Jones was trading in negative territory.

The session started with heavy concerns about the AstraZeneca vaccine after many EU countries suspended its rollout due to questions over its safety.

While there was no breakthrough today on that front, there was some relief when the head of the European Medicines Agency said she saw no reason to change its recommendation.

There's still some uncertainty out there waiting for the EU regulator to release its findings on Thursday.

Volkswagen was clearly the star of the session rising 6.7% after its earnings and guidance received a warm welcome and reportedly became the focus of U.S. retail investors who have piled on a class of the German carmaker's shares.

"The widening of the spread between Volkswagen ordinary and preference shares in only due to the fact that American ADRs are linked to the ordinary stock," said Angelo Media, head of equities at Banor Sim in Milan.

"The Americans of Reddit have targeted Europe", he added pointing out to other stocks on the rise such as German battery maker Varta, which surged 14% after announcing plans to produce battery cells for electric cars.

(Julien Ponthus and Danilo Masoni)



It's a full court press as 16 companies look to price IPOs over the next two weeks. Last March, just two deals got on the scoreboard when COVID-19 shut down the IPO market.

Meanwhile, SPAC (special purpose acquisition company) new issuance remains in fast-break mode. Some 258 SPACs, or blank check companies, have already raised about $83 billion so far this year vs the 248 that raised roughly $82 billion in 2020.

Below is the current IPO roster, by expected debut date:

Mar 17:

Olo Inc OLO.N (restaurant delivery, SaaS) (~$400M)

Sun Country Airlines SNCY.O (passenger/cargo) (~$200M) Apollo Global Management-backed

Mar 18:

Duckhorn Portfolio NAPA.N (winery owner) (~$300M)

Tuya TUYA.N (China, software) (~$880M) Tencent-backed

Vine Energy VEI.N (E&P) (~$350M) Blackstone-backed

Gain Therapeutics GANX.O (biotech) (~$40M)

Mar 19:

Connect Biopharma CNTB.O (China, biotech) (~$150M)

Finch Therapeutics FNCH.O (biotech) (~$100M)

Instil Bio TIL.O (biotech) (~$260M)

Mar 24:

ACV Auctions ACVA.O (digital marketplace) (~$300M)

DigitalOcean DOCN.N (cloud computing) (~$775M) nL4N2L748D

Leonardo DRS DRS.N (defense contractor) (~$700M) Italy's Leonardo LDOF.MI is parent nL4N2LD2V9

Mar 25:

Cricut Inc CRCT.O (crafting tools) (~$330M)

Diversey Holdings DSEY.O (industrial services) (~$970M)

Semrush SEMR.N (SaaS)(~$270M)

Vizio VZIO.N (TV maker) (~$350M)

(Lance Tupper)


SMOKING: 2050 AIN'T THE END OF IT! (1142 EDT/1542 GMT)

According to Citi Research, there's a good chance the last U.S. smoker will put out his last cigarette bud by 2050 but that doesn't mean tobacco companies are doomed.

Actually, according to the equity research team, tobacco stocks are currently...undervalued!

"We think tobacco valuations would be justified if the entire business was likely to disappear in 2050", the Citi analysts argue, adding that it most probably won't be the case.


Well, bad habits die hard and in many parts of the world, smoking is pretty much still expected to be a thing in 2050.

China, Germany, France, Russia, South Africa or Chile are among the countries where the current trends suggest humans will still be commonly found willingly inhaling tar.

And while people do quit smoking, some of them may continue to consume nicotine through vaping or other 'Reduced-Risk Products (“RRPs”)" which present less risk to health than a good old deadly cigarette.

So the decline in people smoking might not necessarily be followed by a similar decline in nicotine consumption, particularly if regulators encourage people to vape as an alternative to smoking.

"RRPs might become socially acceptable in a way that cigarettes are frequently not, and that as a result nicotine volumes might even start to grow again", Citi analysts reckon.

In a nutshell, Citi has no 'Sell' tags on the 7 tobacco companies it reviews in the note but 3 'Buy' (Philip Morris, BAT, KT&G) and 4 'Neutral' (Altria, Imperial, Japan Tobacco and Swedish Match).

(Julien Ponthus)



The chill of last month's brutal winter weather reverberated through a spate of indicators released on Tuesday.

Receipts at U.S retailers USRSL=ECI plunged last month as arctic conditions froze wallets shut and kept consumers home. nL1N2LD1V6

The Commerce Department's retail sales report for February was much worse than expected, dropping 3% from January's upwardly-revised 7.6% surge.

The data also suggests consumers quickly burned through the $600 direct stimulus payments from December's $900 billion fiscal relief package.

However, Lydia Boussour, lead economist at Oxford Economics, expects February's drop to be a weather-induced blip.

"With healthier and warmer days nearing, and generous stimulus checks on their way, consumers are poised to shake off the winter chills," Boussour writes. "This year, we expect the combination of an improved health situation and generous fiscal stimulus to fuel a consumer boom for the history books, with real consumer spending likely to grow 7.7% – its fastest rate since 1946. This should help support real GDP growth of 7.0%."

"Core" retail sales - which excludes autos, gasoline, building materials and food services, and corresponds to the consumer spending component of GDP - dropped 3.5% from an 8.7% jump the previous month.

The U.S. Federal Reserve contributed to the buzzkill with its dreary industrial production USIP=ECI report. nL1N2LD290

The data showed U.S. factory output unexpectedly dropping by 2.2% last month, compared with the 0.3% consensus gain.

"These indicators often are found wanting in the face of weather shocks," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "(It) tells us nothing about either the current underlying trend or the outlook for the industrial sector as Covid recedes. We expect a huge rebound in production in March."

Capacity utilization USCAPU=ECI, a gauge of economic slack, dropped by 1.8 percentage points to 73.8%.

Bucking the freeze-out trend, rumors of inflation heating up were further confirmed by the cost of imported goods USIMP=ECI increasing more than anticipated. February import prices grew by 1.3% from January and 3% year-over-year, per the Labor Department. nW1N2LE005

"Recovering commodity prices and strong base effects are set to continue to boost import prices in the near term," says Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. "Yet the rise should be transient and import costs have just a moderate impact on wider prices.

Import prices now join two other major indicators above the U.S. Federal Reserve's average annual 2% target - although the Fed's preferred inflation yardstick, core PCE, remains below that level for now.

Winter's deep freeze even weighed on usually jolly homebuilder sentiment.

The National Association of Home Builders' (NAHB) Housing Market index USNAHB=ECI pulled back 2 points to a reading of 82, a bigger drop than economists predicted.

While spiking demand for new homes has driven supply to historic lows, thereby supporting the need for residential construction, rising materials costs and stretched supply chains took some spring out of the sector's step.

"Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month," noted the NAHB in its press release. "Supply shortages and high demand have caused lumber prices to jump about 200 percent since last April."

Finally, the Commerce Department also reported that U.S. businesses beefed up the goods in their store rooms USBINV=ECI by 0.3% in January, inline with consensus but a deceleration from December's more robust 0.8% increase. nL1N2LD1MN

This coincided with a 4.7% jump in sales, which drove months supply down to 1.26, the lowest level since April 2012.

Wall Street is mixed in morning trading, with the tech-laden Nasdaq .IXIC taking the lead, the S&P 500 .SPX up modestly, and the Dow .DJI set to snap a seven-day win streak.

(Stephen Culp)



If you're still locked in at home and wish to prepare for a new narrative in a post pandemic world, here are six book recommendations, courtesy of Bernstein strategist Inigo Fraser-Jenkins and team.

  • Jonathan Crary: 24/7 - Late capitalism and the ends of sleep (2013)

  • Scott Galloway: Post Corona (2020)

  • Charles Goodhart and Manoj Pradhan: the great demographic reversal: ageing societies, waning inequality and an inflation revival (2020

  • Stephanie Kelton: The deficit myth -- Modern monetary theory and how to build a better economy (2020)

  • Alex Williams and Nick Srnicek: Inventing the Future: Postcapitalism and a world without work (2015)

  • Yanis Varoufakis: Another Now: Dispatches from an alternative present (2020)

"We recognise that the collection may appear eclectic. After all, Yanis Varoufakis' contribution is a work of fiction, Jonathan Crary is a professor of modern art and theory. Some of the authors are espousing profoundly anti-capitalist (or rather, post-capitalist) theories while others are firmly within a capitalist frame of reference," they say.

"Yet we think that all are important in defining an intellectual basis for a post pandemic policy environment, and hence a basis for investing," they argue.

Happy reading!

(Danilo Masoni)



Major U.S. indexes are mixed in early trade with the Nasdaq .IXIC showing the most strength. The S&P 500 .SPX is slightly higher, while the Dow Industrial Average .DJI is modestly down. Small caps are being hit with the Russell 2000 .RUT off more than 1%.

This ahead of the Federal Reserve's two-day policy meeting against the backdrop of rising borrowing costs. .N

In any event, growth .IGX is outperforming value .IVX. Tech .SPLRCT and communication services .SPLRCL are the best performing major S&P sectors, while more economically sensitive groups, such as energy .SPNY, financials .SPSY, industrials .SPLRCI, and materials .SPLRCM are packed at the bottom of the S&P 500 tote board.

Meanwhile, the Dow's 7-day winning streak is in jeopardy. The blue-chip average last rose 8-straight days in late-July/early-August of last year. nL1N2LD27G

Here is where the changes in the major averages in early trade:

Nasdaq Composite


S&P 500


Dow Industrials


(Terence Gabriel)



The consensus for earnings growth is already quite bullish when it comes to European equities: about 33% for the MSCI Europe index according to Refinitiv IBES data:

But there are analysts out there who believe it could be much better than that.

The UBS strategy team for European equities now expects European corporate earnings to rise by 50% in 2021, on the back of higher global GDP growth boosted by the $1.9 trillion U.S. stimulus package.

Almost two-thirds of 2021 EPS growth in Europe will come from just five sectors, the bank said: energy, autos, capital goods, banks and mining.

This comes after a thorough pandemic-driven drubbing to earnings in 2020, which are expected to have fallen by around 29%.

The third and fourth quarters of 2020 did already see improving sentiment, as companies recovered from the initial shock of the pandemic, and fiscal stimulus released earlier in the year began to take effect.

Other tailwinds such as COVID-19 vaccine rollouts and the Brexit trade deal also bolstered the UBS' outlook, and it flagged a 470 level year-end target for the pan-European STOXX 600 index .STOXX, representing a 17.8% jump from the index's 2020 close.

The improving earnings outlook is also reflected in share prices, with the STOXX 600 trading about 6.5% higher so far this year. The pace of the index's recovery has also surpassed its U.S. peers, with the latter coming under pressure from a drop in heavyweight tech.

UBS also flagged a bullish outlook for UK equities, raising its year-end target for the FTSE 100 .FTSE to 7,600 from 7,200- a 17.6% premium to its 2020 close.

But the bank warned that a sharper-than-expected spike in bond yields posed a threat to any recovery. A slower exit from virus-led lockdowns and vaccination hiccups are also downside risks.

(Ambar Warrick)



The S&P 500 index .SPX ended Monday at a record high. However, with the Northern Hemisphere's spring equinox this Saturday, it may shortly become clear whether the benchmark index is on the verge of a moon-shot to fresh records, or if the equinox's orb of influence will coincide with a reversal.

Proponents of Gann Theory, or methods of technical analysis developed by trader W.D. Gann, may look for either acceleration of the prevailing trend, or a reversal, around the summer and winter solstices, as well as the fall and spring equinoxes.

Just looking back over the past year, there has been interesting market action around these events:

The 2020 spring equinox took place on Thursday, March 19, at 11:49 PM EDT. Two trading days later, on March 23, the S&P 500 put in a surprise bottom that ended the more than 30% February/March bear market.

The 2020 summer solstice then occurred on Saturday, June 20, at 5:43 PM EDT. Earlier that week, the SPX abruptly ended what was a more than 8% one-week slide.

The 2020 fall equinox took place on Tuesday, September 22 at 09:30 AM EDT. Just one day later, the SPX concluded what was a more than 10% intraday drop from its early September high.

Most recently, the 2020 winter solstice occurred at 5:02 AM EST on December 21st. The SPX ended a more than 2% decline that day, and has since tacked on another 9% into Monday's high.

The 2021 spring equinox occurs at 05:37 AM EDT on Saturday, March 20.

Meanwhile, just as this potential turn date arrives, the SPX is up five straight days nL1N2LD27G, and nearing a more than 10-year channel resistance line that now resides around 4,010, or just 1% above Monday's finish. nL1N2K7193

This, as the Dow Industrials .DJI, up seven straight days, ended Monday within 0.5% of a 92-year resistance line. nL1N2LD0ZV

Thus, action may be about to heat up, one way or the other.

(Terence Gabriel)



(Terence Gabriel and Lance Tupper are Reuters market analysts. The views expressed are their own)