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Tuesday, September 27, 2022

Flat yield curve, slow growth, surging inflation but bulls power on

Here is what you need to know on Thursday, October 28:

More data just out juxtapositions the seemingly endless optimism of the stock market against the more qualified reasoning of bond and currency markets. The growth rate for the US economy slowed to 2%, while the yield curve continues to flatten across the globe. There has been a surge in short-term yields practically overnight as bond traders know the game is up for ultra-loose monetary policy and are adjusting accordingly.

The bond market may take longer to move, but it is the driver of financial markets and possesses a huge wall of money, dwarfing equity volumes. The chart below shows 2-year yields for the main blocs: UK, EU, US and adding in the move in the aussie overnight as well, as it has been the most dramatic. The aussie 2-year yield has almost doubled overnight, while the yield on the US 2-year is up 13% today alone. 

While everyone in the equity market was too busy fixating on the 10-year yield, the flattening yield curve has crept up to serve everyone a warning. For now, equities remain bullish due to a wall of money flowing in as new highs attract new money, and equities move into a massive buyback phase after the Q3 earnings season. Seasonality is also favouring a strong end to the year. Q4 is historically a positive one for equities, but rising short-term yields will make high growth names less attractive going forward. It may be time to reshuffle the sectoral distribution of your portfolio.

The dollar remains steady at 1.1630 versus the euro, while gold is just under $1,800. Bitcoin is at $61,100, and WTI Oil trades for $82.

See forex today.

Wall Street (SPY) (QQQ) news

President Biden proposes a 1% tax on stock buybacks.

US GDP Advance reading 2% growth rate.

Caterpillar (CAT) up 1% on strong earnings.

JNJ, tens of millions of vaccines sit idle at the Baltimore factory waiting for regulators to give the go-ahead to ship.–Reuters

Merck (MRK) up 2% premarket on earnings beat and outlook raise.

Nokia (NOK) up 5% on strong earnings.

Ford (F) up 8% after yesterday’s massive earnings beat, nearly 100% ahead on EPS.

Comcast (CMCSA) beats on EPS and revenue.

Stellantis (STLA) reports fall in revenue on semiconductor issues.

eBay (EBAY) just beats on EPS by 1 cent, revenue ahead but poor guidance sees stock slip in premarket.

Anheuser Busch InBev (BUD) raises 2021 earnings forecast, up 10% premarket.

Lending Club (LG) up 30% on earnings, Credit Suisse ups price target.

WPP Group (WPP) up 6% premarket on earnings beat.

Twilio (TWLO) down 11% on poor guidance.

Apple (AAPL) and Amazon (AMZN) to report earnings after the close. 

Upgrades, downgrades earnings and premarket movers

Source: Benzinga Pro

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