Tag: Weekly

American indices ended last week with growth, and the dynamics turned out to be the best over the past three months. The capitalization of the S&P 500 increased 1.8%, while the Nasdaq 100 rose 2.2%. In recent weeks, investors have been worried about the situation around the rise in energy prices, disruption of supply chains and inflationary expectations. However, the corporate reporting season, which traditionally begins with the results of the largest banks, has inspired optimism among investors. Quarterly financial results exceeded market expectations, as banks demonstrated strong profitability due to the release of loan loss provisions created during the lockdown last year and an increase in income from investment banking, including M&A transactions. The market will continue to closely monitor corporate reports throughout the week, especially for the results of the largest technology companies, which may set the further trajectory of the movement of stock indices. We believe that during the current week the market indicators will continue to rise, however, we assume that there may be unpleasant surprises in the reporting season, due to which the volatility increases.

Last week, the S&P 500 Index added 0.8%, while the Nasdaq 100 remained at the levels of the previous week (+ 0.2%). Throughout the week, American indices have shown steady dynamics, however, on Friday, after the publication of macroeconomic statistics on the labor market for September, the indicators turned around and closed at the end of the day in a slight minus. The number of jobs in the US economy in September increased by 194 thousand, at the lowest rate since the beginning of the year. However, unemployment fell to its lowest level since March 2020 – 4.8%, up from 5.2% in August. The market consensus assumed the growth of the first indicator by 500 thousand and a decrease in unemployment to 5.1%. The slow pace of job growth suggests that the economic recovery is uneven. This, in turn, reinforces expectations that the Federal Reserve may leave stimulus measures for a longer period than anticipated. Recall that the recovery of the labor market is a key variable that will determine further monetary policy in the country.

In the last trading week in September, US indices intensified their correctional movement. Thus, the S&P 500 fell by 2.2%, while the capitalization of the Nasdaq 100 decreased by 3.5%. Both indicators showed their worst monthly performance since March 2020. The past month was difficult for the stock market amid expectations of rate hikes, controversies in parliament over raising the government debt ceiling, fears about inflation and concerns about the situation in the Chinese real estate market due to the problems of the developer China Evergrande Group. The yield on US 10-year Treasuries rose from 1.3% to 1.5%.

Last week, the S&P 500 increased its market cap by 0.5%, while the Nasdaq 100 remained at the levels of the end of the previous week. At the beginning of the week, it became known about the financial problems of the largest Chinese developer Evergrande. On Monday, the company missed loan payments to at least two banks. The intensity of the situation around the debt problems of Evergrande had a serious impact not only on the Chinese stock markets, but also on the global ones. However, closer to the middle of the week it became known that the Chinese authorities are ready to provide support so that Evergrande does not allow default. On Thursday, the company was supposed to pay the coupon for the Eurobonds, but it is still not clear whether the payment was made. This information should appear this week. In our baseline scenario, we expect to see Evergrande’s managed debt restructuring that should not cause significant damage to the Chinese financial system.

Circle is a technology company founded in 2013 as a payment platform for settlements in cryptocurrencies. The company was founded on the belief that blockchain and digital currency will reshape the global economic system, effectively making it more open, efficient and integrated. In 2018, Circle created its own stablecoin called USDC. Stablecoin is a cryptocurrency that is usually backed by either fiat currency or another crypto asset. The USDC is backed by the US dollar at a 1: 1 ratio, therefore, in order to ensure the circulation of the stablecoin, Circle must maintain its US currency reserves in a timely manner and in full. Circle publishes a monthly report confirming that the USDC outstanding is fully backed by hard currency reserves. USDC is a popular coin among crypto investors, so the demand for it is quite high. In the Coinmarketcap rating, USDC ranks 10th with a capitalization of $ 29.3 billion. In March 2021, Visa announced that it would allow USDC to be used for settlements on transactions in its payment network.

Supporting the USDC issuance is not Circle’s only business. In 2018, the company acquired the SeedInvest platform, which helps startups raise funds. Circle also operated the Circle Trade OTC trading platform and the Circle Invest investment app. However, both platforms were sold in 2019 and 2020 as the company made decisions to focus on its stablecoin. In 2018, Circle acquired the Poloniex cryptocurrency exchange for $ 400 million in an effort to become a one-stop cryptocurrency marketplace. According to the press release, one of the reasons Circle chose to go public is to increase transparency comparable to banking institutions. Circle has also applied to become a national commercial bank with the aim of bridging the gap between traditional assets and the world of cryptoassets. The company’s management believes that classical banking based on digital currency and blockchain technology can lead not only to a more efficient, but also a more secure and stable financial system.

The company managed to raise $ 711 million in 9 investment rounds. In May 2021, Circle raised $ 440 million from 11 investors, including Fidelity and FTX. Following the deal, it became known that the company intends to go public through the SPAC deal with Concord Acquisition Corp, which is due to close at the end of the fourth quarter of 2021. Circle announced regulatory filings with the Securities and Exchange Commission in August. The company will be listed on the New York Stock Exchange under the symbol CRCL. Circle’s main investors are Fidelity Management & Research Co., Third Point LLC, Marshall Wace and Adage Capital Management. In the last investment round in May, Cirle was valued at $ 4.5 billion.

We believe that, if successful in obtaining a banking license, Circle will have a unique opportunity to scale up its activities. It is possible that the USDC stablecoin can be recognized at the national level. Thus, the coin will become a direct competitor to the US dollar. Among the main risks, regulation can be distinguished, since until now cryptocurrencies have not received a certain status, enshrined in law. A positive moment for the development of the crypto market in the United States may be the appointment of financier Gary Gensler to the post of head of the US Securities and Exchange Commission, who spoke positively about blockchain, bitcoin and cryptocurrencies. We doubt that crypto currencies will be recognized as a means of payment in developed countries, but we fully admit that they can be assigned the status of an alternative investment instrument, which will be a historically positive moment in the development of the crypto market.

The previous week was quite volatile. The broad S&P 500 as the Nasdaq 100 continued to correct for the second week in a row. This time their capitalization decreased by 0.6-0.7%. Earlier, we noted that September is a historically weak month for US indices. However, if in September the S&P 500 at least once reached a historical maximum, then by the end of the month the indices closed with positive dynamics. At the very beginning of the month, the S&P 500 tested its all-time high at 4,540 points. Thus, according to statistics from 1950, the S&P 500 has every chance to move to growth in the second half of September.

The S&P 500 hit all-time highs on Thursday, testing the 4,545 mark. By the end of the week, the broad index added 0.6%. The Nasdaq 100 continued to hit its highs on Friday. As a result of the trading session on the last day of the week, the technological index capitalization increased by 0.21% to 15,653 points. The indicator gained 1.6% over the week. Despite a correction in the first half of the month, August was successful for both the S&P 500 and the Nasdaq 100, which rose 3% and 4%, respectively. September is historically considered a weak month for the US market, as it is in this month that the S&P 500 is least likely to reach its historical highs. However, if the broad index at least once in September showed its maximum value, then its dynamics at the end of the month turned out to be positive. Thus, the historical marks reached on Thursday may statistically indicate that this year’s S&P 500 negative seasonality in September can be ignored.

The week ended in a positive way. The S&P 500 broad market index rose 1.5%, while the capitalization of the Nasdaq 100 increased 2.3%. Both indicators renewed their historical highs again. Investors are encouraged by the fact that the rate of spread of the delta strain may have peaked, followed by a decline. Fed spokesman Ballard said that data on an increase in the number of vaccinated citizens amid the spread of a new strain of coronavirus is good news, noting that the increase in the number of new infections will peak at some point, after which it will decline. The estimate of US GDP growth in the second quarter was revised upward. The U.S. economy expanded 6.6% in the second quarter of 2021 at an annualized rate. Preliminary data estimated a 6.5% rise.

US indices are renewing all-time highs amid continued ultra-soft monetary policy from the Fed and an excellent corporate reporting season. Now, more than 90% of American companies included in the S&P 500 index have already published their reports, while the results of more than 95% of issuers have exceeded market expectations. Against the backdrop of low bond yields and improved EPS estimates for the next quarter, US stocks continue to retain their investment appeal. As long as this situation persists, investors remain long, buying out any correction. Markets can remain irrational for long periods of time, but perpetual growth is unlikely. Investors should watch more closely three macro factors that could change the favorable investment environment.

First, it is worth considering the risks of a slowdown in US demand growth. The first half of this year saw a staggering increase in demand, fueled by both fiscal stimulus and the easing of restrictions related to the Covid pandemic. The statistics for the second quarter confirmed this thesis. Personal consumption of Americans in the last quarter grew by 12% compared to last year, and the growth in demand for services has finally caught up with the consumption of goods. At the same time, it should be noted that the figures on the dynamics of quarterly GDP did not reach the market consensus, since the accumulated reserves were directed to meet the increased demand, and not the products of new production.

We are not saying that the US economy will slow down, but, on the contrary, we predict that growth in the US should remain above average for some time and this situation is unlikely to interfere with the bull market as a whole. It is no secret that financial incentives in the United States will soon be phased out, but the purchase of assets from the market will be replaced by a multi-year government program to support the national economy. A $ 1 trillion infrastructure plan was recently adopted, and a $ 3.5 trillion social program is under discussion. However, the slowdown in the US economy is a wake-up call that will put pressure on corporate earnings, so investors should pay more attention to defensive stocks versus cyclical names.

Secondly, the increase in wage costs remains an alarming factor. The US has seen strong growth in labor demand as the economy recovers, coupled with limited labor supply due to persisting constraints coupled with generous unemployment benefits and fears of a new wave of morbidity. Vaccinations and the phasing out of support programs during a pandemic should provoke an increase in the supply of labor, which will soften the pressure on wage growth. However, we doubt the offer will be able to catch up with the surge in job growth. And even if the new supply on the labor market does allow for a temporary cushion of wage growth, this is unlikely to last long. In the long term, we expect its growth. Why is it important? Labor remuneration is the most costly item for almost any company, so rising wages will put pressure on corporate profits, unless, of course, this factor is offset by higher labor productivity, which is unlikely in the current environment. The increase in wages is a pro-inflationary factor, so it can also lead to adjustments in monetary policy.

Third, there is now more and more news and rumors about the normalization of monetary policy in the United States. Fed officials first spoke about scaling back the asset purchase program in June. Minutes FOMC following the July meeting of the regulator showed the market that most of the 19 representatives of the Fed are considering reducing the balance soon. With the latest labor market data ahead of the market consensus, the Fed is likely to consider focusing on inflation. However, a factor of uncertainty associated with the spread of the delta strain may delay the decision to tighten until the end of the year. Thus, the $ 120 billion asset purchase program can be extended until December, and interest rates will increase no earlier than December 2022. The main risk for equities is that expectations of monetary policy normalization will lead to higher yields on government bonds, making bonds a more attractive alternative to equities. To minimize the risks of rising interest rates, investors should avoid long duration in bonds in favor of moderate ones, and stick to value stocks that pay good dividends instead of growth stories.

Summing up, let us repeat the thesis that markets can remain in an irrational state for a long time, and it is almost impossible to predict a reversal or trend change. However, it is possible to prepare for a new cycle of US monetary policy and minimize market risks. In the upcoming paradigm, defensive stocks look preferable over cyclical stocks, as well as value stocks over growth stocks. In general, investors are better off taking a moderate position in stocks versus bonds. Finally, for fixed income instruments, it is better to stick to a moderate duration versus a long one.

Last week, the S&P 500 Index declined 0.6%, while the NASDAQ 100’s capitalization fell 0.3%. Investors remain positive about rising corporate profits, but concerns about the spread of the new strain of coronavirus continue to weigh on market sentiment. The week started with weak statistics from China. Retail sales figures for July turned out to be significantly worse than expected, which spoiled the mood of investors. The Chinese market continues to be under pressure due to ongoing reforms. On Friday, it became known that the PRC authorities have approved a bill that toughens the rules for the treatment of companies with personal data.