SP500 now officially above all time highs. Tech keeps leading. Apple in the leader’s yellow t-shirt. Analysts are calling the AAPL massive run “extensively streched”. Bespoke Investment Group cites technicals that AAPL is 26% above its 50-day average and almost 60% above 200-day moving average. Well, it in deed is. What’s it changing? Especially after Covid-19 the FAANG group, whether the naysayers want it or not, is possibly in a best position to profit from the changing structure of the growth (meaning mostly from offline to online).
From the way the market behaves now after breaking record highs, it seems like we might actually be heading towards an acceleration phase, which is pretty typical in such cases. From a psyhological perspective its a pretty important situaiton, because it puts the bear side’s nerves of the market to the absolute test. A nice example of such a situation was 2013. SP500, after having passed the 2007 pre-Lehman tops at around 1500 pts., surged another 34% higher before even making a correction bigger than 10%. See here:
We’ll see what’s the scenario going to be this time. Naysayers will say: valuations extreme, Covid coming back soon in autumn, a round of defaults is still around the corner. Optimists will say: vaccine is here soon, the economy has changed and companies made great work in adjusting their cost base lower, adding more upside to exceed the downbeat earnings expectations, we have Fed and Washington backing us up as never before, rates are virtually zero!, there’s no other option to equities.
As usual time will tell…..
-> A major Dow Jones Industrial Average (Dow) rebalancing was announced by S&P Dow Jones on Tuesday. It was caused by the the recently announced 4-to-1 split of Apple (AAPL). As Dow is a price-weight index, AAPL’s split caused a big fall in its weight, hence the index provider decided to add other information technology copmanies, to adjust the structure of the benchmark closer to the true picture of the economy. Changes are pretty historical:
CRM (Salesforce.com) replacing XOM (Exxon Mobile), AMGN (Amgen) replacing PFE (Pfizer), HON (Honeywell) replacing RTX (Raytheon Technologies). I wrote about it also here. Index-tracking passive money adjustment were obviously huge. XOM served as Dow component since 1928! New times are coming for real. The rebalancing is effective as of 31st Aug open. Here is the initial reaction to the news on the related stocks on the 25th Aug:
-> On Thursday the Fed came up with its new inflation policy paving the way for keeping the rates low for longer. The central bank’s head Jerome Powell said he will let inflation run at or above its 2% target rate for “some time” before the FOMC decides to raise rates. Additionally the Fed will cease to treat employment levels as its policy determinant. The market took the speech as positive and supporive in the long run, as it confirmed the Fed’s dovish supportive commitment to the eonomy for as long as needed to counter the slowdown effects.
-> Also Tesla’s (TSLA) 5-for-1 stock split happened after Friday’s close, with shares starting to trade on a split-adjusted basis Monday 31st August.
-> The market remained very well bid till the very end of week and closed around weekly highs above 3500 pts level.
-> Effective weekly index changes: S&P500 +3.3%, Nasdaq +3.4%, EuroStoxx600 +1%, DAX +2.1%, Nikkei225 +0%.
Other markets events:
-> Bonds: US yield curve (10y-FF) steepened to 0.66%, German curve (10Y Bunds-3M) at 0.14 with 10Y Bunds at -0.55%. High Yield Spreads stable at around 5.
-> Commodities (ex oil): Gold added 1.3%.
-> Currencies: DXY (Dollar Index) -1.1%% on week, EURUSD +0.9%.
Major macro events: (times are CET):
Next Week’s major macro events:
Disclaimers: None of the ideas, views and thoughts presented here shall ever be taken as a recommendation to buy or sell stocks,bonds,FX,commodities or any other financial instruments as stated in REGULATION (EU) No 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC or the Regulation of the Polish Minister of Finance of 19 October 2005 on information constituting recommendations regarding financial instruments, their issuers or exhibitors (Journal of Laws of 2005, No. 206, item 1715) or the Polish Act of 10 February 2017 amending the act on trading in financial instruments and some other acts. The article is for educational reasons and purely presents private views of the author, thus the author shall not be claimed eligibile for any losses of a third party resulting from trading activities based upon this article. The author uses his best knowledge and data from sources believed to be reliable, but makes no representations as to the accuracy of the data.Full Disclaimers&Liability Limitations page.