Market sentiment is not that cheery at the start of this week. News of rising Covid cases, new lockdown measures, and fresh travel restrictions poured cold water on the global equity markets on Monday, with the exception of the US tech stocks.
The reflation trade eased, energy stocks led losses, while Nasdaq outperformed and refreshed record on Monday, amid Facebook rallied to a fresh all-time-high amid the dismissal of two antitrust lawsuits, attacking the company for having bought WhatsApp and Instagram to protect its monopoly. The result: Facebook shares rallied past 4% and its market cap surpassed the $1 trillion threshold.
Great news for Facebook could’ve been great news for other US big tech stocks that face similar antitrust claims, if the DoJ hadn’t increased scrutiny in Google’s digital ads. Google didn’t take a severe hit on news though; the stock price consolidates a touch below the historical highs as antitrust probes against these US tech giants no longer give cold feet to investors. Big tech has simply become too big to fail. Their business is well above the critical size, and the bigger they grow, the more profitable they become. They’re natural monopolies and they’ve got the momentum one way or the other.
And if the Covid worries return, we could see the reflation wind vane and further benefit to the Covid-friendly tech stocks.
We have a slow day in terms of economic and corporate calendar today. The US 10-year yield is again below the 1.50% mark. But interestingly, the low yield, high inflation combo doesn’t translate into a better gold appetite. It’s certainly because of the growing return gap between gold and risk assets, with a risk rally gaining intensity despite bubble warnings and a tighter Fed policy threat. The yellow metal remains offered within the 1780/1800 range, and there is a rising case of another $100 dive to the March support of $1680.
Elsewhere, US crude pulls back on discouraging Covid news. Thursday’s OPEC meeting is important as traders will be closely watching whether OPEC+ countries will further ease their oil supply restrictions. OPEC+ is expected to add some half-a-million barrel more supply per day starting from August. Improved economic activity and more traveling should easily absorb the slight change in the OPEC supply, if, however, the post-Covid recovery momentum doesn’t get hurt by another contagion wave. In the short run, we could see a further setback towards the $72/70 area.
Where does the money go?
To the stock markets.
The latest CFTC data shows that the net speculative positions on the S&P500 turned positive for the first time since March.
The FOMO – fear of missing out – a further rally has simply grown more important than the fear of seeing the Fed move on with lower asset purchases and higher interest rates.
It also seems that investors abandon the idea that there is a market bubble, which could burst and send the S&P500 some 10% lower.
And its understandable, as the relentless rally in the US stocks, both in value and growth names, left those who parked their cash to the sidelines envious of those who carried on. The S&P500 is 17% higher since the beginning of the year.
Nonetheless, it’s worth noting that the valuations are off the roof; the price to earnings and price to sales ratios are significantly above the historical means, and are closer to periods that just preceded crisis, rather than periods of comfortably bullish markets.
