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Main U.S. indexes green: Nasdaq out front, up ~1%
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Tech leads S&P 500 sector gainers; energy weakest group
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Euro STOXX 600 index ~flat
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Dollar, gold, crude slip; bitcoin up
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U.S. 10-Year Treasury yield ~flat at ~3.96%
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MUTUAL FUNDS TO BECOME MORE OVERWEIGHT FINS, UNDERWEIGHT TECH WITH MAR 17 GICS CHANGE -GS (1053 EST/1553 GMT)
On March 17, S&P Dow Jones and MSCI will dissolve the data
processing & outsourced services group within the S&P 500 tech
sector and reallocate its members into the financial and
industrials sectors.
David Kostin, chief U.S. equity strategist at Goldman Sachs
(GS), says that the reclassification will add several growth
stocks to the traditional value stocks in financials. Visa , Mastercard , and Paypal , the three largest
stocks affected, will comprise 16% of financials cap.
Kostin offers three takeaways:
(1) Macro correlations of the financials sector will change
"modestly," but the sector will remain cyclical and positively
correlated with interest rates
(2) Implied mechanical net ETF flows for stocks across
affected sectors will represent less than 1% of market cap
(3) Mutual funds will become more overweight financials and
more underweight tech
(Terence Gabriel)
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U.S. STOCKS KICK OFF EVENT-FILLED WEEK TO THE UPSIDE (1015 EST/1515 GMT) The main U.S. indexes are higher early on Monday as Treasury yields pulled back further ahead of Federal Reserve Chair Jerome Powell's testimony and jobs data this week that could offer fresh cues on the trajectory of interest rates. The U.S. 10-Year Treasury yield is edging down to around 3.94% from Friday's 3.9630% close. Although early in what will be an event-filled week, with this turn, the yield's six-week win streak is in jeopardy. A majority of S&P 500 sectors are higher with tech leading gainers.
With this, growth is slightly outperforming value , and attempting to build on its two-week relative win streak. Here is a snapshot of where markets stood around 1015 EST:
(Terence Gabriel)
*****
WHO RUNS THE WORLD? GIRLS! BUT HOW MUCH OF WALL STREET DO THEY RUN? (0945 EST/1445 GMT) About 30% of S&P 500 companies have women on their boards, according to BofA Global research, which is double the figure compared with a decade ago.
But despite having more women on boards, the proportion of female executives remains low - just under 7% for female CEOs or equivalent.
This issue also has a sector-specific layer.
While old-economy companies in sectors such as energy , utilities and financials have better diversity and inclusion (D&I) policies, companies in new-economy sectors like healthcare , technology and consumer discretionary have a higher proportion of women in their workforce and on their boards. The parity between genders, however, isn't just a sociological discussion. Analysts at BofA say that the return on equity (ROE) has been higher for companies with over 25% female executives (compared to the rest of the S&P 500) in nine of the past 10 years. More precisely, gender diversity on the board correlates with 19% higher ROE in the subsequent year and 43% lower earnings risk in the subsequent three years.
Inclusion drives up perspectives and innovation, navigating better performances from companies. And BofA cites a 0.8% increase in EBIT (earnings before interest & tax) for every 10% increase on diversity metrics.
However, pay gap and the disproportionate impact of inflation pose a risk to what could be a rosy scenario.
While women have lower representation in "high-paying" industries that are more cushioned against inflation pressures, in others, increased cost pressures means D&I budgets are sometimes the first to go. So it circles back to "two steps forward and one back."
(Shristi Achar A)
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U.S. 10-YEAR TREASURY YIELD: SPIKE AND REVERSAL (0900 EST/1400 GMT) The U.S. 10-Year Treasury yield spiked to a multi-month high last Thursday. However, by Friday, it was back down, testing swing support. Now early in the new week, which includes event risks such as Fed Chair Powell's congressional testimony on Tuesday and Wednesday, and Friday's February non-farm payroll report, the yield is nudging below the lower-end of the support band:
Amid concerns that the Federal Reserve will need to continue to raise rates and keep those rates higher for longer, the 10-year yield jumped to a high of 4.0930% last Thursday. However, it reversed sharply by Friday, ending the week at 3.9630%. Despite the reversal, the yield did eke out a sixth-straight weekly rise. However, on Monday, the yield has now declined further to around 3.91%. With the reversal, the yield has fallen back below the 23.6% Fibonacci retracement of its 1981-2020 yield bear market at 3.9765%. Additionally, the yield is now back below a weekly Gann Line at around 3.96%. Thus, the six-week win streak is in jeopardy. Of note, since the yield's March 2020 record-low, once concluded, pronounced weekly winning streaks have marked some significant highs. This was the case with an eight-week win streak which ended on March 19, 2021, a seven-week run of gains that ended on Oct. 8, 2021, and a 12-week win streak that ended on Oct. 21, 2022. As long as the yield holds below 3.9630%, pressure may mount for a deeper retreat to 3.70%, then the 3.55%-3.40% area as a number of weekly Gann Lines are providing yield support in this zone. The yield's mid-January trough was at 3.3210%. Another thrust above 3.98%, however, can instead put traders on guard for the yield to challenge the 4.27%-4.3380% area. This zone includes another weekly Gann Line as well as the October 2022 high.
4.3380% was the highest level since November 2007, and it protects against the potential for a further rise to the 5%+ area.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
