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Major U.S. stock indexes edge up early
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Financials strongest S&P 500 sector; utilties weakest
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Euro STOXX 600 index up ~0.7%
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Dollar, crude, bitcoin up; gold dips
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U.S. 10-Year Treasury yield rises to ~3.50%
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UNDER MARGIN PRESSURE, HIGH QUALITY VALUE STOCKS IN DEMAND (0940 EDT/1340 GMT)
An uncertain macroeconomic landscape and higher costs cutting into company earnings means value-focused investors looking for "high quality" stocks will have to be more selective, according to Sean O'Hara, president of Pacer ETFs. Companies in the technology, consumer discretionary and financial sectors will likely see the most pressure, O'Hara told the Reuters Global Markets Forum.
"The market overall is still trading above its historical average, if we see slowing of earnings, and any sort of recession, multiples will likely still need to come down," he said.
With that in mind, Pacer's core value-focused funds are overweight energy, health care, materials, and industrial stocks, as companies in these sectors are exhibiting better free cash flows, often trading at a discount and will be less susceptible to margin pressure, he said.
Overall, "high quality" ETFs tracking companies with high cash flows and low debt are in demand, with the sector seeing $12 billion in net inflows in the first quarter of 2023, versus just $680 million the year before, according to CFRA Research data.
However, O'Hara notes that global and international markets are potentially better value bets right now that the U.S., trading at cheaper valuations.
Pacer's Global Cash Cows Dividend ETF and Developed Markets International Cash Cows are up 10% and 12% respectively year-to-date, versus a rise of about 3.6% for its U.S. Cash Cows 100 fund .
That's as value stocks in the Russell 1000 are up just over 1.7% this year, lagging both the S&P 500's 8% rise and Russell 1000 growth index's 14% jump.
(Lisa Mattackal)
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THE FOUR HORSEMEN OF RECESSION, ACCORDING TO CREDIT SUISSE (0906 EDT/1306 GMT)
Credit Suisse strategists now see recession risk in the U.S. rising to 80% over the next 12 months, up from its previous estimate of about 60% by the first quarter of 2024. It points to the Federal Open Market Committee minutes remark from this week, "the staff projection at the time of the March meeting included a mild recession starting later this year."
The New York Fed model, which uses the yield curve, is at levels which have always been followed by a recession, the strategists note. The New York Fed model currently signals a recession at the latest by first-quarter of 2024. Credit Suisse says tightening of bank conditions is consistent with a recession. Strategists believe lending conditions are only going to tighten more. Small U.S. banks are set to face stricter regulation, declining net interest margins, and most banks might soon have to match their assets and liabilities more closely.
The strategists believe real money supply in both the U.S. and euro zone is at levels in tune with a recession.
Credit Suisse points out that economic lead indicators are consistent with a 2% contraction in GDP.
But both the global and European cyclicals are way off the base when it comes to pricing in the recession, Credit Suisse notes. European cyclicals are still pricing in about 3% of GDP growth and global cyclicals about 3.4% of GDP growth.
An analysis from Refinitiv this week said that the first-quarter reporting season is likely to mark a second straight quarterly earnings decline for S&P 500 companies. Wells Fargo strategists have also warned of an earnings recession in the near term. (Vansh Agarwal)
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GOLD NEARS ITS RECORD HIGHS (0900 EDT/1300 GMT) Amid this year's dollar decline, drop in yields, and recent banking turmoil, spot gold is posting a gain of about 11% for the year. On Thursday, the yellow metal hit a high of $2,048.71, which was only around 1% shy of its record intraday high. It closed Thursday at $2,039.735:
On March 8, 2022 gold hit an intraday high of $2,069.89. Its Aug. 7, 2020 record intraday high was $2,072.4951. On a daily closing basis, gold ended at $2,052.41 on March 8, 2022 and $2,063.1875 on Aug. 6, 2020. Despite its recent gains, gold's weekly relative strength index (RSI), at just over 74, has yet to surpass its early 2023 high, at 79.387, putting traders on alert. A sudden reversal will have the potential to solidify a bearish divergence. Gold is trading off around 0.8% on Friday. On new highs, gold will face a weekly resistance line from its 2011 high which now resides around $2,120. Meanwhile, despite gold flirting with record highs, gold stock indexes remain well below their peaks. The Philadelphia Gold/Silver index , an index of 30 precious metals mining companies, is still down about 38% from its late-2010 record intraday high.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
