Bull Market Reactions… On Friday, the S&P traded at 22.52x projected earnings over the next 12 months, above the 5-year average of 17.96. Some might consider that a sign of frothiness. Yet, the Dow is on pace for another record close as investors only see the colors of stimulus, strong earnings (80% beat rate thus far) and vaccine rollout. It’s now being called a K-shaped recovery, where certain areas of the market are doing well, and others are getting hammered (see: global bonds, which are seeing the worst start to a year since 2013). Today’s performance has been muted, at best, with the S&P hovering around flat and the Nasdaq -40bps, but lingering enthusiasm is credited to commentary from Fed Pres Bullard (conditions in the US are “generally good”) and upbeat manufacturing data. Further, freezing temps across the US have injected new momentum into Energy, with natural gas futures +4%. Banks are also top of the charts. Some may give credit to less-dire Fed stress tests that have given the likes of JPM and BAML at least 2% upside. But also, there is a wave of euphoria with regards to imminent re-opening that has rendered certain sectors (illogically?) exuberant. The cruise lines for example, are up over 6% each so far today (Carnival +8%, RCL +7% and Norwegian Cruise + 6%). This, despite Norwegian extending suspension of its Voyage for another month. What’s one more month in a global pandemic??? Finally, of note today is the dollar, which has cut some losses, bouncing off 3-week lows. Impressive, until you notice Bitcoin broke $50k. More on that below.
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