US equities will start on Monday ahead of key inflation data and earnings reports later this week.
Fears over growing COVID-19 cases and vaccination problems, after a Chinese government official said the effectiveness of its vaccines is low, have put stock markets under pressure.
However, the partial reopening of the UK and upbeat comments from Federal Reserve Chairman Jerome Powell have yielded some positivity. Investors will also wait for consumer price data on Tuesday and the earnings of major banks JPMorgan Chase, Goldman Sachs and Wells Fargo later this week.
After a delay on Friday, the U.S. Department of Labor said the producer price index, a key measure of inflation, rose 1% in March – the largest annual increase since 2011.
In us call of the day, Goldman Sachs strategists said higher inflation is forecast in the coming months, which could boost high-priced businesses.
“Do not fight the Fed” is a necessity that investors have learned to ignore at risk. What the central bank wants is usually what it gets sooner or later, ‘the strategists said, noting that the Fed’s intervention fueled the 80% period a year ago that lifted the S&P 500 SPX.
to a climax of all time. The index has risen 10% over the past year and now trades against Goldman’s mid-year target of 4,100 – the bank’s end-year target implies a 5% profit.
The Fed now wants higher inflation, they said. The investment bank’s economic team expected inflation to climb in the coming months, peaking at 2.3% in April, before falling below 2% by 2023.
As for the impact on equities, Goldman said it’s all about margins, adding that some companies protect margins by passing on higher costs to their consumers.
The strategists, led by David Kostin, said that companies with low price power have historically outperformed the profit margins of S&P 500. In contrast, companies with high price power have ‘lagged sharply’ in recent years. However, rising inflation could mean that it is about to change, and companies with high price power are likely to benefit, the strategists said.
Goldman was looking for high-priced equities – high and stable gross margins compared to peers in the sector. On the screen 55 shares were delivered, including the video game company Activision Blizzard ATVI,
tobacco giant Philip Morris,
consumer goods companies Colgate-Palmolive CL,
and Procter & Gamble PG,
and medicine manufacturer Zoetis ZTS,
Technology companies, such as Aspen Technology AZPN,
Adobe ADBE,
and Oracle ORCL,
and retailers Etsy ETSY,
and Dollar General DG,
also to see.
Separately, with earnings for the first quarter next week, Goldman expected total sales growth of 5% and earnings per share (EPS) of 19%. But it will not matter much, his strategists added. “The trajectory of the economic recovery will make the backward-looking statistics increasingly less relevant to the future market,” they said.
The next issue that dominates investor talks is President Joe Biden’s plan to raise corporate taxes to 28%, Goldman said. The full approval of Biden’s proposals would lower annual S&P 500 EPS growth from 2022 to 12% to just 5%, they added.
The tweet
Higher producer prices are positively linked to S&P 500 earnings, according to this chart from Jeroen Blokland, senior portfolio manager at Robeco Asset Management.
The markets
US futures contracts ES00,
NQ00,
showed lower early Monday, with Dow futures YM00,
which implies a loss of 40 points for the Dow Jones Industrial Average DJIA,
at the open. European equities also pushed lower in early trading, while Asian markets slipped overnight as investors watched the rising cases of coronavirus and slowed vaccinations slowly.
The buzz
Powell said “it will take a while” before the central bank slows down the economy, in an interview on “60 Minutes” Sunday.
Technical giant Microsoft MSFT,
is in advanced talks to buy the speech recognition company Nuance Communications NUAN,
according to a deal worth about $ 16 billion as of Sunday.
Bar gardens, hair salons, gyms and non-essential stores open on Monday for the first time since early January in England, as the UK takes the next step on the road to reopening.
Alibaba 9988,
shares rose 7% in trading in Hong Kong after the e-commerce giant set a record $ 2.8 billion by China’s antitrust watchdog. The company’s US depository receipts BABA,
was more than 6% higher in the pre-trade.
Italian diagnostic specialist DiaSorin DIA,
has announced an agreement to release the manufacturer of the COVID-19 test kit Luminex Corp. LMNX for sale,
for about $ 1.8 billion.
Random reading
Drinkers brave the cold for midnight pints while pubs in England reopen.
Bafta’s best sidekick winner, Yuh-Jung Youn, calls British people ‘snobbish’.
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