Displaying items by tag: stocks

(New York)

Morgan Stanley has just put out a very bold prediction. The investment bank has picked a stock which it says will have a $1 tn market cap within a year. That stock is Microsoft. The stock current has a cap of around $740 bn and has risen more than 40% in the last year. But the big catalyst for a move higher is the success of its cloud computing division, Azure. Morgan Stanley summarizes its view this way, saying “Revenue drivers including Azure (Microsoft emerging as a public cloud winner), data center (share gains and positive pricing trends), Office 365 (base growth and per user pricing lift) and the integration of LinkedIn should drive durable double-digit revenue growth over the next three years”.

FINSUM: While bullish, this does not seem at all unlikely.

(New York)

Investors beware. US equity prices now seem to be entirely at the mercy of bond yields. Stocks have consistently struggled as yields have moved higher, and today Treasury yields seem to have broken an important threshold. Treasuries traded as high as 3.13% this morning, the highest level in seven years. Stock markets unsurprisingly fell. The markets were initially spooked by a solid US retail sales report that seemed to indicate the Fed might hike more aggressively than expected.

FINSUM: Yields definitely seem to have a strongly upward trend at the moment and have definitively broken out of that 2.9% band they had been locked in for a few weeks. Next stop 3.50%?

(New York)

Stock markets are moving sideways, bond yields are shooting higher, and there is a great deal of uncertainty about the direction of the economy. Investors are understandably nervous. With that in mind, Barron’s has published a piece outlining the best places to park your or your clients’ cash. The answer is short-term bond funds, which are almost all yielding over 2% and have significant insulation from losses related to rate rises. For instance, the Vanguard Short term bond fund is yielding 2.76% and has only lost less than 1% this year despite rises in yields. ETFs that track floating rate bonds are also a good idea given the environment. For example, the iShares Floating Rate Bond (FLOT), which yields 2.21%.

FINSUM: Short-term bond yields are finally significantly higher than equity yields, which means there is at last a good, and likely less risky, alternative to stocks.

(New York)

Equity investors need to accept a new truth, says the Wall Street Journal—that earnings and fundamentals have given way to a new “boss” of the markets. Instead of stocks trading based on the performance of companies, they are now trading almost squarely on movements in rates. Recent equity performance could not have made the new reality more clear—companies saw outstanding earnings performance, yet stocks have simply muddled through. The reason why—yields have been moving higher on Treasury bonds.

FINSUM: The current obsession with yields reminds us of the 2014-2015 mode for stocks, when everyone was tied up on whether the Fed would start hiking or not.

(New York)

If there was ever a counterintuitive sentence about stocks, it is the title to this article. However, that is what has proven to be true in the past. According to research produced by the Wall Street Journal, stock markets tend to perform poorly after great earnings seasons. The study found that over the last seven years, both US and European stocks tend to perform poorly following great earnings. Perhaps even more interestingly, when earnings undershot estimates, stocks tended to perform better than average.

FINSUM: This is a tough one to explain except by taking account of markets’ pre-pricing of earnings. Nonetheless, something of which to be mindful.