Callum Keown


Europe has a “leg up” over other regions, including the U.S. and emerging markets, as the global restart gathers pace, BlackRock strategists said.

BlackRock Investment Institute remained neutral on U.S. equities, citing “the risk of fading fiscal stimulus and election uncertainty,” and overweight on European stocks after upgrading the region in its midyear outlook, it said in a note earlier this week.

It said European stocks offered the “most attractive regional exposure” to a varying global reopening. A growth pickup would typically benefit emerging markets, it said, but in this instance Europe’s robust health infrastructure and policy response left it better placed.

New cases in Europe, which was once the epicenter of the virus, have gradually reduced from a peak in April, while infections in Latin America have risen, as shown in the chart below.

“Europe’s health capabilities and containment measures position the region well for a domestic recovery. European companies are also highly geared to an improvement in global trade and recovering Chinese economy,” global chief investment strategist Mike Pyle said.

“Importantly, the monetary and fiscal support to cushion the virus shock is stronger in Europe than in EM countries and Japan — and there is space and appetite for additional stimulus,” Pyle added.

Technology-focused Asian countries were showing early signs of a pickup in trade and could also benefit, he added.

European stocks climbed early on Tuesday after EU leaders agreed a €1.8 trillion ($2.1 trillion) budget and coronavirus recovery package. The German DAX DAX, 1.57% turned positive for the year after the deal was struck.

The chart

Author: Callum Keown

Source: Market Watch: Risks are mounting for U.S. stocks. Here’s where BlackRock says investors should look instead.

The three major benchmark indexes suffered their biggest weekly losses since March 20 last week, as the Federal Reserve’s downbeat economic outlook and rising coronavirus cases unsettled investors. Fears of a second wave grew over the weekend and the Dow Jones Industrial Average DJIA, +2.45% was 310 points lower, or 1.2%, in early trading.

However, in our call of the day, Morgan Stanley said last week’s correction was overdue and “healthy” and that the bull market would soon “resume in earnest.”

“We maintain our positive view for U.S. equity markets because it’s early in a new economic cycle and bull market. Last week’s correction was overdue and likely has another 5-7% downside. It’s healthy and we are buyers into weakness with a small/mid-cap and cyclical tilt,” the investment bank’s strategists said.

The team, led by equity strategist Michael Wilson, said corrections were “normal” after rapid moves higher and that last week’s correction was overdue in what they described as a new cyclical bull market.

The S&P 500 SPX, +2.26% could fall to 2,800, and the Nasdaq COMP, +1.97% to 8,500 “before the bull market resumes in earnest,” they added.

Morgan Stanley’s economists see this recession as being “the steepest but also one of the shortest on record,” and its strategists agree there will be a V-shaped recovery.

“The V-shaped recovery in markets is foreshadowing a V-shaped recovery in the economy and earnings. It’s also following the 2009 pattern almost identically in many ways,” they said.

The team raised its base case S&P 500 price target through June 2021 to 3,350 from 3,000, also shifting its bull and bear cases higher — from 3,250 to 3,700 and from 2,500 to 2,900 respectively.

High quality and growth stocks would still do well as the economy recovers but would struggle to keep up with more cyclical pockets of the markets, including automobiles and consumer durables, they said.

The chart

This chart from the U.K.’s Office for National Statistics shows that anxiety levels among people in Britain are higher than at the end of 2019 but have improved in recent months.

Office for National Statistics.

Author: Callum Keown

Source: Market Watch: Stocks could fall a further 7% after last week’s correction. But the bull market will ‘resume in earnest’, Morgan Stanley says

Will the music still play in 2020?

The year-end rally has pushed the three major U.S. benchmark indexes to fresh records. With just two trading days left of the year, U.S. stocks dropped back from those records on Monday. As investors turn their attention to 2020, the key questions surround whether stocks will continue to rally and the risk of a recession.

In our call of the day, Torsten Slok, chief economist at Deutsche Bank Securities, said the decadelong economic expansion could continue for “many more years,” putting forward a bull case for markets in 2020.

He said the expansion had been characterized by an “extreme degree of caution” among consumers and companies since 2008-09, with discretionary spending still below historical averages.

Slok said: “The lack of willingness to spend on consumer durables and corporate capex is also the reason why this expansion has been so weak.

“And it is also the reason why this expansion could continue for many more years; we are simply less vulnerable to shocks in 2020 because there are few imbalances in the economy.”

The chart

The Nasdaq Composite COMP, -0.05% hit 9,000 last week for the first time before dipping slightly on Friday, bringing an end to its 11-day winning streak. Howard Lindzon, co-founder of StockTwits, has been calling for the Nasdaq to reach 10,000 for a number of years and this chart from his blog shows the index’s path since 2000.

Lindzon said that the Nasdaq has survived impeachment, as well as a stalled Amazon AMZN, -0.38%, Netflix NFLX, -0.27% and Facebook FB, +0.03% in recent years, adding that the “trend is my friend” — expecting it to reach the milestone and possibly beyond.

The market

After the Dow Jones Industrial Average DJIA, -0.05% and the S&P 500 SPX, -0.02% rose to fresh record highs on Friday, both indexes fell 0.5% in early trading on Monday as the year-end rally was stopped in its tracks. The Nasdaq Composite COMP, -0.05% declined 0.8%, falling back below 9,000. Asian stocks were mixed on the final full trading day of the year, while European stocks fell 0.5% in early trading. Oil prices edged higher following U.S. airstrikes in Iraq and Syria, while gold dipped slightly lower but held steady near three-month highs.

The buzz

Tesla TSLA, -0.59% made its first deliveries of cars built in China on Monday, marking another milestone for the electric-car company that saw its stock soar to record highs last week. The stock climbed 0.5% in premarket trading.

A Federal Reserve study has found that President Donald Trump’s strategy of using import tariffs to protect and boost U.S. manufacturers backfired and led to job losses and higher prices.

The U.S. has carried out military strikes in Iraq and Syria targeting a militia blamed for a rocket attack that killed an American contractor, a Defense Department spokesman said on Sunday.

Salesforce CRM, +0.33% founder Marc Benoiff hit out at Facebook FB, +0.03% on Sunday, calling for regulation. The Salesforce co-chief executive said the social media giant “is the new cigarettes for our society” demanding it be regulated or split up.

Outgoing Bank of England Gov. Mark Carney has issued a climate change warning, urging companies to change their policies around investment in fossil fuels.

Random reads

A chip-shop order mistake and an out-of-date packet of biscuits were among the reasons for nuisance emergency calls taken by British police this year

Author: Callum Keown

Source: Market Watch: The U.S. economic expansion will last ‘many more years’ and 2020 will be good for stocks, says prominent economist

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