24 Nov IT IS ALL ABOUT A VACCINE
Yesterday equities were mixed. The Dow closed up about 1.1% while the NASDAQ up about 0.2%. Bloomberg data suggests if Tesla was not included, the NASDAQ would have been down almost 0.4%. The catalyst for yesterday’s trading…positive vaccine news.
It is anticipated vaccination may commence within three weeks. I rhetorically ask will the distribution of the vaccine become the next focal point of “socially responsible actions.” Unfortunately, everything today has become political where common sense is often times lacking. Many are fearful of voicing opinions that may not confine to the prescribed and accepted media positions, fearing attacks on one’s character.
Speaking of such, the five-year Treasury auction was met with poor demand. The bidding was one standard deviation below its one-year average. Some are perplexed by this lack of demand given consistent Fed statements that it intends to keep interest rates at 0.00% for a prolonged period of time to permit inflation (and growth) to move above its accepted speed limit. The issue at hand is the length of time and degree to this above trend limit has not yet been prescribed.
Can I suggest the recent underperformance of growth as compared to value is the result of an unquantified monetary policy? As noted a gazillion times valuations are primarily determined by corporate cashflows dictated by an interest rate. The yield curve is suggesting greater inflationary pressures (and growth) is possible in the intermediate future.
Bloomberg writes the S & P 500 earnings yield is the “tiniest” in 20 years suggesting mediocre returns at best in the decade ahead—if the experience following the dotcom bubble is any indication.
The earnings yield is currently 3.53%, the lowest since the 3.50% reading achieved on June 21, 2000. Regarding the NASDAQ, Bloomberg writes those who bought a capitalized basket of NASDAQ shares would have lost about 25% over the next decade. Bloomberg further writes today’s tailwinds may become an overbearing headwind if rates rise.
Bloomberg opines today’s treasury yields is equivalent to a stock trading at 120x earnings and are priced beyond realistic levels thus offering no room for error or mis steps.
Tomorrow the Minutes from the recent FOMC meeting are released. Will it offer any more insight into future monetary policy?
What will happen today?
Last night the foreign markets were up. London was up 1.06%, Paris up 1.26% and Frankfurt up 0.95% . China was down 0.34%, Japan up 2.50% and Hang Sang up 0.39%.
Lead by energy and industrials, the Dow should open moderately higher upon the start of Biden’s formal transition to the Presidency, former Fed Chair Yellen appointed as Treasury Secretary, increased prospects of a very large stimulus bill and vaccine optimism. NASDAQ futures are flat The 10-year is off 2/32 to yield 0.87%.