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Back in January, we saw the GameStop (GME) phenomenon disrupt traditional trading patterns, though the saga ended quite quickly despite warnings of shifting power dynamics on Wall Street. Over the last week, we've seen new fears spread over market - inflation and rising bond yields. Could those also prove fleeting as "buy the dip" trends on Twitter?
Quote: "The way in which interest rates have risen is not the type of rise that we would naturally associate with weakness in the equity market," said Morgan Stanley's Matthew Hornbach. "We're not seeing interest rates spike higher, we're not seeing a taper tantrum like we did in 2013, when interest rates rose 150 bps in the span of three months."
Many have also been touting the "equity rotation" as an uptick in bond yields caused stress in high-flying growth plays. Technology has been having a rough few weeks, along with momentum trades, which is one of the most crowded in the bull market. Drivers of the rotation into cyclical picks have been economic reopenings and broader COVID vaccine rollouts, though with many growth stocks on the backfoot, it may pay to put some cash into the sector.
Quote: "I'm happy to entertain the idea that you need to ring the register here, but I happen to like growth stocks in a reflation scare. I like growth stocks when risk is on. I like growth stocks when risk is off," Jim Cramer said on Mad Money. "For the better growth stocks, down more than 10% from their highs, call me a buyer. Not all at once, not big, but a buyer nonetheless." (30 comments)
Reassuring comments from Jerome Powell helped stocks recover on Tuesday following steep losses earlier in the day. The Nasdaq ended the session down 0.5%, after falling as much as 4%, while the Dow staged a massive 360-point comeback and closed nearly 16 points higher. The Fed Chair told the Senate Banking Committee that the central bank would keep its foot on the gas pedal as the pandemic recovery path remains "highly uncertain," though he forecast a return to more normal and improved economic activity later in the year.
Bigger picture: Powell's visit to Capitol Hill continues today as he addresses the House of Representatives Financial Services Committee. Stock index futures pulled off their overnight lows ahead of the testimony and are pointing to a green session at the open: Dow +0.1%; S&P 500 +0.2%; Nasdaq +0.2%. It's important to note that Powell also played down inflation worries from another big fiscal stimulus package and called the recent run-up in bond yields "a statement of confidence" in a strong economic outlook. Not only did he help backstop the market, some other influential names lent a hand to notable names that came under pressure.
As electric vehicle stocks tumbled, Cathie Wood bought more shares of Tesla (TSLA) (for a second day running), adding 11,893 shares to the ARK Autonomous Technology & Robotics ETF (ARKQ), 177,214 shares for the ARK Innovation Fund (ARKK) and 51,441 shares for the ARK Next Generation Internet ETF (ARKW). During an interview on Bloomberg Radio, Wood said she loves the liquidity that the shakeout in the market brings in general and sees a $7T opportunity in the autonomous car industry.
Go deeper: The crypto washout also deepened, with Bitcoin (BTC-USD) sinking to $45,000, but it rapidly made its way back to the $50,000 level. MicroStrategy (MSTR) CEO Michael Saylor was not bothered by the shaky price action, noting that the crypto became a $1T digital monetary network in just a dozen years, way faster than other $1T club members like Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Google (GOOG, GOOGL). Meanwhile, Jack Dorsey's Square tripled its last investment in Bitcoin via a $170M purchase of 3,318 tokens, while Cathie Wood said she was "very positive" on the crypto and welcomed its "healthy correction." (16 comments)
The southwestern Chinese city of Chengdu is handing out another $6M in the latest test of the central bank's digital currency. The scale of the trial is much larger than one conducted in Beijing earlier this month, which aimed to distribute $1.5M to 50,000 applicants. Other cities, like Shenzhen and Suzhou, have held their own tests of the People's Bank of China's digital currency in the last few months.
What's happening? China is racing to become the first big economy to introduce a centralized digital currency. One of the most notable features of the currency is the ability to conduct transactions without internet, unlike China's hugely popular Alipay (NYSE:BABA) and WeChat Pay (OTCPK:TCEHY). It also won't require a bank account to access funds, helping the 20% of adults in China without bank accounts. China already leads the world in digital payments, accounting for 44% of the globe's total value of such transactions.
Thought bubble: The digital renminbi is an attractive tool for a government that is highly concerned with social control. China doesn't want decentralized cryptos, and even some from private companies - like Facebook's (NASDAQ:FB) Diem (formerly known as Libra) - to become a medium of exchange inside the country. It also offers a series of surveillance functions, where China's central bank can monitor every transaction that is using the currency in real time.
In fact, automatic vending machines in some metro stations in Beijing can now accept digital yuan as part of the offline application scenarios being promoted across the city. China is even hoping to showcase the tender at the 2022 Winter Olympics in Shanghai. The event is expected draw a large number of domestic and foreign spectators, driving up demand for payment services in the Chinese capital. (19 comments)
The Biden administration is preparing sanctions to punish Moscow for the sprawling SolarWinds (NYSE:SWI) cyber espionage campaign, which compromised nine U.S. government agencies and 18,000 public and private sector customers. That's according to The Washington Post, which said other measures would target Moscow due to a "range of malign cyber activity and the near-fatal poisoning of Russian opposition leader Alexey Navalny." The moves would be the first costs levied on Russia by President Biden (the State Department drew up options for retaliation last year under the Trump administration, but they were never imposed).
While the cyber attack was discovered in December, hackers had been inserting malicious code into SolarWinds updates since the previous March. U.S. officials have said that the breach was "likely" of Russian origin, but that hasn't been yet confirmed by intelligence officials. Yesterday, some of the companies affected by the hack told members of the Senate Select Committee on Intelligence that the attack may have also been broader than previously thought.
What happened? Once inside, "the threat actor took advantage of systemic weaknesses in the Windows authentication architecture, allowing it to move laterally within the network" and reach the cloud environment, CrowdStrike (CRWD) CEO George Kurtz said during the hearing. Microsoft (MSFT) President Brad Smith added that approach "was only used by the Russian attackers 15% of the time," and the hackers may have used "up to a dozen" different methods to gain access to victims' systems, not just SolarWinds software.
What else is happening...
Texas freeze shows need for both gas and renewables - Total CEO.
In Asia, Japan -1.6%. Hong Kong -3%. China -2%. India +1.4%.
In Europe, at midday, London -0.2%. Paris +0.2%. Frankfurt +0.9%.
Futures at 6:20, Dow +0.1%. S&P +0.2%. Nasdaq +0.2%. Crude +0.4% to $61.94. Gold +0.1% at $1807.40. Bitcoin +5.9% to $50224.
Ten-year Treasury Yield flat at 1.37%
Tuesday's Key Earnings
Home Depot (NYSE:HD) -3.1% holding back full-year guidance.
Macy's (NYSE:M) +3.9% after Q4 beat, seeing an apparel recovery.
Medtronic (NYSE:MDT) +1.9% buoyed by procedure volumes, new product launches.
Square (NYSE:SQ) -5.1% AH amid fears of slowing growth.
Today's Economic Calendar
7:00 MBA Mortgage Applications
10:00 New Home Sales
10:00 Powell Testifies Before House Financial Services Committee
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
10:30 Fed’s Brainard: “The Federal Reserve’s Maximum Employment Mandate”
11:00 Survey of Business Uncertainty
11:30 Results of $26B, 2-Year FRN Auction
12:00 PM Fed’s Clarida: U.S. Economic Outlook and Monetary Policy
1:00 PM Results of $61B, 5-Year Note Auction
4:00 PM Fed’s Clarida: U.S. Economic Outlook and Monetary Policy