* Materials weakest S&P sector; Industrials lead gainers
* Dollar, crude gain; gold dips
* U.S. 10-Year Treasury yield ~1.58% Welcome to the home for real-time coverage of equity markets brought to you by Reuters reporters. You can share your thoughts with us at email@example.com
THE KEY ISSUE FOR THE STOCK MARKET (1215 EDT/1615 GMT)
Matthew J. Maley, chief market strategist at Miller Tabak, kicks off a note he released on Thursday with one of Wall Street's best-known sayings - "Sell in May, and go away."
According to Maley, one problem with this mantra is that it hasn't worked since 2011. Of course, he also notes that it actually worked quite well in many of the years before 2011, so he certainly does not want to dismiss the possibility that it could regain some traction this year, especially given that he says the S&P 500 is "very expensive," at current levels.
However, the most important issue on his mind continues to be long-term interest rates.
Maley points to the Fed's more recent mantra, that it is willing to let inflation run hot. To him, this is the same thing as saying that they're willing to let long-term interest rates rise further.
The good news for equity investors is Maley thinks long-term rates may fall further over the coming weeks, or at least remain stable near the current 1.5% range.
However, he also believes that given the Fed's stance on inflation, and that they are likely to taper their QE program in 2022, a rise to new highs in long-term yields in the coming weeks/months is quite likely.
Therefore, Maley says he will be watching that part of the Treasury market "like a hawk for the rest of this year," because given lofty valuations, it should be "THE key issue for the stock market."
According to Maley, when equities get expensive, and it is followed by a material rise in interest rates, no matter from what level that rise begins, it is followed by a very large drop in the stock market.
A GREEN TINT TO EUROPE'S CLOSE (1135 EDT/1535 GMT)
European shares rose for a second day running, almost erasing Tuesday's sell-off, as investors displayed a return of interest for stocks left out of the recent rotation trade.
Among these, green stocks stood out with wind turbine makers Vestas Wind VWS.CO , Nordex NDXG.DE and Siemens (NS: SIEM ) Gamesa SGREN.MC flying high after the U.S. made a bold pledge on emissions targets at a global climate summit. system maker SMA Solar S92G.DE was also strong, along with renewable energy stocks like Portugal's EDP Renovaeis EDPR.LS which helped lift the utilities index .SX6P up more than 2% to a three-month closing high.
Tech was in demand too, while heavyweight Nestle (NS: NEST ) NESN.S rallied after positing its strongest quarter in the latest confirmation that Europe Inc is coming out of the COVID-19 profit recession with a bang. STOXX 600 was last up 0.7% on the day.
REVERSAL OF FORTUNE: JOBLESS CLAIMS, HOME SALES (1105 EDT/1505 GMT)
Data released on Thursday showed a potential changing of the guard - the labor market appears to be gaining stamina as the housing market shows more signs of diminished vigor.
The number of Americans filing first-time applications for unemployment benefits USJOB=ECI unexpectedly dropped to 547,000 last week according to the Labor Department, reaching the lowest level since mid-March, after which abrupt shutdowns shuttered businesses and sent claims skyrocketing. expected a slight uptick to 617,000.
Accelerating vaccine deployment, combined with a hefty, $1.9 trillion stimulus package, are unleashing pent-up demand and sending businesses scrambling for workers.
But even as economic re-engagement gathers momentum, the labor market still has a long road to normal. U.S. payrolls remain 8.4 million below pre-COVID levels.
"The further decline in today's report indicates that layoffs are falling quickly," writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. "As the economy reopens, businesses can hold on to staff they would otherwise have had to let go."
"Claims remain high, but they're no longer in previously uncharted territory," Shepherdson adds.
Continuing claims USJOBN=ECI , reported on a one-week lag, inched down to 3.674 million, just a hair higher than consensus.
Meanwhile, the housing market - the fading star of the economic recovery - continues to show signs of waning. Median home prices jumped by record-breaking 17.2% last month, straining affordability and weighing on sales.
Sales of previously owned U.S. homes USEHS=ECI dropped by 3.7% in March to 6.01 million units on a seasonally adjusted annualized basis (SAAR) according to the National Association of Realtors (NAR).
The number came in below the 6.19 million unit consensus, and extended February's 6.3% drop.
For many months the housing sector has been the show-off of the economic recovery, benefiting from spiking demand and historically low mortgage rates. But clouds have gathered on the horizon in the form of rising home costs, driven by a record inventory dearth and sky-rocketing lumber prices, all of which have pushed home ownership beyond the grasp of some homebuyers.
"Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still actively in the market," says Lawrence Yun, chief economist at NAR. "The sales for March would have been measurably higher, had there been more inventory."
Nancy Vanden Houten, lead economist at Oxford Economics, concurs. "The housing market should be supported by strong demand and a solid recovery, but a lack of supply and eroding affordability will pose significant headwinds," she writes.
It should be noted that existing home sales remain above pre-COVID levels, if barely:
Wall Street was mixed in morning trading. The Nasdaq was up, the S&P nominally red, and the Dow more firmly in negative territory.
THE SHORTS HAVE GONE SMALL (1015 EDT/1415 GMT)
Short sellers appear to be adjusting their portfolios and targeting stocks down the cap scale, according to a report from Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
While the majority of the $1.07 billion total U.S. short interest in the equity/ADR market is exposure in the largest stocks as shorts may have concentrated in the most liquid and cheapest stocks to short, Dusaniwsky notes that short sellers have also been in smaller cap stocks.
According to S3, 93% of every dollar shorted is aimed at the largest stocks, but 68% of the actual equity/ADRs shorted reside in smaller cap sectors as "short sellers are finding Alpha in smaller cap stocks where they are not shoulder to shoulder with the rest of the street."
S3 said that while there was $42.4 billion in short covering in the larger market cap stocks, they observed $1.6 billion of new short selling in smaller names.
Dusaniwsky notes that since there is a smaller float in smaller stocks, they come with drawbacks while shorting. The short interest as a percentage of the float in small stocks is more than double that of larger sectors. In addition, the reduced stock loan availability generally leads to higher stock borrow rates, with the average borrow fee for larger stocks at 0.38% while standing at 2.39% for small stocks.
DOW INDUSTRIALS: HOT TO THE TOUCH (0900 EDT/1300 GMT)
After hitting record highs last Friday, the Dow Jones Industrial Average .DJI is on track to dip slightly this week. Nevertheless, by one oscillator, the blue-chip average is its most overbought, on a weekly basis, since November 2017:
Indeed, the current reading on a longer-term weekly slow stochastic is 98.806, which is the highest level since a 99.237 print the week ending Nov 3, 2017. (Readings above 80.00 are considered overbought, with 100.00 the maximum).
Meanwhile, the Dow faces a hurdle in the form of a log-scale resistance line from early 2019, which on a weekly basis, now resides around 34,500. Last week's high was 34,256.75.
Thus, the severely overbought reading, coupled with the resistance barrier only around 1% above Wednesday's close, can suggest the Dow may be in for a struggle to immediately sustain its advance.
That said, despite the searing hot oscillator reading, the indicator has yet to diverge. Of note, since early 2018, the Dow suffered four sharp high-to-low declines, averaging around 19%, from record high levels that were preceded by weekly stochastic divergence. one scenario could be that the Dow marks time, or suffers a modest setback, prior to new highs. A bigger problem could then arise if the stochastic diverges.
However, a Dow reversal back below the broken 92-year resistance line which is now acting as support through the end of April at around 33,150, coupled with the weekly stochastic falling under the 80.00 overbought threshold, may put the potential for a more protracted and deeper Dow decline on the front burner. Gabriel)
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE: DJI04222021
https://tmsnrt.rs/3tHw91P Jobless claims
https://tmsnrt.rs/3tHQq7r Existing home sales
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own)
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.