Last checked at 
* S&P 500, Dow rise modestly, Nasdaq lower
* Energy leads S&P sector gainers; tech weakest group
* Dollar, crude higher; gold ~flat; bitcoin down
* U.S. 10-Year Treasury yield ~1.48%
July 1 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
ARE SMALL TRADERS SKEWED IN THE RIGHT DIRECTION? (1345
EDT/1745 GMT)
Two separate indicators of market sentiment point to some
interesting divergences in what different investors are
expecting for U.S. equity markets over the next few months.
The CBOE SKEW Index rose to above 170, its highest
level ever, in June. It is still trading at around 161.
The SKEW index is an options-based indicator reflecting how
much of a premium investors are willing to pay to protect
against a fall in equity markets. A High SKEW index indicates
expectations of declines ahead.
"Historically, the return on the S&P 500 Index was outright
negative three months after the SKEW index reached very high
levels," Jeroen Blokland, head of research at True Insights
explained in a recent note.
However, smaller traders are betting in the opposite
direction, judging by their purchases of call options.
Researchers at SentimenTrader point out that equity options
volume is exploding, partly driven by the smallest traders -
those executing ten or less contracts at a time.
These smaller traders are focusing nearly 50% of their total
volume on snapping up equity call options, indicating they
expect stocks to keep climbing.
With the S&P 500 opening at a record high today,
there's good reasons to be bullish on U.S. equities right now.
And as SentimenTrader notes, the SKEW index is not a perfect
indicator of future market conditions.
That being said, it does paint an interesting picture of
what different sides of the market may expect.
"What we have right now is a bunch of the smallest options
traders in the market betting heavily that stocks are going to
keep soaring, at the same time that (probably) sophisticated
(probably) hedge funds are (probably) betting on a quick, big
drop," SentimenTrader concludes.
(Lisa Mattackal)
*****
DEEP GLOBAL MONETARY POOL, GOOD FOR REAL-ASSET DIVERS (1330
EDT/1730 GMT)
Jack Ablin, chief investment officer and founding partner at
Cresset, is out this week with some comments this week on the
approach by the developed world's central banks to the
synchronized global reopening, and what the effects may be.
According to Ablin, central banks are aligned in their
desire not to interfere with the global recovery, maintaining
easy monetary policies as domestic growth and inflation rise. As
a result, global bond markets have become closely correlated,
with yields moving in lockstep this year, particularly between
Europe, the UK and the US:
Ablin says that the Fed's “lower for longer” approach to
interest rates has helped promote risk taking, not just in the
stock and bond markets, but in corner offices as well.
"Coordinated stimulus from the Fed, ECB, BoJ and BoE have
kept rates below fair value and will continue to drive a
low-rate, high-growth recovery."
That said, Ablin adds that although the Federal Reserve
plays an anchor role, U.S. central bank policy only partially
accounts for why U.S. Treasury rates are so low. He notes that
collective bond buying by the ECB, BoJ and Fed has, over the
years, accumulated to nearly $24 trillion, with nearly $5
trillion of bond buying over the last 12 months.
Ablin believes that eventually, the central bank bond-buying
frenzy will abate. In the meantime, however, he says that with
inflation rising and interest rates near zero, “real” rates –
yields after inflation – have plunged.
"Negative real yields reduce purchasing power for bond
holders and create a favorable environment for real assets, like
commodities, including gold."
(Terence Gabriel)
*****
MICRON SKID PUTS BRAKES ON CHIP RALLY (1220 EDT/1620 GMT)
Chips stocks are retreating on Thursday and weighing heavily
on the Nasdaq after a recent rally that elevated the
Philadelphia Semiconductor index to its first record high
since early April.
The chip index is down more than 1% at mid-day, with Micron
Technology and other semiconductor stocks helping push
the Nasdaq down 0.1%.
Micron dropped 5% and weighed more than any other company on
the chip index. The memory chipmaker late on Wednesday posted
stronger than expected quarterly results. Some analysts pointed
to guidance from the company about a slowing pace of cost
reductions as a negative for the stock.
"Generally speaking, we had been expecting MU to benefit
from faster cost reductions in DRAM tied to the ramp of MU’s 1a
node," Wedbush analyst Matt Bryson wrote in a client note. "1a"
refers to a new DRAM memory chip technology.
"However, management talked down this benefit to some extent
signaling that efficiency gains would be offset by higher
manufacturing costs for new products," Bryson wrote.
Micron also said it was selling a plant in Lehi, Utah, to
Texas Instruments Inc for $900 million. Texas
Instruments is down 0.8%.
Advanced Micro Devices is dropping 1.3%, putting the
brakes on a strong, three-day rally that was fueled by Intel's
announcement on Tuesday that it had fallen behind
schedule with an upcoming server processor, the latest setback
for the U.S. chipmaker that has lost its once dominant
technology lead to TSMC and other global rivals. Intel
is rebounding 0.5%, reducing its loss since it disclosed the
setback with its Sapphire Rapids chip to about 2%.
With Thursday's drop, the Philadelphia chip index is up 18%
year-to-date, outpacing the Nasdaq's 12% gain.
(Noel Randewich)
*****
TIME TO SCREEN FOR 'DIVIDEND ARISTOCRATS' (1138 EDT/1538
GMT)
Credit Suisse believes time has come for investors to focus
on the so-called "dividend aristocrats" which are stocks that
not only offer dividend yield but also dividend growth.
Strategists at the Swiss bank argue that fixed income risks
not diversifying anymore given that the correlation between bond
and equity returns has now turned now positive. And this means
allocators could increasingly start to consider the aristocrats
should they decide to cut down their bond exposure.
"Asset allocators could start to favour the relative safety
of the dividend aristocrats. We think asset allocation will
switch from 60:40 to 70:30 and thus look for the most bond-like
equities to replace some of their bond weightings," they say.
According to the CS, dividend aristocrats tend to outperform
when PMIs peak and this should happen over the summer. What's
more is that the aristocrats yielding more than 2% are
"abnormally cheap" with their PE premium relative to the market
now at only 2%, the lowest in a decade.
Year to date the S&P 500 dividend aristocrats index
, which tracks stocks that have lifted dividends for
the past 25 years, has moved in line with the S&P 500.
Any stock picks?
CS points to Diageo, DCC, Relx,
Unilever, Sanofi and Coloplast in
Europe. It highlights Air Products, Caterpillar,
3M and J&J in the U.S., and Infosys and
Shionog in Asia.
Finally, an update on European equities. The STOXX 600 was
up 0.6% at the close, firmly supported by a rally in cyclical
and travel stocks which have suffered recently because of fresh
concerns over the COVID-19 pandemic.
(Danilo Masoni)
*****
NOW HIRING: WORKER DROUGHT WEIGHS ON PMI, CONTRIBUTES TO
DROPS IN CLAIMS, LAYOFFS (1120 EDT/1520 GMT)
'Help wanted' signs are everywhere.
With job openings at a record high, U.S. employers are
facing a scarcity of workers just as post-pandemic demand is
kicking into high gear. But a combination of emergency federal
unemployment benefits, child care concerns and lingering COVID
fears could be keeping applicants away.
The worker drought is partly attributable to a deceleration
of U.S. factory activity in June.
The Institute for Supply Management (ISM) purchasing
managers' index (PMI) inched down 0.6 points to
60.6, slightly below consensus.
A PMI reading over 50 signals expanded activity over the
previous month.
Notably, the employment component sank into contraction
territory for the first time since November, while prices paid -
due to the ongoing demand/supply imbalance - notched to its
highest reading in nearly 42 years.
"Companies and suppliers continue to struggle to meet
increasing levels of demand," writes Timothy Fiore, chair of
ISM's Manufacturing Business Survey Committee, who goes on to
cite "wide-scale shortages of critical basic materials, rising
commodities prices," along with "worker absenteeism, short-term
shutdowns due to parts shortages, and difficulties in filling
open positions" as the sector's strongest headwinds.
The survey's respondents would concur:
"Higher prices, inflation and lack of available labor are
impacting all organizations in our supply chain," (electrical
equipment/appliances).
"We continue to be oversold, based on what we are currently
capable of producing. Lack of labor is killing us," (primary
metals).
"We are limited on our ability to supply by raw-materials
availability. Manpower has been a concern," (Chemicals).
The "manpower concern" is also likely to be a factor in
falling jobless claims and planned layoffs, as U.S. companies
struggle to fill their rosters.
The number of U.S. workers to file first-time applications
for unemployment insurance fell a bit more than
expected last week to 364,000, a 12.3% drop from the previous
week, according to the Labor Department.
"Not only did we print the lowest number since the pandemic
began, but it also reverses the trend on misses that we’ve seen
the past few weeks," says Cliff Hodge, chief investment officer
at Cornerstone Wealth. "Staying below that big-round-number 400k
level could bolster confidence in risk taking during the dog
days of summer."
This was the lowest initial claims reading since spiking to
a head-spinning 6.149 million reading in March 2020, but remains
well above the 200,000 to 250,000 range associated with healthy
labor market churn.
For context, more Americans filed new jobless claims last
week than live in Honolulu.
Last week's claims data falls outside the survey period for
tomorrow's hotly anticipated employment report, which analysts
expect will show 700,000 payrolls gain and the unemployment rate
inching down to 5.7%.
Ongoing claims, reported on a one-week lag,
unexpectedly inched up to 3.469 million, hovering at about twice
their pre-COVID level.
The worker shortage was also reflected in a separate report
from executive outplacement firm Challenger, Gray & Christmas
showed announced layoffs by U.S. firms fell in June
to 20,476, a 21-year low.
The number represents an 88% year-on-year drop.
"We're seeing the rubber band snap back," writes Andrew
Challenger, senior vice president at Challenger Gray. "Companies
are holding on tight to their workers during a time of record
job openings and very high job seeker confidence.
"We haven't seen job cuts this low since the Dot-Com boom."
Next, expenditures on U.S. construction projects
unexpectedly pulled back by 0.3% in May, according
to the Commerce Department.
Economists polled by Reuters expected a 0.4% increase.
Residential projects, which have underpinned construction
spending as homebuilders scramble to keep up with demand, slowed
to a 0.2% increase - although up a remarkable 28.7% from last
year.
But the headline figure was weighed down by decreased
spending on lodging, manufacturing and educational projects,
among others.
Circling back to PMI, global financial firm IHS Markit also
released its final take on June manufacturing PMI,
which held steady at 62.1, maintaining May's pace of expansion
ISM and Markit differ in the weight they give various
subcomponents, such as new orders, employment and others. The
graphic below shows how widely they differ:
Wall Street was content to kick off the second half of 2021
with modest gains.
All three major indexes were green in late morning trading,
but a drop in chips put the Nasdaq in the red.
(Stephen Culp)
*****
FUNDSTRAT LIFTS S&P 500 TARGET TO 4,600 (1029 EDT/1429 GMT)
Thomas Lee, managing partner at Fundstrat Global Advisors
raised his year-end S&P target to 4,600 from 4,300 in a note to
clients on Wednesday, noting a "litany of reasons to stay
constructive" but sees July likely to be a choppy month.
While Lee acknowledges the Delta variant of the Covid-19
virus is spreading around the world, he believes renewed
lockdowns in the U.S. have a low probability of happening, but
expects policymakers along with businesses and corporations will
likely push harder for vaccinations.
As the S&P 500 rose about 14% in the first half, Lee notes
it ranks as nearly one of the best 10 starts to the year for the
index since 1928.
As for reasons to stay constructive in the second half of
the year, Lee said strong markets tend to stay strong, while he
points to an economy gaining momentum. He also sees strong
credit and stable rates, corporate operating leverage just
beginning which will results in an EPS beat, a dovish Fed, along
with fiscal stimulus and normalizing volatility compared to
2020.
As for downside risks, Lee sees only two significant ones -
the delta variant and an extended market, with July likely to be
choppy as the prior 12 instances where first half returns were
at least 13%, excluding recessions, showed returns for the month
are mostly poor and even worse when the first half is strong.
(Chuck Mikolajczak)
*****
VALUE ON THE ROPES VS GROWTH? (0900 EDT/1300 GMT)
S&P 500 Value hit a record low relative to S&P 500
Growth on September 1st of last year. From there, into an
early-March high, the value/growth ratio punched its way to its
biggest snapback since its 2007 peak.
However, since early-March, value has actually been on the
back foot again vs growth. And in June, the ratio just had its
worst month since January 2009. This as financials
, value's biggest weighting, sank, while tech
growth's heaviest concentration, along with FANGs,
surged.
With this action, the ratio finds itself once again, below
closely watched intermediate and longer-term moving averages, as
well as near the support line from its 2020 trough:
Indeed, the IVX/IGX ratio is below both its 50 and 200-day
moving averages (DMA). The 50-DMA has rolled over again, while
the 200-DMA is just barely maintaining a very slight upward
trajectory.
Additionally, the ratio has once again neared the support
line from its September low, which contained weakness in early
February. In fact, after holding this line at that time, value
then enjoyed its best month vs growth since April 2002.
Thus, the ratio may be at a critical point in the match
where it could be poised to break the support line and
ultimately take a dive to new lows, or put in another bottom,
leading to a strong round of gains.
Meanwhile, markets may be especially focused on Friday's
non-farm payroll report for any further clues into what the Fed
may be thinking. This just as the value/growth ratio's rolling
50-day correlation with the U.S. 10-Year Treasury yield
is hitting what can be considered a strong reading.
(Terence Gabriel)
*****
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300
GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
