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Good morning, Bull Sheeters. Positive vaccine news and a flurry of major tech deals have ripped stocks out of a two-week rut.
Let's see where investors put their money.
- The mayor Asia indices are okay in afternoon trading with Japan Nikkei above 0.6%.
- Microsoft is out and Oracle is in. This is the most important development the Wall Street Journal first reported this morning TikTok US competition.
- SoftBank Stocks were almost up 9% in Tokyo today on a number of big headlines. It sold its Arm Ltd. semiconductor unit. to Nvidia for $ 40 billion in a record deal. It is also getting serious about taking the company privately.
- The European stock exchanges were also higher to open, with the Paris CAC leading the way up 1% before trading declined in the late morning.
- AstraZeneca Stocks opened with a bang before falling. That was after the British drug maker announced over the weekend it would give the go-ahead for the resumption COVID-19 vaccine trials in the UK The news also gave global stocks a boost in early Monday trading.
- The ECB has a currency problem. The Euro has risen again this morning, and its steady rise reverses some of the intended effects of the stimulus measures introduced by the central bank this spring.
- US futures– Yes, tech futures too – indicate a strong open. That's after Nasdaq fell 4% last week, worst drop since March.
- There is nothing to see here keep acting. This is more or less the consensus of analysts at Goldman Sachs and Deutsche Bank, who wrote in separate notes that the worst stock slide is behind us.
- The chances are getting smaller that the Senate will pass a new one fiscal business cycle accountingand so all eyes are on the Federal Reserve, which is meeting tomorrow and Wednesday last such meeting before election day.
- gold is flat and acts on top $ 1,950 / ounce.
- The dollar is down.
- Raw is also down with Brent Trade below $ 40 / barrel.
The S&P 10
The S&P 500 had a tough September – two straight weeks, including a dud last week, the worst since June.
No wonder, then, that the pros continue to look back to get an idea of what lies ahead. And you don't have to go back too far to see some warning signs. Take August. To recap, the S&P 500 rose an unlikely 7.2%, the best August performance since 1986.
That rally in August set a far more dubious record. According to BofA Securities, more than 50% of the S&P 500's August return came from just ten stocks. (No points for guessing ten).
To illustrate the one-sided concentration, the BofA has summarized all 500 stocks in the benchmark index in a single mash-up pie chart and ranked each position according to its August return. The result is this beautiful thing:
Seriously, I would love to see an artist render this. In a single picture it says so much about the 2020 bull market rally.
Nvidia, which hits the top ten here, is up 6% in pre-market trading this morning, closing its deal to buy chip maker Arm Ltd. held in high demand. (Oracle, which you can't even see in this diagram, is even higher in the pre-market).
What about the other ~ 490 stocks? You can barely see a bit of Healthcare (Johnson & Johnson) and Commerce (Mastercard), but the other big sectors are nowhere to be seen. No funding, no energy, no industrial or non-basic consumer goods.
We have known for some time that Big Tech carries the water in this bull run. We also learned that big tech has the power to bring the markets with it once investors start rethinking valuations. The Nasdaq 100 is down 11% from its all-time high – yes, that counts as a market correction – resulting in a rough September.
The interesting news this morning is that Goldman and Deutsche Bank are calling the pullback "typical" and that stocks are looking attractive again.
The question remains: do all stocks look attractive or just a handful?
It's a great day here. Italian children went back to school this morning, the first time since early March. (You may recall that Italy was the first European country to shut schools and businesses to fight the virus outbreak.)
Despite a recurrence of COVID cases (but nothing like neighboring France and Spain), returning to class here has never really been in doubt.
At least from my perspective, there hasn't been a huge public debate about what reflects the way Italy has handled the pandemic from the start. Public health officials continue to advise politicians, who then make the plan for the rest of us to follow. And we are largely following that plan.
The children masked themselves this morning and entered the school building one by one. We parents leaned back on the sidewalk and happily waved them off before we had an obligatory coffee in the nearby cafe.
For the first time ever, Italian schoolchildren will have one child per desk (formerly a student had a Compagno di Banco or a Deskmate at a single oversized desk), and the day's activities will be conducted socially. Distancing rules that we are all familiar with.
The biggest disruption for the children is the new school. It's a breeze for us. It's just a short walk to a historic building in the center of the neighborhood.
Our hood, Garbatella, started in the 1920s when Mussolini hired several dozen architects to design a series of residential neighborhoods for working families on a hill just behind the old city walls. On the cornerstone of each apartment you can see the construction date, which is chiseled in the E.F. Epoca Fascista calendar. E.F. VII would be 1929, for example.
In the middle of Garbatella a huge school was built with imposing falcon statues overlooking the entrance. (You can see the school – at the 40-second mark in this pre-war propaganda roll.) Our kids were there when they were young. You have now attended a different school that existed before the Mussolini years.
All of those pictures and memories came back on the way up the hill to the school this morning on the way through the neighborhood.
Let's hope it takes. Speriamo bene, as the Italians say.
I wish everyone a pleasant day. I'll see you here tomorrow.
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