Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

On the one year anniversary of the Covid-19 stock market low, we revisit the path taken on the S&amp;P 500.Remarkably, as global economic activity stopped, borders closed, and the virus spread, the stock market saw one of its most aggressive rallies, thanks largely to the Federal Reserve. A year later the S&amp;P 500 has made it 82% above that March 2020 panic low.Is this number important? Have we seen this before? If so, when? And what clues might it give as we approach the second quarter of 2021?

On the one year anniversary of the Covid-19 stock market low, we revisit the path taken on the S&amp;P 500.Remarkably, as global economic activity stopped, borders closed, and the virus spread, the stock market saw one of its most aggressive rallies, thanks largely to the Federal Reserve. A year later the S&amp;P 500 has made it 82% above that March 2020 panic low.Is this number important? Have we seen this before? If so, when? And what clues might it give as we approach the second quarter of 2021?

Cross Asset Strategy

We are now at a notable juncture from a relative perspective on the NDX vs SPX. Any further underperformance of the NDX would suggest a significant short to medium term change in trend. This seems to be the risk given US 10 year yields still look likely to make it to the 2% area.

We are now at a notable juncture from a relative perspective on the NDX vs SPX. Any further underperformance of the NDX would suggest a significant short to medium term change in trend. This seems to be the risk given US 10 year yields still look likely to make it to the 2% area.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

On Friday post market close, S&amp;P Dow Jones announced the results of the March review for the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a> that will be effective after the close of trading on 19 March.There are 4 additions - <a href="https://www.smartkarma.com/entities/nxp-semiconductors-nv" target="_blank" data-smartkarma-citation="entities:9801:1" rel="noopener">Nxp Semiconductors Nv (NXPI US)</a>, <a href="https://www.smartkarma.com/entities/penn-national-gaming-inc" target="_blank" data-smartkarma-citation="entities:5588:1" rel="noopener">Penn National Gaming (PENN US)</a>, <a href="https://www.smartkarma.com/entities/generac-holdings-inc" target="_blank" data-smartkarma-citation="entities:16223:1" rel="noopener">Generac Holdings (GNRC US)</a> and <a href="https://www.smartkarma.com/entities/caesars-entertainment-corp" target="_blank" data-smartkarma-citation="entities:15532:1" rel="noopener">Caesars Entertainment (CZR US)</a>. To balance that out, there are 4 deletions - <a href="https://www.smartkarma.com/entities/flowserve-corp" target="_blank" data-smartkarma-citation="entities:20555:1" rel="noopener">Flowserve Corp (FLS US)</a>, <a href="https://www.smartkarma.com/entities/sl-green-realty-corp" target="_blank" data-smartkarma-citation="entities:1548:1" rel="noopener">Sl Green Realty (SLG US)</a>, <a href="https://www.smartkarma.com/entities/xerox-holdings-corp" target="_blank" data-smartkarma-citation="entities:17585:1" rel="noopener">Xerox Corp (XRX US)</a> and <a href="https://www.smartkarma.com/entities/vontier-corp" target="_blank" data-smartkarma-citation="entities:28857:1" rel="noopener">Vontier Corp (VNT US)</a>.We estimate one-way turnover will be around US$22.4bn and the funding trade will see selling on a lot of the current index constituents.The biggest impact of the changes will be on <a href="https://www.smartkarma.com/entities/nxp-semiconductors-nv" target="_blank" data-smartkarma-citation="entities:9801:1" rel="noopener">Nxp Semiconductors Nv (NXPI US)</a> where we estimate passive funds will need to buy around 11 days of ADV on the stock. The impact on the other stocks is much lower due to the move between the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a> and the S&amp;P Mid Cap 400 indices.

On Friday post market close, S&amp;P Dow Jones announced the results of the March review for the S&amp;P 500 (SPX INDEX) that will be effective after the close of trading on 19 March.There are 4 additions - Nxp Semiconductors Nv (NXPI US), Penn National Gaming (PENN US), Generac Holdings (GNRC US) and Caesars Entertainment (CZR US). To balance that out, there are 4 deletions - Flowserve Corp (FLS US), Sl Green Realty (SLG US), Xerox Corp (XRX US) and Vontier Corp (VNT US).We estimate one-way turnover will be around US$22.4bn and the funding trade will see selling on a lot of the current index constituents.The biggest impact of the changes will be on Nxp Semiconductors Nv (NXPI US) where we estimate passive funds will need to buy around 11 days of ADV on the stock. The impact on the other stocks is much lower due to the move between the S&amp;P 500 (SPX INDEX) and the S&amp;P Mid Cap 400 indices.

S&P500 Index Rebalance: NXPI Is the One to Watch

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Given the looming end of lockdown measures, the valuation of leadership companies in the S&amp;P500 should come under scrutiny, irrespective of the behaviour of US Treasury yields. Valuation upgrades for companies that were unable to operate normally last year due to the pandemic could be in the offing as conditions return to normal due to vaccine rollouts.
The inability of the Fed since 2008 to escape the clutches of a near-zero policy rate has depressed both short-term interest rate volatility and real yields. The estimate of the neutral real federal funds rate held by Federal Open Market Committee (FOMC) members has fallen to just +0.5% from +2.25% in 2012, significantly below the current +1.9% estimate for potential GDP growth.
In recent years, both bond investors and FOMC members have played an almighty game of chicken about the appropriate neutral policy rate, whereby the former has embraced a far more pessimistic view of the secular growth outlook. The Fed has been forced to counter a number of deflationary shocks since 2000 by aggressively reducing real yields against a backdrop of lower estimated potential real GDP growth.
Weaker US potential GDP growth has reduced real yields due to lower demand for capital, while the shift in employment towards services has reinforced the reduction due to lower total factor productivity compared to either manufacturing or information technology. Lower demand for capital and weaker productivity have been underpinned by ageing demographics. Meanwhile, demand for safe-haven and liquid assets has significantly increased since the financial crisis due to tighter regulation, risk-aversion and quantitative easing, all of which have conspired to lower real yields. 
In contrast to equities, US bond investors have historically been reluctant to embrace "new era" theories supporting faster potential GDP growth, but deflationary shocks since 2000 have produced a positive correlation between bond yields and equities for the majority of the 21st Century. The arrival of rising real yields is not necessarily bearish for equities if market returns become predominantly driven by earnings growth as opposed to P/E multiple expansion as more companies benefit from a return to normal conditions following the pandemic.

Given the looming end of lockdown measures, the valuation of leadership companies in the S&amp;P500 should come under scrutiny, irrespective of the behaviour of US Treasury yields. Valuation upgrades for companies that were unable to operate normally last year due to the pandemic could be in the offing as conditions return to normal due to vaccine rollouts.
The inability of the Fed since 2008 to escape the clutches of a near-zero policy rate has depressed both short-term interest rate volatility and real yields. The estimate of the neutral real federal funds rate held by Federal Open Market Committee (FOMC) members has fallen to just +0.5% from +2.25% in 2012, significantly below the current +1.9% estimate for potential GDP growth.
In recent years, both bond investors and FOMC members have played an almighty game of chicken about the appropriate neutral policy rate, whereby the former has embraced a far more pessimistic view of the secular growth outlook. The Fed has been forced to counter a number of deflationary shocks since 2000 by aggressively reducing real yields against a backdrop of lower estimated potential real GDP growth.
Weaker US potential GDP growth has reduced real yields due to lower demand for capital, while the shift in employment towards services has reinforced the reduction due to lower total factor productivity compared to either manufacturing or information technology. Lower demand for capital and weaker productivity have been underpinned by ageing demographics. Meanwhile, demand for safe-haven and liquid assets has significantly increased since the financial crisis due to tighter regulation, risk-aversion and quantitative easing, all of which have conspired to lower real yields. 
In contrast to equities, US bond investors have historically been reluctant to embrace "new era" theories supporting faster potential GDP growth, but deflationary shocks since 2000 have produced a positive correlation between bond yields and equities for the majority of the 21st Century. The arrival of rising real yields is not necessarily bearish for equities if market returns become predominantly driven by earnings growth as opposed to P/E multiple expansion as more companies benefit from a return to normal conditions following the pandemic.

Rising Real Yields Need Not Unravel US Equities as End to COVID-19 Restrictions Loom

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

The S&amp;P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM) have all rallied to logical resistance; if they are able to break above and stay above their respective resistance levels it would signal the end of the current consolidation phase. In today’s report we highlight attractive Groups and stocks within Materials and Financials:

The S&amp;P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM) have all rallied to logical resistance; if they are able to break above and stay above their respective resistance levels it would signal the end of the current consolidation phase. In today’s report we highlight attractive Groups and stocks within Materials and Financials:

U.S. Equity Strategy: Testing Key Resistance; Downgrading Health Care

United States

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P 500 INDEX (SPX INDEX)

SPX: One Year Later...What Next?

An historical and behavioural look at the S&P 500 exactly a year from the Covid-panic low of March 2020 reveals that one should be more defensive...

Shyam Devani

NDX Vs SPX: Important Pivot

We are now at a juncture that will significantly determine the relative performance of the NDX verses the S&P 500. What happens next is likely to...

Shyam Devani

S&P500 Index Rebalance: NXPI Is the One to Watch

There are 4 changes to the S&P500 with NXP Semiconductors the largest beneficiary of the changes. Estimated one-way turnover is US$22.4bn and there...

Brian Freitas

Rising Real Yields Need Not Unravel US Equities as End to COVID-19 Restrictions Loom

Various factors drove US real yields to low levels over the past decade. Rising real yields reflecting stronger economic growth need not be fatal...

DeSaque Macro Research

U.S. Equity Strategy: Testing Key Resistance; Downgrading Health Care

The S&P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM) have all rallied to logical resistance; a break above their respective resistance levels...

Vermilion Research