By Barbara Kollmeyer
Stock markets look set to kick off with small losses Monday, resuming the weakness seen in last week’s holiday shortened trading , as another big slate of earnings looms.
That’s as bond yields creep up.
Our call of the day , from a team of Evercore strategists led by Julian Emanuel, says stocks and bonds are “destined to move together” for the foreseeable future. Equities are down 7.8% and bonds are off 8.5% year-to-date, a phenomenon that has been seen only once before in 40 years — 1994, they noted.
“More significant than performance alone is the breakdown of the negative correlation between stocks and bonds, risk on/risk off, that has prevailed for two decades,” said Emanuel and the team.
Stocks and bonds “languished together during the inflationary mid 1960s and 1970s, risk off/risk off, and rose as inflation declined in the ‘80s and much of the ‘90s, risk on/risk on. The commonality between these regimes: inflation ‘trendiness’,” they said.
“While there are signs that inflation is peaking, setting up the possibility of ‘risk on/risk on’ for stocks and bonds, the ‘old normal’ has become the ‘newnormal’ – stocks and bonds are destined to move together. ‘Risk on/risk on’ could commence with 10 year yields stabilizing near current peaks and accelerate with a retreat below 2.55%; the end of the recent parabolic advancewould enable investors to refocus on both earnings growth and the still low absolute level of interest rates, underpinning a rally toward SPX 4,800,” said Emanuel and the team.
That could give investors a chance to refocus on earnings growth and low interest rate levels, underpinning a drive toward 4,800 for the S&P 500. But “until yields show further signs of stabilization/moderation, we reiterate a balanced approach to equity exposure into earnings season,” he said.
As for companies they like, Evercore offered an updated list of Russell 1000 /zigman2/quotes/210598144/delayed RUI +0.38% names on their list of companies that are expected to outperform. What they have in common is $10 billion plus in market capitalization, in the bottom 25% of index performers year-to-date, despite being in the top 25% of 2022 earnings revisions and positive expected earnings.
Bank of America /zigman2/quotes/200894270/composite BAC -0.40% shares are up after reporting a profit fall that still beat forecasts , while BNY-Mellon /zigman2/quotes/200171276/composite BK -0.76% fell short of its profit view . Charles Schwab /zigman2/quotes/201281754/composite SCHW +0.54% shares, meanwhile, are down about 5% on weak net income .
Other big highlights this week include Netflix /zigman2/quotes/202353025/composite NFLX -0.26% earnings due Tuesday. On Wednesday, results are due from Tesla /zigman2/quotes/203558040/composite TSLA -0.12% , where investors will be looking for any information on CEO Elon Musk’s $43 billion buyout offer for Twitter /zigman2/quotes/203180645/composite TWTR -0.20% , whose shares were rising in premarket after the social-media company announced a so-called “poison pill” plan to thwart any takeover.
China’s economy expanded 4.8% annually in the first quarter, which beat expectations. That still puts the country behind scheduled to reach an officially target of 5.5% growth this year, with fresh COVID outbreaks not helping.
Didi Global stock dropped 18% in premarket trading after the China ride-hailing firm reported a sharp fall in revenue over the weekend, and said it would hold a shareholder meeting next month to vote on a planned delisting from the New York Stock Exchange.
Explosions rocked the western Ukrainian city of Lviv early Monday leaving several dead as the country braces for all-out eastern assault by Russian forces.
The National Association of Home Builder’ April index is ahead, with comments also expected from St. Louis Fed President James Bullard.
Stocks /zigman2/quotes/210598065/realtime DJIA +0.55% /zigman2/quotes/210599714/realtime SPX +0.77% /zigman2/quotes/210598365/realtime COMP +0.87% have opened mixed , specifically on the tech side. Treasury yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +4.34% are rising, oil prices /zigman2/quotes/209723049/delayed CL00 -0.72% are slightly lower, while natural gas prices /zigman2/quotes/210189548/delayed NG00 +0.24% are soaring. Gold /zigman2/quotes/210034565/delayed GC00 -1.50% is climbing too. Asian markets had a mixed day, with some weakness in China /zigman2/quotes/210598128/delayed XX:000300 -1.46% after that growth data. The Nikkei /zigman2/quotes/210597971/delayed JP:NIK -1.20% dropped 1%. Europe markets were off for an extended Easter break.
Cryptos /zigman2/quotes/31322028/realtime BTCUSD -0.16% are also lower across the board.
These were the most active stock-market ticker symbols on MarketWatch as of 6 a.m. Eastern:
|/zigman2/quotes/200235402/composite AMC||AMC Entertainment|
|/zigman2/quotes/204868203/composite MULN||Mullen Automotive|
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