By Barbara Kollmeyer
The mood is looking risk-off for Thursday, as investors struggle to gauge where we are in this pandemic and how economies will fare. Tech stocks joined in the losses on Wednesday, though the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.06% remains in the lead year to date, just.
There’s a pretty good chance the selling we saw Wednesday will eventually be met with those dip buyers if the last year and beyond is anything to go by. How will we know when the music is about to stop? Our call of the day , from Lance Roberts , chief investment strategist at RIA Advisors, says investors have three things to monitor.
The first is Federal Reserve tapering talk and specifically, any retraction in the Fed’s balance sheet. The second is an actual Fed rate hike that starts the “clock ticking for a recession, historically giving investors about nine months until that begins.” The third is any signs of yield-curve inversion — when short-term bonds paying better than long-term ones — viewed as a classic warning of a looming economic slowdown.
So where do markets stand for now? “The yield curve is flattening, obviously rates are coming down in long end…but it’s still a long way from being inverted, nothing to worry about with the yield curve right now,” Roberts tells MarketWatch in an interview. As for the rest, the Fed isn’t likely to hike interest rates, which leaves tapering, which is likely to happen in the near term.
“If we don’t have an event that occurs this year, and the Fed starts to taper, it’s likely we could see a 10% to 20% correction, sometime in 2022,” said Roberts. “It’s not the end of the world as a normal historical correction. That would give investors a better opportunity to put money to work.”
Though investors may be inclined to keep doing what they’ve been doing, Roberts said he continues to invest in big tech companies like Apple /zigman2/quotes/202934861/composite AAPL +0.46% , Microsoft /zigman2/quotes/207732364/composite MSFT +0.64% , Nvidia /zigman2/quotes/200467500/composite NVDA +6.70% , Google-parent Alphabet /zigman2/quotes/202490156/composite GOOGL +1.35% and Amazon /zigman2/quotes/210331248/composite AMZN +1.68% , because “that’s where the money is right now.”
He explains that the internals of the market, such as the number of stocks above their 50 and 200-day moving averages, have been deteriorating because “more and more money is hiding in these very large mega cap names in the overall market.” His clients need to make sure a position has enough volume so they can sell without moving the price.
“There’s one thing that’s really kind of evaporating from the markets, we’re seeing these rallies on lower volume, and we’re seeing these internals deteriorate, and what that tells you is that more and more money’s hiding in these large companies because investors can get into them fairly easily and get out of them fairly easily,” he said.
Roberts predicts that the next correction could be like the one we saw in March 2020, over quick because there are more out there willing to buy this market now than sell it, notably in those big names.
GameStop’s earnings flop
GameStop /zigman2/quotes/203755179/composite GME +2.22% shares are sliding after the videogame retailer/meme darling’s mixed earnings , lack of forward guidance, and brief nothingburger call with analysts . Neither was there mention of a rumored tie-up with fellow meme stock AMC Entertainment /zigman2/quotes/200235402/composite AMC -2.12% even after that company’s CEO Adam Aron talked up the possibility just ahead of those results.
Xerox /zigman2/quotes/201169674/composite XRX -11.52% stock is moving to the Nasdaq after 60 years on the New York Stock Exchange.
Better-than-expected earnings from athletic leisurewear maker Lululemon /zigman2/quotes/204011506/composite LULU +1.12% and home-furnishings group /zigman2/quotes/200286355/composite RH -1.49% are lifting those shares.
Not a great day for airlines, with JetBlue /zigman2/quotes/207639051/composite JBLU -0.95% , American Airlines /zigman2/quotes/209207041/composite AAL +0.83% and Delta /zigman2/quotes/200327741/composite DAL +0.51% all warning over revenue.
Shares of U.S.-listed China videogame maker NetEase /zigman2/quotes/201683625/composite NTES -3.49% are dropping after a Chinese authorities reiterated new gaming rules for underage players. Officials have also reportedly halted approvals for new online games. Tencent Holdings /zigman2/quotes/204605823/delayed HK:700 -3.15% was also hit, and subsidiary U.S.-listed Tencent Music /zigman2/quotes/205527956/composite TME -3.96% is down.
Stock in China real-estate developer Evergrande /zigman2/quotes/208605330/delayed HK:3333 +0.39% slumped again after reports it will delay interest payments on bank loans. Moody’s and Fitch cut their ratings on the group over fears it will default on bond payments.
Caesars Entertainment /zigman2/quotes/205281174/composite CZR +0.75% is selling its non-U.S. William Hill business to U.K. onling gaming group 888 Holdings /zigman2/quotes/206991878/delayed UK:888 +2.02% in a $3.03 billion deal .