By Barbara Kollmeyer
Following back-to-back records on Wall Street, the summer doldrums seem on tap for Thursday, with the week’s big inflation data now tucked away.
Those highs come as investors veer toward the perceived safety of defensive stocks, concerned that the highly contagious delta variant of COVID-19 will curb economic activity. The Nasdaq Composite is trailing the Dow /zigman2/quotes/210598065/realtime DJIA +0.15% and S&P 500 /zigman2/quotes/210599714/realtime SPX -0.81% for the week and month.
They may be cautious for now, but the herd may be about to turn, says our call of the day from a team of Citi analysts led by Hong Li.
“With the 10-year yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.18% expected to recover to 2% by the end of the year, according to our U.S. rates strategy team, we do not think that the cautious rotation can be sustained much longer and expect crowds to move toward more economic-sensitive sectors and value to outperform again,” said Li and the team. That yield inched toward 1.8% this year before backing off, but has been creeping up again in recent weeks.
Citi analysts say technology,, led by semiconductor and software stocks, remains the most crowded sector, even if performance has been so-so lately, while utilities and consumer staples continue to be the least crowded, despite an outperformance in July.
“Conventional thinking is to avoid buying crowded stocks (high crowding composite), as they may become harder to attract marginal investors, while stocks that are less crowded are prone to react more positively to fundamental catalysts, as they can attract a larger set of new investors,” said the Citi team. But they caution that the crowding composite is just one of many factors that should be considered when making an investment.
As for which stocks have seen the least crowding, AT&T /zigman2/quotes/203165245/composite T +2.03% , Gilead Sciences /zigman2/quotes/210293917/composite GILD +1.08% , Dollar Tree /zigman2/quotes/203712248/composite DLTR +0.16% , Kellogg /zigman2/quotes/209631250/composite K +2.89% and Edison International /zigman2/quotes/206923834/composite EIX +2.45% are the top five . The most crowded bunch includes Adobe Systems /zigman2/quotes/200389143/composite ADBE -2.05% , Nike /zigman2/quotes/203439053/composite NKE -1.23% , Thermo Fisher Scientific /zigman2/quotes/201150432/composite TMO -1.15% , Snap /zigman2/quotes/205087158/composite SNAP -43.08% and Zoetis /zigman2/quotes/207603157/composite ZTS +0.03% at the top.
Stocks /zigman2/quotes/210598065/realtime DJIA +0.15% /zigman2/quotes/210599714/realtime SPX -0.81% /zigman2/quotes/210598365/realtime COMP -2.35% are mixed after a batch of data, while Europe equities /zigman2/quotes/210599654/delayed XX:SXXP -1.14% are just hanging onto a record streak of gains. Asian stocks were in the red, with China’s CSI 300 /zigman2/quotes/210598128/delayed XX:000300 +0.26% down 0.8% amid those prospects for more regulation. Oil prices /zigman2/quotes/209723049/delayed CL00 +0.76% are slipping after the International Energy Agency and the Organization of the Petroleum Exporting Countries expressed worries over demand growth.
A mixed bag of data and China cracks down again
U.S. initial jobless claims dipped 12,000 in the latest week, while producer prices for July rose a bigger-than-expected 1%.
Shares of Baidu /zigman2/quotes/209050136/composite BIDU -6.67% are slipping after the Chinese multinational technology group beat on profit and revenue, but its outlook disappointed . And Nio /zigman2/quotes/204905836/composite NIO -8.56% is up after the U.S.-listed Chinese electric-car maker reported a narrower-than-expected quarterly loss . Results from Mouse House Disney /zigman2/quotes/203410047/composite DIS -4.01% and online lodging marketplace Airbnb /zigman2/quotes/222990650/composite ABNB -6.21% are due after the close.
Speaking of China, the government has rolled out a five-year plan pushing for more business regulation, with a focus on national security, technology and monopolies.
The Food and Drug Administration is reportedly set to authorize a third dose of the COVID-19 vaccine for those with weakened immune systems as soon as Thursday.
While Florida’s governor has banned mask mandates in schools, California will require teachers and staff to get vaccinated or face weekly COVID-19 testing, becoming the first state to do so.
Hackers have returned some of the $611 million they stole in a crypto heist of DeFi platform Poly Networks. They are apparently seeking rewards in the form of donations.
As lockdowns have fueled demand for sex toys, two closely held European companies are set to merge in a $1.2 billion deal.