Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

Powell and Target dampen the mood

05/18/2022 | 10:05am EDT
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Investors are still digesting yesterday's hawkish comments from Jerome Powell, pushing Wall Street indexes lower. The Fed chairman said the Federal Open Market Committee "will not hesitate" to go beyond neutral levels on rates if needed.

Nervousness is still apparent, as shown by the latest monthly survey conducted by Bank of America among asset managers who responded between May 6 and 12 (about 330 professionals managing nearly $1,000 billion). It shows managers are moving away from the most bottlenecked bet of the past decade: buying anything that looks like a technology stock. They underweight the sector by 12% in their allocations today, the most since 2006. Not since 1994 (when BofA surveys began) have managers been so pessimistic about growth prospects. Seventy-seven percent of managers cite the term "stagflation" as best describing their economic expectations for the next 12 months.

They also cite central banks' firmness (31%) ahead of global recession (27%) and inflation (18%) as the main risk of the moment. Managers also largely overweighted defensives (i.e. utilities and/or healthcare and/or consumer staples), at 43%. This compares to around 50% at the peak of the 2020 and 2011 scares, and 90% at the 2008 peak. In reality, they are mostly in healthcare and consumer staples. They are overweighting cash, healthcare, commodities and energy and underweighting bonds, Eurozone equities, consumer discretionary and emerging equities.

Finally, the survey respondents believe that the "Fed Put" is at 3529 points on the S&P500. The Fed Put is the level considered by professionals as the one where the US central bank would be forced to take pro-market measures to avoid a cataclysm. With the S&P500 at 4088 points at the time of writing, the Fed Put is 13.7% lower (the US index did, however, drop to 3858 points last week when managers were responding to the survey).

A chart published this morning in a Bloomberg article shows that the average P/E of global technology stocks has just crossed the average P/E of consumer staples stocks, i.e. around 20 times the expected results in 12 months. Until a few weeks ago, technology stocks were rather flirting with the 27/30 zone. But the weak results posted by Walmart and Target yesterday show that consumer staples are not necessarily a safe bet…

 

Economic highlights of the day:

Today on the agenda, we have April housing starts and building permits figures. Earlier today, Japan announced a contraction of its GDP in the first quarter, a more violent slowdown than expected.

The dollar is up to EUR 0.9504. The ounce of gold falls back to USD 1814. Oil is firm, with North Sea Brent at USD 113.08 a barrel and U.S. light crude WTI at USD 111.12. The yield on 10-year U.S. debt rises back to 2.96%. Bitcoin is trading below USD 30,000.

 

On markets:

* Target - The retailer's stock fell 25% this morning after announcing a quarterly profit cut in half by rising prices and a warning of the risk of a further deterioration of margins. Consumers staples companies such as Best Buy and Costco are down in its wake.

* Lowe's Companies - The No. 2 U.S. home improvement retailer behind Home Depot reported a larger-than-expected 4 percent decline in same-store sales in the first quarter of its fiscal year on Wednesday and reaffirmed its annual forecast, while Home Depot raised its forecast Tuesday. The stock was down 1.6% in premarket trading.

* The Boeing Company - Investigators looking into the cause of the crash of a China Eastern Airlines Boeing 737-800 in March are studying the crew's behavior and have no evidence of a technical malfunction, two sources close to the case said.

* Microsoft will review its licensing terms and encourage more competition from other cloud providers to address complaints about its cloud services, company chairman Brad Smith said Wednesday at a conference in Brussels.

* McDonald's - After ISS, investor advisory firm Glass Lewis recommended Tuesday that McDonald's shareholders vote for the directors put forward by the group at the annual meeting, a setback for activist investor Carl Icahn, who is seeking to have two candidates elected to the board.

* Caterpillar - The earthmoving and construction equipment specialist believes the energy transition can be a growth driver for its mining business, Chief Executive Jim Umpleby said in an interview with Reuters on Tuesday.

* Wynn Resorts - The U.S. Justice Department has filed a lawsuit against Steve Wynn, the casino group's former chief executive, to force him to officially register as an agent of China and accuses him of lobbying on behalf of Beijing in 2017 with then-U.S. President Donald Trump.

 

Analyst recommendations:

  • AeroVironment: RBC Capital Markets upgrades to outperform from sector perform. PT up 22% to $100.
  • Canadian National: BMO Capital Markets upgrades to outperform from market perform. PT up 15% to C$170.
  • Cardinal Health: Evercore ISI upgrades to outperform from inline. PT up 20% to $68.
  • Century Aluminum: Wolfe Research downgrades to peerperform from outperform. PT up 1.5% to $14.
  • Comstock Resources: Piper Sandler downgrades to underweight from neutral. PT down 4.1% to $16.
  • Global Payments: Goldman Sachs initiated coverage with a recommendation of neutral. PT up 22% to $151.
  • Land Securities: Jefferies upgrades from Underperform to Hold, targeting GBp 690.
  • Mercury Systems: RBC Capital Markets upgrades to outperform from sector perform. PT rises 23% to $72.
  • Penn National: Jefferies upgrades to buy from hold. PT rises 58% to $49.
  • Performance Food: Berenberg initiated coverage with a recommendation of buy. PT up 53% to $71.
  • Reckitt: RBC upgrades from sector perform to outperform with a target of GBp 7000.
  • Ventas: Credit Suisse upgrades to outperform from neutral. PT up 11% to $63.
  • VSE: RBC Capital Markets downgrades to sector perform from outperform. PT up 18% to $48.
  • The Home Depot: Truist Securities lowers PT to $375 from $405. Maintains buy rating.
  • Walmart: Truist Securities downgrades PT to $139 from $150. Maintains hold rating.
  • Welltower: Credit Suisse upgrades to outperform from neutral. PT up 12% to $100.
  • WH Smith: J.P. Morgan upgrades to overweight from neutral. PT up 26% to 1,900 pence.

© MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
AEROVIRONMENT, INC. 0.81% 83.74 Delayed Quote.33.94%
BEST BUY CO., INC. 0.98% 69.1 Delayed Quote.-31.12%
CANADIAN NATIONAL RAILWAY COMPANY -2.67% 144.67 Delayed Quote.-4.88%
CARDINAL HEALTH, INC. 0.43% 52.66 Delayed Quote.1.48%
CATERPILLAR INC. 4.25% 179.4319 Delayed Quote.-16.65%
CENTURY ALUMINUM COMPANY 7.26% 7.36 Delayed Quote.-58.70%
COMSTOCK RESOURCES, INC. 5.30% 11.7 Delayed Quote.40.17%
COSTCO WHOLESALE CORPORATION -0.18% 491.48 Delayed Quote.-13.22%
GLOBAL PAYMENTS INC. 0.35% 113.745 Delayed Quote.-16.15%
LAND SECURITIES GROUP PLC 3.13% 682 Delayed Quote.-14.92%
LOWE'S COMPANIES, INC. 0.79% 180.325 Delayed Quote.-30.41%
MCDONALD'S CORPORATION 0.97% 253.7899 Delayed Quote.-5.89%
MERCURY SYSTEMS, INC. 0.98% 63.57 Delayed Quote.14.87%
MICROSOFT CORPORATION -0.23% 265.72 Delayed Quote.-20.85%
PENN NATIONAL GAMING, INC. 0.85% 31.3975 Delayed Quote.-37.69%
PERFORMANCE FOOD GROUP COMPANY 1.81% 47.025 Delayed Quote.0.54%
RECKITT BENCKISER GROUP PLC -1.82% 6244 Delayed Quote.0.32%
TARGET CORPORATION 1.17% 146.565 Delayed Quote.-37.04%
THE BOEING COMPANY 2.09% 139.2999 Delayed Quote.-31.60%
THE HOME DEPOT, INC. -0.31% 282.67 Delayed Quote.-31.67%
VENTAS 0.64% 51.31 Delayed Quote.-0.14%
VSEOBECNA UVEROVA BANKA, A.S. 0.00% 157 End-of-day quote.0.00%
WALMART INC. -0.19% 124.89 Delayed Quote.-14.13%
WELLTOWER INC. 0.24% 81.72 Delayed Quote.-3.98%
WH SMITH PLC 1.51% 1383.5 Delayed Quote.-8.01%
WYNN RESORTS, LIMITED 2.53% 57.29 Delayed Quote.-34.34%
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