Tuesday, June 29, 2021
The Krispy Kreme Indicator
In this week’s LPL Market Signals podcast, LPL Research discusses why stocks have been choppy in typical fashion for year two of a bull market, with many worries creeping in and the upcoming Krispy Kreme IPO near the top of the list.
U.S. equities point toward a mixed open after yesterday’s record-setting session for the S&P 500 and Nasdaq Composite.
- The Dow Jones Industrials opened higher this morning as cyclical names continue to lead.
- European equities are higher through midday trading despite concerns about the Delta COVID-19 variant potentially affecting European travel.
- Asian equities closed lower amid concerns from China’s Beige Book survey showing waning confidence along with declining Japan retail sales last month.
Bank stress tests start to bear fruit. The relative strength of the financial sector continues to stabilize following the outcome of the Federal Reserve’s (Fed) latest stress test on Thursday, June 24, 2021.
- The Fed announced that banks were well capitalized and lifted the last of the pandemic-related restrictions on distributing capital to investors.
- The outcome was largely priced in and bank stock performance continues to lag broad financials, but we believe the outcome does provide some upside potential while contributing to the overall outlook for the sector.
- Overnight trading provided a snapshot of the potential impact, as two major financial firms garnered increased investor interest following dividend announcements.
Corporate credit markets are boring and why that’s good for equity investors
- While most of the focus lately has been on the volatility in the Treasury markets, the corporate credit markets continue to tell an encouraging story about the economic recovery.
- Option-adjusted spreads (OAS) represents the compensation for holding risky debt, and corporate credit OAS is a good barometer for the overall health of the economy.
- Both investment grade and non-investment grade companies have seen their borrowing costs fall, suggesting the corporate sector is in good shape.
- Additionally, we haven’t seen the same volatility in corporate credit spreads, which is a good sign that the economic recovery is well underway.
For more on our views of the corporate credit markets and what it is telling us about the economic recovery, please see today’s LPL Research Blog.
Technical update. Large growth stocks offset another day of week breadth to begin the week. The S&P 500 gained 0.2% despite just 41% of index components advancing on the day. The ratio of the Russell 1000 Growth to Value ratio climbed to its highest level since February 19 and crossed back above its 200-day moving average for the first time since February 18.
Three Things That Worry Us. We explore three things that worry us that could make the market more susceptible to a pullback as we enter the second half of 2021. Learn more in this week’s Weekly Market Commentary.
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