Hearts, flowers and CPI data. Get ready for Tuesday. And hell hath no fury like a disappointed Wall Street.
The last time CPI let the markets down — last September — stocks melted down like chocolate. Anything above 5.7% on core U.S. CPI would “put the market on notice that either a 50bp hike is a possibility in the March FOMC, or potentially add another 25bp hike in June,” says Chris Weston, head of research at Pepperstone.
Onto our call of the day, from Goldman Sachs who say they flat forecast for the S&P 500 this year — ending at 4,000 (their short-term target recently went higher) means it’s likely to be a profitable year for stock pickers and active managers. And as recession threats ease, the stock market is increasingly influenced by micro, or company specific factors.
A less macro driven market has in the past meant higher return dispersion — a wide range of returns, with stocks not moving in lockstep. And 43% of stockpicking large cap mutual funds have outperformed their benchmarks year to date, point out a Goldman team led by chief U.S. equity strategist David Kostin.
And a softer economic landing and flat S&P 500 returns, will favor those stock pickers who try to generate more excess return on an investment against with the benchmark — alpha.
As for alpha-generating opportunities, Goldman suggests sniffing around consumer discretionary and information technology.
Goldman scored the companies it thinks will generate alpha based on proportion of returns driven by micro and company specific factors, and how much volatility they might see from returns linked to those factors.
Below is their screen of S&P 500 stocks with the highest scores. However, a cautionary note as the median stock in that list carries a valuation premium to the S&P 500 — 31 times forward price/earnings versus 18 times for the median S&P 500 stock.
Enphase Energy Moderna Align Technology First Solar and Bath & Body Works ranked highest on the list for dispersion scores. Tesla is number 7 on that list.
Goldman also expects further value outperformance in 2023, noting a wide valuation dispersion on that group of stocks — the top quintile from each S&P 500 sector trades at a 160% premium to the cheap bottom. That premium is down from 287% peak in July, but is still extremely elevated, the strategists say.
“Value stocks should outperform as real economic growth reaccelerates and interest rates rise, as our economists expect in their baseline forecasts,” said Kostin and the team.
Stock futures are trading mostly flat, though tech seems ready for a small lift, with Treasury yields and the dollar steady and oil prices slipping.
Binance coin, or BNB, slumped 7% after the New York Department of Financial Servicesordered Paxos Trust to stop creating more of its BUSD token.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
Earnings season is not quite over. Results from Palantir and Avis Budget are coming after the market close. Coca-Cola Applied Materials and Cisco are more highlights this week.
The data calendar is empty for Monday, and apart from CPI data, retail sales, housing data and producer prices will also be in the spotlight this week. Over in the EU, meanwhile, growth is expected to recover faster-than-expected this year, thanks to an easing energy crisis.
Pentagon officials are ruling nothing out– not even UFOs — after a U.S. fighter jet shot down a fourth unidenfied flying object on Sunday. And China says the U.S. has trespassed via 10 balloons over its territory since 2022.
Best of the web
All hail the Kansas City Chiefs, who got a last-minute field goal to beat the Philadelphia Eagles and win their second Super Bowl in four years, likely sparking millions of Super Bowl sickies. But it was a pregnant Rihanna who stole the show.
An anonymous Pakistani man donated $30 million to victims of Turkey/Syria earthquakes a week ago that have killed more than 33,000.
London is losing its crown as a shopping destination. Blame taxes.
The latest blog by the team at Macro Ops, taps into one uneasy conclusion making the rounds right now — that the Russia-Ukraine war is about to escalate in a big way as we near the one-year mark.
Ahead of that, the Macro Ops team is looking at taking a bullish position on Intrepid Potash “IPI is a small U.S.-based potash producer with a call option on Permian basin water rights. The company has a solid balance sheet. The stock trades at 9x FCF. And it has a tiny 9mn share float,” said the Macro Ops team.
These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:
|Bed Bath & Beyond
|APE Entertainment preferred shares
AI creates the hottest man and woman on the planet.
Pennsylvania factory fined after two workers fall into a vat of chocolate.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.