In early Friday action, the yield on the 10-year Treasury was rising and Nasdaq 100 futures were falling.
That’s been the pattern over the last month. After a very close connection since the pandemic began, inflation-adjusted yields have kept climbing, but the Nasdaq 100 has suffered. That makes sense given the rich valuation tech stocks enjoy — when safe bonds offer more than crumbs as return, they present an investment alternative to stocks.
So analysts are now modelling just how far techs could fall if bond yields keep rising. Joe Kalish, chief global macro strategist at Ned Davis Research, says the Nasdaq 100 could fall 20% from its peak if the 10-year Treasury reaches 2%. (The index is already down 6% from its peak.)
Kalish’s calculation depends on other relationships holding steady. He says earnings yields and forecasted corporate bond yields have moved in tandem since 2014. A 2% 10-year Treasury would likely cause the bond yields on Baa-related bonds — the lowest investment-grade rating — to reach 4.5%, requiring a 20% drop in the Nasdaq 100 to keep that relationship consistent.
Strategists at French bank Societe Generale tend to agree. They’ve looked at the theoretical impact of a rise in bond yields, at different price-to-equity ratios. Given that the Nasdaq Composite is trading on 31.5 times earnings, according to FactSet data, the chart shows the impact could be steep.
That said, most notable is that Kalish remains bullish on stocks even with those risks. He looked at another measure of valuation, using Census Bureau data on cash-flow margins. “As cash flow has improved since the early 1990s and the cost of capital has fallen with interest rates, the economic margin has risen,” he writes. Right now, that margin is above its 5-year average. In the U.S., the firm is recommending small caps over large caps and value over growth.
The buzz
The $1,400 stimulus checks from the $1.9 trillion relief package signed into law by President Joe Biden could arrive as early as this weekend. Biden set a May 1 target for all adults to be eligible to receive vaccines.
Novavax
NVAX,
+8.77%
will be in the spotlight after the biotech said a completed late-stage clinical study showed that its vaccine candidate was 96.4% effective against “mild, moderate, and severe disease caused by the original COVID-19 strain.” Thailand delayed the rollout of the AstraZeneca
AZN,
-2.29%
vaccine, joining Scandinavian countries including Denmark, over blood clot concerns. Italy reportedly will impose a lockdown over the Easter weekend, according to wire service reports citing a draft decree.
China is planning ways to tame e-commerce giant Alibaba
BABA,
+2.77%,
according to The Wall Street Journal. China also fined 12 tech companies including Baidu
BIDU,
+6.76%
and Tencent
700,
-4.41%
for alleged antitrust violations.
Electronic signature company DocuSign
DOCU,
+5.90%
topped revenue and earnings expectations for its latest quarter and delivered a better-than-expected outlook on those metrics.
Producer price and consumer sentiment data highlight the economics calendar.
The markets
The yield on the 10-year Treasury
TMUBMUSD10Y,
1.594%
rose as high as 1.61% — surprising analysts given the successful auction of bonds of that maturity earlier in the week.
Stock futures
ES00,
-0.29%,
particularly on the Nasdaq 100
NQ00,
-1.30%,
slumped. Gold futures
GC00,
-1.12%
fell by around $20 per ounce.
Random reads
There’s a bull market in twins — with the birth rate up by a third since the 1980s.
Scientists want to send 6.7 million sperm samples to the Moon as a global insurance policy.
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European stocks traded higher on Thursday ahead of a European Central Bank decision, as investors celebrated an easing in bond yields.
Up six of the last eight sessions, the Stoxx Europe 600
SXXP,
+0.26%
edged up 0.2%.
The yield on the U.S. 10-year Treasury
TMUBMUSD10Y,
1.491%
fell below 1.5% for the first time in a week after U.S. core consumer prices saw a muted rise in February, taking air out of the fears of inflation that had recently worried traders. ECB President Christine Lagarde is to further explain the central bank’s worry that rising bond yields could interfere with monetary policy, at a news conference following the policy decision.
“While we do not expect the central bank to announce new measures, ECB President Christine Lagarde will strike a dovish tone, emphasizing the flexibility embedded in its pandemic QE [quantitative easing] program to front-load asset purchases as needed,” said economists at research service TS Lombard.
U.S. stock futures
ES00,
+0.73%
were stronger, particularly the technology-heavy Nasdaq-100
NQ00,
+1.81%,
which closed lower on Wednesday.
In Europe, tech stocks including microchip equipment maker ASML
ASML,
+2.64%,
technology investor Prosus
PRX,
+2.68%
and microchip maker Infineon Technologies
IFX,
+3.23%
advanced.
Banks including HSBC
HSBA,
-1.98%
and Barclays
BARC,
-1.53%
traded lower as yields fell.
Also read: Eurozone banks are showing life after 15 rough years. Will the ECB snuff out the rally?
Engine maker Rolls-Royce
RR,
+2.08%
rose 1%. The struggling company, which reported an underlying £4 billion loss in 2020, says it expects to be free cash flow positive in the second half of the year.
The Utah Jazz have been winning a lot this season, but not as much as their new owner.
Just look back at three days in late January. The Jazz — which Ryan Smith bought for $1.66 billion late last year — beat the Dallas Mavericks for their 10th win in a row on Jan. 27, the same evening that Qualtrics International Inc.
XM,
+2.83%,
the software company Smith co-founded with his father Scott and brother Jared in 2002, set the price for its $1.55 billion IPO. The next day, Qualtrics shares would soar 52% in their trading debut, giving the software company a market valuation of $27.3 billion; a day later, the Jazz would win their 11th straight, putting them solidly at the top of the NBA standings.
So it’s good to be Ryan Smith. At the NBA All-Star break, the Jazz have a league-best record of 27-9. At the same time, Qualtrics is a major mover in a market estimated to be worth $60 billion, and topped Wall Street estimates for earnings and sales in its first quarterly results as a publicly traded company Tuesday.
The combination of a successful basketball team and another large, publicly traded tech company are helping to secure an even loftier goal for Smith: Making the Utah region known for something more than majestic mountains and the Church of Jesus Christ of Latter-day Saints.
“His goals and objectives have never been anything but over the top,” Todd Pedersen, CEO of Vivint Smart Home Inc.
VVNT,
+0.40%,
told MarketWatch.
Qualtrics got its start in the Smith’s basement, which is near Pedersen’s home. And it’s not just Smith and Pedersen who are neighbors — their companies are right next to one another as well. And they can now watch the NBA team that Smith owns play at an arena that bears the name of Pedersen’s company, as they recently did for a nationally-televised Jazz game against the defending champion Los Angeles Lakers.
The Jazz won.
Handling double duties
Smith sits in a position occupied by few in the history of corporate America: head of a publicly traded company, and owner of an unrelated sports franchise. There is no such owner in the National Football League, Major League Baseball nor the National Hockey League, though Wayne Huizenga once owned franchises in all three while leading Blockbuster Video.
The NBA seems more willing to welcome public-company executives to its ranks, even while denying bids from Oracle Corp.’s
ORCL,
-0.10%
co-founder Larry Ellison. Another recent majority owner is Alibaba Group Holding Ltd.’s
BABA,
-1.34%
co-founder and Executive Vice Chairman Joseph Tsai, who snapped up the Brooklyn Nets for a record $2.35 billion in 2020. The reclusive Robert Pera, CEO of Ubiquiti Inc.
UI,
-0.68%,
is also owner of the Memphis Grizzlies.
Vivek Ranidive was still chief executive of Tibco Software Inc. when he led a group that bought the Sacramento Kings in 2013, and Miami Heat owner Micky Arison led Carnival Cruise Inc. for more than a decade while leading his franchise. In Pera’s first attempt to buy into the NBA, a bid for the Philadelphia 76ers, he was topped by a group that included AMC Entertainment Holdings Inc.
AMC,
+1.92%
CEO Adam Aron, who also served as CEO of the Sixers for the first two years the group owned the team.
Read more: 5 things to know as Qualtrics prepares for its IPO this week
Smith has adroitly navigated the corporate and professional sports worlds by delegating day-to-day operations at each organization.
“As executive chairman, my job during the day is running Qualtrics with [Chief Executive] Zig [Serafin]. My job with the Jazz is at night, and I leave it to the coaches, players, and executives in charge of the team,” Smith told MarketWatch. “The product is proof of their abilities.”
At Qualtrics, CEO Zig Serafin and Smith are self-described “co-builders” of a company that has grown in the four-and-a-half years since Serafin joined as chief operating officer. (Serafin, who was named CEO nine months ago, says he and Smith are “joined at the hip” in their vision.) During that time, Qualtrics has expanded employees (from 1,100 to 3,500), customers (3,000-4,000 to 13,500), and revenue (from less than $200 million annually to $763.5 million last year, the company reported Tuesday).
As the NBA’s newest owner, “One of Ryan’s leadership styles is to delegate. He lets people think big, but by doing so through smart decisions,” Jim Olson, president of the Utah Jazz, told MarketWatch.
To that end, the Jazz use Qualtrics’ data analytics technology to improve team performance on the court and off, down to traveling, sleep, and diet for players and coaching staff.
The rise of Silicon Slopes
Illustrated by Terrence Horan
Such partnerships have fueled not just the success of the Jazz and Qualtrics but the larger Salt Lake City-Provo-Orem area.
“The Jazz and Sundance [Film Festival] are the two most identifiable brands in this state, and Ryan is smartly leveraging the Jazz for global reach,” says Domo Inc.
DOMO,
+1.20%
CEO Josh James, who coined the term “Silicon Slopes” for the region and started the non-profit organization of the same name. “Ryan Smith used to be just another successful tech founder,” he said. “Now he is universally known as Ryan Smith, owner of the Jazz. This is a much larger megaphone and platform for the community.”
For example, the Jazz use Qualtrics software to collect and analyze fan data to improve their experience at home games on everything from concessions and apparel to parking and in-game entertainment. The two organizations have also teamed on 5 For The Fight, a nonprofit that invites everyone to give $5 for the fight against cancer. It is the Jazz’s official jersey patch, a rarity in the corporate-skewed NBA.
The winning ways of Smith and Qualtrics, amid a wave of freshly minted unicorns in the Salt Lake City region, underscores the rise of Silicon Slopes as one of a handful of regions in the U.S. to successfully mold itself after Silicon Valley. From the days of computer-networking pioneer Novell Inc. and word-processing maker WordPerfect Corp. in the 1980s, Utah has stood out as a tech outpost, albeit in the shadow of Silicon Valley and Seattle, but its recent string of triumphs has considerably raised its profile.
Indeed, the Provo-Orem area was deemed the best regional economy in America, according to rankings released in February by the Milken Institute.
Even COVID-19 hasn’t dampened the state’s can-do mindset.
Utah has among the most-open vaccination criteria in the nation. Starting in early March, anyone 50 and over is eligible for a jab—as well as those 16 and older with pre-existing conditions. By emphasizing “speed over perfection,” Nomi Health Inc. CEO Mark Newman says, the state has been able to send kids back to school since September, reduce the unemployment rate of 3% to a pre-pandemic level, and attain a budget surplus.
“The states that figure it out will have a long-tale of success over those states that don’t,” said Newman, whose direct healthcare company is partnering with the state of Utah and Qualtrics in bringing mass testing sites and vaccinations.
“Utah as a state has a get-it-done attitude,” says Newman, who moved to the state in 1993. “That goes back to Utah’s pioneer roots.”
James says Utah’s tech history can be divided into three phases: The first in the late 1980s and early ‘90s led by Novell and WordPerfect; a second in the late 1990s and 2000s, with internet plays Overstock Inc.
OSTK,
-2.18%,
Omniture (acquired by Adobe Systems Inc.
ADBE,
+0.69%
), Altris Corp. (bought by then-Symantec Corp.), Iomega (acquired by then-EMC Corp.), and dozens of companies that were sold for millions each; and the current one of big independent enterprise companies like Qualtrics and Domo, and consumer plays like Vivint.
“A giant crop of companies are coming behind us,” James said, mentioning such unicorns as MX Technologies Inc., Lucid Software Inc. and DivvyPay Inc. “This feels like Silicon Valley in the ‘90s. It’s a really exciting time.”
“Silicon Slopes is doing great, building off the great history of [tech pioneers] Novell and WordPerfect in the state,” Steve Case, the co-founder of AOL who now leads venture-capital firm Revolution, told MarketWatch. The latest iteration, he added, is the byproduct of the region’s focus on enterprise technology and “strong collaboration in building a community.”
Overstock CEO Jonathan Johnson credits Utah’s “rich entrepreneurial spirit” to a “business-friendly environment where constant innovation, great employment opportunities, and real technological advancement are present.”
“Utah is a mixing bowl of cultures,” says Serafin, whose previous stop was 17 years in Redmond, Wash., all of them at Microsoft Corp.
MSFT,
-0.10%.
“Utah is close to the coast, and San Francisco and Los Angeles. It’s not much different than Silicon Valley folks who moved to Nevada.”
An ‘interesting journey’
In a state increasingly bustling with unicorns, none arguably have been hotter than Qualtrics, which went public in late January.
The company’s XM tracker stands for experience management, a software category that Qualtrics coined. Qualtrics, whose software lets businesses gauge how customers use their products so those products can be improved, has about 13,000 customers from about 9,000 two years ago. The company’s sales jumped 30% in the first three quarters of 2020 to $550 million, from $413.4 million a year earlier.
Smith’s “rare and unique ability to spot markets before they exist” gave him an vision of the experience economy that has helped evolve the way enterprises think about culture, brand, products, and people,” says ServiceNow Inc.
NOW,
-1.32%
CEO Bill McDermott, who was previously CEO of SAP
SAP,
-0.10%
when it owned Qualtrics.
Read more: 5 things to know as Qualtrics prepares for its IPO this week
Smith co-founded Qualtrics with his father and brother in 2002. On the cusp of going public in 2018, Qualtrics was acquired by SAP for $8 billion, making it the largest private enterprise-software acquisition in tech history when the deal closed in early 2019.
“It’s been an interesting journey,” Smith says. “For one-and-a-half to two years with SAP, they took our name everywhere while keeping our company independent and keeping the management team together, which is rare. It retained our culture, with an option to IPO.”
“To be in this spot as a public company, so many things had to go right,” Smith said. “It’s freakin’ incredible.”
We are well into tax season. But if you’re a busy self-employed sole proprietor, partner, or LLC member, you might not have gotten around to filing your 2020 Form 1040. If so, you are forgiven. The good news: if you’ve stayed on the sidelines so far, it could actually turn out in your favor — because there are some new tax breaks that you may be blissfully unaware of. Here’s the story on two important ones. Take advantage if you can.
Defer some self-employment tax
If you’re self-employed, you know that the self-employment (SE) tax can take a big bite out of your wallet every year. Ouch. Thankfully, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows you to defer half of your 2020 liability for the 12.4% Social Security tax component of the SE tax for the deferral period. The deferral period began on 3/27/20 and ended on 12/31/20. You must then pay the deferred SE tax amount in two installments:
Half by 12/31/21
The remaining half by 12/31/22
If you’re cash-strapped, this can be a very helpful deal, and you should take full advantage.
If you owe the maximum $17,075 for the 2020 Social Security tax portion of the SE tax, it works out that you can potentially defer up to half of that amount, or $8,537. You would then pay in $4,268.50 by 12/31/21 and the remaining $4,268.50 by 12/31/22.
Tax-saving tip: Fill out Part III of Schedule SE to calculate the exact amount that you can defer. Then carry the deferred amount to Schedule 3 of Form 1040 where it’s treated as a credit that reduces your 2020 federal income tax liability on page 2 of your return. Done.
Claim tax credits for COVID-19-related sick leave and family leave taken last year
The Families First Coronavirus Response Act (FFCRA) granted two separate 2020 federal tax credits to small employers to cover: (1) mandatory payments to employees who took time off between 4/1/20 and 12/31/20 under the FFCRA’s COVID-19-related emergency sick leave provisions and (2) mandatory payments to employees who took time off between those dates under the FFCRA’s emergency family leave provisions.
Somewhat surprisingly, equivalent tax credits are available to you as a self-employed individual if you took days of qualified sick leave or qualified family leave between 4/1/20 and 12/31/20. In effect, you can claim credits for amounts that you paid to yourself for: (1) qualified sick leave days and (2) qualified family leave days. Nice. Here’s what you need to know to cash in.
Sick leave credit details
The sick leave credit is allowed for sick leave days that you took between 4/1/20 and 12/31/20. The daily sick leave credit equals: (1) 100% of the daily sick-leave equivalent amount plus (2) 67% of the daily sick-leave equivalent amount if you took leave to care for a sick person or to care for an under-age-18 son or daughter following the closing of the child’s school or place of care or because the childcare provider for the child was unavailable due to COVID-19 precautions.
The daily sick-leave equivalent amount equals the lesser of: (1) your average daily self-employment income or (2) $511 per day for up to 10 sick days (up to $5,110 in total) to care for yourself or $200 per day for up to 10 days (up to $2,000 in total) to care for another sick person or to care for an under-age-18 son or daughter for any of the aforementioned reasons.
Average daily self-employment income means your net self-employment earnings for 2020 divided by 260.
Family leave credit details
The separate family leave credit is allowed for family leave days that you took to care for an under-age-18 son or daughter between 4/1/20 and 12/31/20 following the closing of the child’s school or place of care or because the childcare provider for the child was unavailable due to COVID-19 precautions.
You can claim the family leave credit for a maximum of 50 days. The allowable credit equals the number of qualified family leave days multiplied by the lesser of (1) $200 or (2) your average daily self-employment income.
The maximum total family leave credit is $10,000 (50 days × $200 per day).
Once again, average daily self-employment income means your net self-employment earnings for 2020 divided by 260.
Keep documentation
You should maintain documentation to establish your eligibility for these credits. According to the IRS website:
If you took sick leave days for yourself based on a quarantine order or advice to self-quarantine, document the name of the governmental entity ordering quarantine or the name of the health care professional who advised self-quarantine. If you took sick leave days to care for another person who was subject to quarantine or advised to self-quarantine, document the other person’s name and relationship to you.
If you took family leave days to care for an under-age-18 son or daughter due to a school closing or child care facility closing or child care provider unavailability, document the name and age of the child; the name of the school, summer camp, summer enrichment program, or other summer program that was closed; or the child care facility that was closed; or the child care provider who was unavailable. Be prepared to state that no other person cared for the child during the days you took family leave.
Tax-saving tip: These two credits are so-called refundable credits. That means you can collect them even if you don’t have any federal income tax liability for 2020. But you must file your 2020 Form 1040 to cash in. First, calculate the credits on new IRS Form 7202 (Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals). Then carry the credits to Schedule 3 of Form 1040 where they are treated as refundable credits on page 2 of your Form 1040.
Another tax-saving tip: You can elect to use your 2019 net self-employment earnings to calculate your average daily self-employment income for purposes of calculating these credits. Do that if it would result in bigger credits. To make the election, simply enter the larger 2019 amount of net earnings from self-employment on Form 7202.
The bottom line
The COVID-19 pandemic, its economic fallout, and available federal income tax relief can make your 2020 Form 1040 a whole new ballgame. This column addresses two important considerations for self-employed individuals, but there are more. Your tax professional can work with them to optimize your tax-saving results for a year we would all like to forget.
Shares of GameStop Corp. shot higher again Tuesday, closing at its highest point since the end of January and pushing its market cap back above $17 billion.
After plunging about 90% from its highs of the meme-stock-buying frenzy in January, GameStop stock
GME,
+26.94%
has skyrocketed more than 108% in the past five trading sessions, including Tuesday’s 27% gain. Shares closed Tuesday’s regular session at $246.90, off from a record close of $347.51 on Jan. 27, and were up another 3% in after-hours trading.
GameStop shares are up more than 1,200% year to date, and more than 5,700% over the past 12 months.
Shares started spiking again Monday after GameStop announced a new strategy committee to identify ways to accelerate its transformation, which will be led by activist investor and Chewy Inc.
CHWY,
+5.37%
co-founder Ryan Cohen.
Late Tuesday, GameStop said it will report fourth-quarter and fiscal-year earnings after the market closes March 23.
Earlier in the day, the Senate Banking Committee started hearings into financial speculation and the easy-trading practices of Robinhood and other zero-commission firms that, combined with chatter from Reddit forums, helped fuel the historic buying of heavily shorted stocks — such as GameStop and AMC Entertainment Holdings Inc.
AMC,
+13.02%
— earlier this year.
China-based government hackers have exploited a bug in Microsoft’s email server software to target U.S. organizations, the company said Tuesday.
Microsoft
MSFT,
-1.30%
said that a “highly skilled and sophisticated” state-sponsored group operating from China has been trying to steal information from a number of American targets, including universities, defense contractors, law firms and infectious-disease researchers.
Microsoft said it has released security upgrades to fix the vulnerabilities to its Exchange Server software, which is used for work email and calendar services, mostly for larger organizations that have their own in-person email servers. It doesn’t affect personal email accounts or Microsoft’s cloud-based services.
The company said the hacking group it calls Hafnium was able to trick Exchange servers into allowing it to gain access. The hackers then masqueraded as someone who should have access and created a way to control the server remotely so that they could steal data from an organization’s network.
Microsoft said the group is based in China but operates from leased virtual private servers in the U.S., which helps it avoid detection.
The company declined to name any specific targets or say how many organizations were affected.
Reston, Virginia-based cybersecurity firm Volexity, which Microsoft credits for helping to detect the intrusions, said its network security monitoring service began picking up on a suspiciously large data transfer in late January.
“They’re just downloading email, literally going to town,” said Steven Adair, Volexity’s president, who said the targets have included “defense contractors, international aid and development organizations, the NGO think-tank community.”
Adair said he’s concerned that the hackers are going to accelerate their activity in the coming days before organizations are able to install Microsoft’s security upgrades.
“As bad as it is now, I think it’s about to get a lot worse,” he said. “This gives them a limited amount of opportunity to go and exploit something. The patch isn’t going to fix that if they left their backdoor behind.”
Shares of Rocket Companies Inc.
RKT,
+60.45%
blasted 74.4% higher on very heavy volume in afternoon trading Tuesday, enough to pace all gainers on major U.S. exchanges, and put them on track for a record close. Trading volume was 306.4 million shares, compared with the full-day average of about 13.0 million shares over the past 30 days. The real estate services company, with brands including Rocket Mortgage and Rocket Homes, did not immediately respond to a request for comment. The stock is headed for the biggest one-day gain since it went public on Aug. 6, 2020, while volume nearly triple the previous record 111.6 million shares on Aug. 6. The stock has now skyrocketed 113.6% over the past three days, since the company reported better-than-expected fourth-quarter earnings and announced a special dividend of $1.11 a share. S3 Analytics said there has been a “large amount of short selling” into the stock’s (RKT) recent rally, with short interest interest increasing to 47.9 million shares, or 45.8% of the public float. “RKT’s stock price and short selling activity is reminiscent of another recent highflying ‘meme’ stock — GameStop Inc.
GME,
-1.07%,
” wrote Ihor Dusaniwsky, managing director of predictive analytics at S3 in a note to clients. The stock has now rallied 110.8% over the past three months, while the S&P 500
SPX,
-0.46%
has tacked on 5.9%.
Medical device, diagnostics and generic drug maker Abbott
ABT,
+2.03%
said Tuesday a team of scientists has found an unusually high number of people in the Democratic Republic of Congo (DRC) with controlled HIV and said they could be a key to advancing therapies, or even developing a vaccine. The people in question test positive for HIV antibodies, but have low to non-detectable viral load counts, without using antiretroviral treatment, Abbott said in a statement. The findings were published in EbioMedicine, part of the prestigious medical journal The Lancet. They “may help researchers uncover biological trends within this population that could lead to advancements in HIV treatments — and potentially vaccines,” said the statement. Researchers from Abbott, working with Johns Hopkins University, the National Institute of Allergy and Infectious Diseases, the University of Missouri-Kansas City and the Université Protestante au Congo found the prevalence of HIV elite controllers was 2.7% to 4.3% in the DRC, compared with 0.1% to 2.0% worldwide. “The finding of a large group of HIV elite controllers in the DRC is significant considering that HIV is a life-long, chronic condition that typically progresses over time,” said Tom Quinn, M.D., director of Johns Hopkins Center for Global Health, and chief of the International HIV/AIDS Research Section of the NIAID. “There have been rare instances of the infection not progressing in individuals prior to this study, but this high frequency is unusual and suggests there is something interesting happening at a physiological level in the DRC that’s not random.” Abbott shares were slightly higher premarket, but have gained 50% in the last 12 months, while the S&P 500
SPX,
+2.38%
has gained 26%.
U.S. stocks have started the week in strong fashion, as bond yields eased from last week’s highs early on Monday.
Two positive developments over the weekend have also buoyed investors: The U.S. House passed the Biden administration’s $1.9 trillion pandemic-relief package on Saturday before the Food and Drug Administration granted emergency authorization to Johnson & Johnson’s
JNJ
COVID-19 vaccine — the first single-shot dose available to Americans.
The price of bitcoin
BTCUSD
rose more than 5% to $47,691 on Monday, as it regained ground following the cryptocurrency’s worst week of the year last week, having climbed to a record high of $58,332 the previous weekend.
In our call of the day, Citi analysts said bitcoin was at a “tipping point” between mainstream acceptance or a “speculative implosion.” But recent developments, including electric-car maker Tesla’s
TSLA
$1.5 billion investment and moves by PayPal
PYPL,
Visa
V
and Mastercard
MA
to accept payments, pointed toward the former.
The analysts, led by Citi GPS managing editor Kathleen Boyle, noted there was a “host of risks and obstacles” standing in the way of the cryptocurrency’s progress.
“But weighing these potential hurdles against the opportunities leads to the conclusion that bitcoin is at a tipping point and we could be at the start of massive transformation of cryptocurrency into the mainstream,” they said.
The report added that bitcoin could eventually become “the currency of choice for international trade,” due to its global reach, neutrality and lack of foreign exchange exposure.
The biggest change in recent years has been the shift from a retail-focused endeavor to “something that looks attractive for institutional investors,” the authors noted.
If recent efforts lead to a central bank-backed digital currency, individuals and businesses would have digital wallets holding a variety of cryptocurrencies just like today, with checking, savings and treasury accounts, they said. “In this scenario bitcoin may be optimally positioned to become the preferred currency for global trade,” they added.
However, obstacles ahead along that path include upgrades to the marketplace and the potential for the cryptocurrency space to move closer to the oversight and rules of traditional financial regulators, Citi noted.
The markets
U.S. stocks made significant early gains, with the Dow Jones Industrial Average
DJIA
2%, or 620 points, higher shortly after the open. The S&P 500
SPX
and the Nasdaq Composite
COMP
were also up. European stocks climbed and Asian markets moved higher overnight on hopes for Biden’s U.S. stimulus package and following last week’s selloff.
The buzz
Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, said he would have “no hesitancy whatsoever” to take Johnson & Johnson’s COVID-19 vaccine, and that all three vaccines available to Americans were “highly efficacious.”
Reddit Chief Executive Steve Huffman reiterated his praise for the WallStreetBets forum that has sent Wall Street “meme stocks” reeling in recent weeks. Huffman said the community “exposed a gap” between those who have access to the financial markets and those on the outside.
U.K. home builders surged on Monday, on reports the government will try to boost homeownership with a new mortgage guarantee.
Cruise operator Royal Caribbean Group said it has commenced a $1.5 billion public stock offering.
Ladbrokes owner Entain
UK:ENT
said it has raised its offer for rival Swedish sports betting company Enlabs.
At the Golden Globe Awards, “The Crown,” “Schitt’s Creek” and “Nomadland” were among the big winners.
Random reads
Actor Ben Stiller’s baked trophy and other Golden Globes highlights.
Doctor appears in court video call while performing surgery.
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After a frenetic February, investors are probably hoping that March holds true to its proverb: In like a lion out like a lamb.
Indeed, February turned out to be a doozy, with benchmark bond yields, represented by the 10-year Treasury note
TMUBMUSD10Y,
1.415%
and the 30-year long bond
TMUBMUSD10Y,
1.415%,
ringing up their biggest monthly surges since 2016, according to Dow Jones Market Data.
The move was a stark reminder to investors that bonds, considered mundane and straight-laced by some investors, can wreak havoc on the market all the same.
A final flurry of trading, some $2.5 billion in sales near Friday’s close, created a major downside drag for stocks in the final few minutes of the session and may imply that there may be more air pockets ahead before the market steadies next week.
The Dow Jones Industrial Average
DJIA,
-1.50%
and S&P 500 index
SPX,
-0.48%
barely held above their 50-day moving averages, at 30,863.07 and 3,808.40, respectively, at Friday’s close.
‘An associated 10-20% sell-off in US equities would also focus minds. But before then, the pain currently being handed out to growth-tilted equity portfolios could get worse.’ Citigroup strategists
“The turmoil is probably not over,” wrote Independent market analyst Stephen Todd, who runs Todd Market Forecast, in a daily note.
Yet, for all the bellyaching about yields running hotter than expected, stocks in February still managed to bang out solid returns. For the month, the Dow finished up 3.2%, the S&P 500 notched a 2.6% gain in February, while the Nasdaq eked out a 0.9% return, despite a 4.9% weekly loss put in on Friday that marked the worst weekly skid since Oct.30.
Many have made the case that a selloff in the technology-heavy Nasdaq Composite was inevitable, especially with buzzy stocks like Tesla Inc.
TSLA,
-0.99%
only getting frothier by some measures.
“But the market has been overbought and extended all year and arguably for several months in late-2020,” wrote Jeff Hirsch, editor of the Stock Trader’s Almanac, in a note dated Thursday.
“After the big run-up in the first half of February folks have been looking for an excuse to take profits,” he wrote, describing February as the weak link in what’s usually the best six-month period of gains for the stock market.
The beneficiaries of the recent move in yields so far appear to be banks, which are benefitting from a steeper yield curve as long dated Treasury yields rise, and the S&P 500 financials sector
SP500.40,
-1.97%
XLF,
-1.91%
finished down 0.4%, which is, as it turns out, was the second-best weekly performance of the index’s 11 sectors behind energy
SP500.10,
-2.30%,
which surged 4.3%.
Utilities
SP500.55,
-1.86%
were the worst performer, down 5.1% on the week and consumer discretionary
SP500.25,
+0.58%
was second-worst, off 4.9%.
In February, energy logged a 21.5% gain as crude oil prices rose, while financials rose 11.4% on the month, booking the best and second-best monthly performances.
So what’s in store for March?
“Typical March trading comes in like a lion and out like a lamb with strength during the first few trading days followed by choppy to lower trading until mid-month when the market tends to rebound higher,” Hirsch writes.
March also sees “triple witching: occur on the third Friday, when stock options, stock-index futures and stock-index option contracts expire simultaneously.
Ultimately, seasonal trends suggest that March will be wobbly and could be used as an excuse for further selling, but on that downturn may be cathartic and give way to further gains in the spring.
“Further consolidation is likely in March, but we expect the market to find support shortly and subsequently challenge the recent highs again,” writes Hirsch, noting that April is statistically the best month of the year.
Stock Trader’s Almanac
Looking beyond seasonal trends, it isn’t certain how the rise in bond yields will play out and ultimately ripple through markets.
On Friday, the benchmark 10-year note closed at a yield of 1.459% based on 3 p.m. Eastern close, and hit an intraday peak at 1.558%, according to FactSet data. The dividend yield for S&P 500 companies in aggregate was at 1.5%, by comparison, while the Dow it is 2% and for the Nasdaq Composite is 0.7%.
As to the question of to what degree rising yields will pose a problem for equities, strategists at Citigroup make the case that yields are likely to continue to rise but the advance will be checked by the Federal Reserve at some point.
“It is unlikely that the Fed will let US real yields rise much above 0%, given high levels of public and private sector leverage,” analysts on Citi’s global strategy team wrote in a note dated Friday titled “Rising Real Yields: What to do.”
Real adjusted yields are typically associated with rates on Treasury inflation-protected securities, or TIPS, which compensate investors based on expectations for inflation.
Real yields have been running negative, which have been arguably encouraging risk taking but the coronavirus vaccine rollouts, with a Food and Drug Administration panel on Friday recommending approval for Johnson & Johnson’s
JNJ,
-2.64%
one-jab vaccine and the prospects for further COVID aid from Congress, are raising the outlook for inflation.
Citi notes that the 10 year TIPS yields dropped below minus 1% as the Fed’s quantitative easing last year was kicked off to help ease stresses in financial markets created by the pandemic, but in the past few weeks the strategists note that TIPs had climbed to minus 0.6%.
Read: Here’s what one hedge fund trader says happened in Thursday’s bond-market tantrum, which sent the 10-year Treasury yield to 1.60%
Citi speculates that the Fed might not intervene to stem disruptions in the market until investors see more pain, with the 10-year potentially hitting 2% before alarm bells ring, which would bring real yields closer to 0%.
“An associated 10-20% sell-off in US equities would also focus minds. But before then, the pain currently being handed out to Growth-tilted equity portfolios could get worse,” the Citi analysts write.
Check out: Cracks in this multidecade relationship between stocks and bonds could roil Wall Street
Yikes!
The analysts don’t appear to be adopting a bearish posture per se but they do warn that a return to yields that are closer to the historically normal might be painful for investors heavily invested in growth stock names compared against assets, including energy and financials, that are considered value investments.
Meanwhile, markets will be looking for more clarity on the health of the labor market this coming Friday when nonfarm payrolls data for February are released. One big question about that key gauge of the health of U.S. employment, beyond how the market will react to good news in the face of rising yields, is the impact the colder than normal February weather have on the data.
In addition to jobs data, investors will be watching this week for manufacturing reports for February from the Institute for Supply Management and construction spending on Monday. Services sector data for the month are due on Wednesday, along with a private-sector payroll report from Automatic Data Processing.
Read: Current bond-market selloff worse than ‘taper tantrum’ in one key way, argues analyst
Also read: 3 reasons the rise in bond yields is gaining steam and rattling the stock market
