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Risks of Crypto Stablecoins Attract Attention of Yellen, Fed and SEC

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Stablecoins, digital currencies pegged to national currencies like the U.S. dollar, are increasingly seen as a potential risk not just to crypto markets, but to the capital markets as well.

Treasury Secretary

Janet Yellen

is scheduled Monday to hold a meeting of the President’s Working Group on Financial Markets to discuss stablecoins, the Treasury Department said Friday. The group includes the heads of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Ms. Yellen said in a statement.

Stablecoins are a key source of liquidity for cryptocurrency exchanges, their largest users, which need to process trades 24 hours a day. In the derivatives and decentralized finance markets, stablecoins are used by traders and speculators as collateral, and many contracts pay out in stablecoins.

Stablecoins have exploded over the past year as cryptocurrency trading has taken off. The value of the three largest stablecoins—tether, USD Coin and Binance USD—is about $100 billion, up from about $11 billion a year ago.

Jeremy Allaire,

chief executive of the USD Coin issuer, Circle Internet Financial Inc., said the meeting of the president’s working group is a good thing for stablecoins and that he supports developing clear standards. “I think it’s good news,” he said.

Tether Ltd., the issuer of the tether stablecoin, said it looked forward to working with officials to support transparency and compliance. Binance Holdings Ltd., issuer of Binance USD, said it sees the meeting as a positive move. Having regulators involved will bring more legitimacy and clarity to stablecoins, Binance Chief Compliance Officer Samuel Lim said.

Stablecoins and the companies that issue them have been criticized as not being trustworthy.

“There are many reasons to think that stablecoins—at least, many of the stablecoins—are not actually particularly stable,” Boston Federal Reserve President

Eric Rosengren

said in a June speech.

While the startups issuing these stablecoins including Circle and Tether are responsible for assets that make them sizable players in the traditional capital markets, there are no clear rules about how the assets should be regulated to ensure stability.

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Do you think tether poses a potential financial stability risk? If so, what steps should regulators take? Join the conversation below.

In December, the president’s working group released a statement on the regulatory issues concerning stablecoins. Among other things, it suggested that best practices would include a 1:1 reserve ratio and said issuers should hold “high-quality, U.S.-dollar denominated assets” and hold them at U.S.-regulated entities.

Stablecoins operate on the assumption that their reserves are liquid and easily redeemable. Ostensibly, a stablecoin should at all times be redeemable for national currencies, and the amount held in reserve should equal the amount in circulation: currently $64 billion for Tether, $26 billion for USD Coin and $11 billion for Binance USD.

Stablecoin reserves, however, don’t just sit in bank accounts collecting interest. Circle and Tether manage the reserves to provide some level of income.

Neither Circle nor Tether provides a detailed breakdown of where their reserves are invested and the risks users of the tokens are taking. This lack of information has alarmed central bankers and lawmakers in the U.S. and overseas. Binance has said its stablecoin’s reserves are backed 1-1 by U.S. dollars held in custody by the New York-based crypto services company Paxos.

Both Circle and Tether have separately defended the level of information they share with the markets.

Stuart Hoegner,

general counsel at Tether, said the company has a highly liquid portfolio that has been stress-tested. He said the company has a risk-averse approach to managing its reserves and operates in a way to ensure that its dollar peg is maintained.

“Our transparency allows people to decide whether they are happy holding that token or not,” he said.

“
‘Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system.’
”


— Treasury Secretary Janet Yellen

What the companies have disclosed is that they have invested the reserves in corporate debt, commercial paper and other markets that are generally considered liquid, and in cash equivalents.

Tether, according to a report it released earlier this year, held about half of its reserves in commercial paper—short-term loans used by companies to cover expenses. The credit ratings of the commercial paper and whether it came from the U.S. or overseas couldn’t be determined.

In 2019, New York Attorney General Letitia James revealed as part of an investigation that executives of Tether, who also own and operate the exchange Bitfinex, took at least $700 million out of the tether reserve to shore up the balance sheet of Bitfinex.

The case was settled in February. As part of that settlement, Tether agreed to release quarterly reports on the composition of its reserves.

Regulators don’t have to look far for examples of what can go wrong in the world of finance. Money-market funds came under pressure last year during the pandemic-driven selloff and required support from the Fed. Dozens of money-market funds needed to be propped up during the 2008-09 financial crisis to prevent them from “breaking the buck,” or falling under their standard of a $1-a-share net asset value.

Building trust was one of the biggest reasons that Circle decided it would go public, according Mr. Allaire.

“It is about being a public company and being an open and transparent company,” he said in an interview earlier this month.

Write to Paul Vigna at paul.vigna@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Fed Chair Powell grilled by grouchy senators over inflation and climate change

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An economic rebound, rising wages and declining unemployment claims weren’t enough to spare Federal Reserve Chairman Jerome Powell on Thursday from gripes in the Senate.

During testimony before the Senate Banking Committee, Democrats grilled Powell over the central bank’s support for climate change initiatives and its rollback of financial protections, while Republicans questioned Powell on his commitment to controlling inflation.

“Big banks rake in cash – and they spend it on executive compensation and dividends and buybacks, instead of lending in communities or increasing capital to reduce risk,” said committee chairman Sen. Sherrod Brown, D-Ohio. “The Fed should be fighting this trend, protecting our progress from Wall Street greed and recklessness – not making it worse.”

Ranking Member Sen. Pat Toomey, R-Pa., offered criticism for what he views as the Fed’s inaction on inflation.

“The Fed’s policy is especially troubling because the warning siren for problematic inflation is getting louder. Inflation is here, and it’s more severe than most — including the Fed itself — expected,” he said. “Since the Fed has proven unable to forecast the level of inflation, why should we be confident that the Fed can forecast the duration of inflation?”

The barbs from both sides of the aisle may feel unfamiliar to Powell, who has otherwise received praise from lawmakers for acting quickly to flush the U.S. economy with cash as the Covid-19 pandemic forced thousands of businesses to close.

The recent criticism of the Fed and its leader may have less to do with economics and more to do with political posturing. With members of both parties seeking an early edge in the key 2022 midterm elections, Powell may find himself with fewer public allies in Congress.

Federal Reserve Chairman Jerome Powell adjusts his tie as he arrives to testify before a Senate Banking, Housing and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, July 15, 2021.

Kevin Lamarque | Reuters

House Financial Services Committee Ranking Member Patrick McHenry, R-N.C., proved a notable exception on Wednesday, when he supported Powell’s candidacy for a second term.

“You have earned and deserved another term as chair of the Federal Reserve,” he told Powell. “You have proven to be a steady hand throughout this pandemic or ongoing recovery.”

Progressive Democrats may hope to open an avenue for President Joe Biden to nominate a Democrat to lead the central bank. 

Brown and other members of his caucus have pushed Powell to compel lenders to address climate change, reduce income inequality between executives and their employees, and bulk up capital requirements for the nation’s largest banks.

Some, such as Massachusetts progressive Democrat Sen. Elizabeth Warren, argue that the Fed should be led by a chair who proactively seeks to strengthen Wall Street oversight. Those hoping for a Democratic central bank chair have said that Fed Governor Lael Brainard is an excellent option for Biden.

“What I’m looking for is that the Fed’s record over the past four years is one move after another to weaken regulation over Wall Street banks,” Warren told Powell on Thursday.

“There’s no doubt that the banks are stronger today than they were when they crashed the economy in 2008,” she added. “But that’s the wrong standard: The question is whether or not they are strong enough to withstand the next crisis and whether the Fed is tough enough to protect the American economy and the American taxpayer.”

CNBC Politics

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A congressional staffer on one of the relevant committees told CNBC that such criticism should be taken in context, and that the Fed often becomes an easy punching bag for politicians hoping to win reelection with promises of economic reform.

Still, the staffer said that Powell’s handling of the coronavirus crisis has proven his worth and offers Biden a compelling case to keep him around for a second term.

The Fed is “an easy target for when things aren’t going perfectly or when the economy isn’t booming. It’s really easy to turn to the Fed and say, ‘What are you doing to fix this?'” the staffer said.

The staffer added that lawmakers are grateful for the Fed’s leadership throughout the pandemic and that Powell remains well liked by members of both parties on Capitol Hill.

Powell spent much of his time before the House and Senate answering questions about the central bank’s inflation outlook and its plans for its easy monetary policies.

He began his semiannual testimony on Wednesday by saying the Fed is still a ways off from adjusting its monthly billion-dollar purchases of Treasury bonds and mortgage-backed securities, and currently has no plans to edit interest rates.

He seemed to balance that somewhat on Thursday, when he acknowledged to the Senate that “inflation is well above target.” 

Ultimately, the pace of inflation and employment gains will determine when Powell and his colleagues shift the Fed’s monetary stance. Markets tend to gyrate when the Fed telegraphs intentions to tighten monetary policy, so the timing of any potential tapering or interest rate hikes could play a decisive role come November 2022.

“We’ve said that we would begin to reduce our asset purchases when we feel that the economy has achieved substantial further progress measured from last December,” Powell said Thursday. “We’re in active consideration of that now.”

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Business

Dow Jones Erases Losses, Tech Stocks Slide As Powell Defends Fed Policy; Tesla Reverses, AMC Stock Surges

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The Dow Jones Industrial Average briefly dropped 150 points before reversing higher Thursday, as Fed chief Jerome Powell testified in front of the U.S. Senate. Tesla looked to add to two days of losses, while AMC stock surged higher in midday trade.




X



Among the Dow Jones leaders, Apple (AAPL) moved down 0.7% Thursday, while Microsoft (MSFT) also lost 0.7% in today’s stock market. McDonald’s (MCD) broke out past a new buy point Wednesday, but is back below the entry.

Tesla (TSLA) was on track to add to two straight days of losses, falling 0.7% Thursday midday.

Dow Jones stock UnitedHealth (UNH) and investment bank Morgan Stanley (MS) reported earnings ahead of the market open.

Among the top stocks to buy and watch, PayPal (PYPL), Roku (ROKU) and Shopify (SHOP) are in or near new buy zones.

Microsoft, PayPal and Shopify are IBD Leaderboard stocks. Roku is an IBD SwingTrader stock. PayPal was featured in this week’s Stocks Near A Buy Zone column.

Dow Jones Today: Powell Comments

The Dow Jones Industrial Average inched higher Thursday, while S&P 500 lost 0.3%. The tech-heavy Nasdaq declined 0.75% in midday trade.

U.S. Stock Market Today Overview
Index Symbol Price Gain/Loss % Change
Dow Jones (0DJIA) 34900.49 -32.74 -0.09
S&P 500 (0S&P5) 4358.22 -16.08 -0.37
Nasdaq (0NDQC ) 14565.22 -79.73 -0.54
Russell 2000 (IWM) 217.56 -1.31 -0.60
IBD 50 (FFTY) 42.87 +0.06 +0.14
Last Update: 10:30 AM ET 7/15/2021

Federal Reserve Chairman Jerome Powell testified in front of the Senate Banking Committee Thursday, defending the Federal Reserve’s easy money policy. “This is a shock going through the system associated with the reopening of the economy and it’s driven inflation well above 2%, and of course we’re not comfortable with that,” Powell said.

On Wednesday, Powell reassured investors that the Federal Reserve’s easy monetary policies will continue.

Stock Market Rally

The S&P 500 was just shy of record highs Thursday morning, while the Nasdaq looked to snap a two-day slide. The Dow Jones industrials are trading just below the all-time high set in early May.

Wednesday’s Big Picture column noted, “While the IBD outlook for stocks remains in the best-possible shape — namely a confirmed uptrend — some nasty reversals across growth stocks should give readers enough reason to tread carefully with new buys for now.”

For more stock market commentary, check out IBD’s The Big Picture.

Stock Market ETF Strategy And How To Invest

AMC Stock Reverses

AMC Entertainment (AMC) reversed from sharp losses to rally over 6% Thursday midday, on pace to snap a four-day losing streak. Shares breached their 50-day support level during Wednesday’s 15% dive.

AMC stock is more than 50% off its all-time high, which was set back on June 2 at 72.62.

Dow Jones Stocks To Buy And Watch: McDonald’s

Dow Jones restaurant giant McDonald’s is trading below a 238.28 buy point in a flat base, according to IBD MarketSmith chart analysis, after Wednesday’s breakout attempt. Shares were down 0.7% Thursday.

McDonald’s was featured in Friday’s IBD Industry Themes column, along with Chipotle Mexican Grill (CMG). Chipotle stock is in a new buy range.

Dow Jones Earnings: UnitedHealth

Dow Jones health insurer UnitedHealth beat the Street’s earnings and sales estimates early Thursday. Shares turned slightly higher in midday trade.

UNH stock is tracing a cup base with a 426.08 buy point.

Stocks To Buy And Watch: PayPal, Roku, Shopify

IBD Leaderboard stock PayPal is in the 5% buy zone past a cup with handle’s 296.11 buy point following last week’s breakout. The 5% buy area goes up to 310.92. Shares fell 1.4% Thursday and are squarely in buy range.

On June 17, the top payments processor broke out above a 277.96 entry in a cup base and is comfortably above that level. Leaderboard noted the stock’s rising relative strength line is a positive attribute even though it remains off its 2021 high.

According to the IBD Stock Checkup, PayPal stock shows a solid 96 out of a perfect 99 IBD Composite Rating. The IBD Composite Rating identifies stocks with a blend of strong fundamental and technical characteristics.

Roku is trading about 7% away from a cup-with-handle’s 463.09 buy point. Shares lost 1% Thursday. Roku is an IBD SwingTrader stock.

Shopify is still below a 1,552.33 buy point in a cup with handle, according to IBD MarketSmith chart analysis. Shares dropped 1.2% Thursday following Wednesday’s 3.5% sell-off. Shopify is about 6% away from the buy point after last week’s brief breakout attempt.

Stock Market Earnings: Morgan Stanley

Investment bank Morgan Stanley topped second-quarter forecasts early Thursday. Despite the earnings beat, shares rallied more than 1% in midday trade.

Morgan Stanley stock is approaching a flat base’s 94.37 buy point.

IBD Live: A New Tool For Daily Stock Market Analysis

Tesla Stock

Tesla stock rallied 0.3% Thursday morning, on pace to rebound from two straight days of losses. The electric-vehicle giant could be set for another test of support at its key 50- and 200-day moving averages. Another strong show of support at these levels would be bullish for the stock’s prospects.

On Jan. 25, Tesla stock hit a record high at 900.40, after climbing as much as 93% from a 466 buy point in a cup with handle.

Dow Jones Leaders: Apple, Microsoft

Among the top Dow Jones stocks, Apple lost 0.7% Thursday, giving back a bit of Wednesday’s 2.4% advance. The stock hit another all-time high in morning trade.

Apple stock is extended past the 5% buy zone from a 137.17 entry in a cup base, according to IBD MarketSmith chart analysis.

Microsoft continues to trade solidly above a cup base’s 263.29 buy point. Shares lost 0.7% Thursday and are extended. The 5% buy zone goes up to 276.45.

Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the Dow Jones Industrial Average.

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Business

Jay Powell says Fed ready to intervene if US inflation spirals out of control

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Jay Powell, the chair of the Federal Reserve, said the US central bank was ready to intervene if inflation spiralled out of control, but stressed that he expected price increases to ease later in the year.

“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell told the House of Representatives financial services committee during a hearing on Wednesday.

He added that the Fed “would be prepared to adjust the stance of monetary policy as appropriate if we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal”.

Powell’s comments came in the wake of data showing the US consumer price index rose 5.4 per cent in June compared with a year ago, which revived concerns that the US economy may be overheating.

The figures could raise pressure on the US central bank to more rapidly begin the process of slowing the large doses of monetary support it delivered to the economy during the pandemic, starting with a reduction of the $120bn in monthly asset purchases.

Although Powell noted the higher inflation figures and insisted the Fed would not be complacent about rising prices, he stuck to his view that the inflation surge was largely temporary, which is shared by many central bank officials.

“Inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation,” Powell said.

“In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind.

“Prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy,” he added.

During the hearing, top Republicans on the panel pressed Powell to explain the Fed’s position on inflation. Republicans are increasingly criticising the White House and Democrats for fuelling rising inflation and higher living costs due to the $1.9tn stimulus legislation passed in March.

Some have also accused the Fed of being complacent in the face of higher prices, calling for the rapid removal of monetary stimulus.

In one pointed criticism, Ann Wagner, a Missouri Republican, said families and businesses in her district were not feeling that inflation was “very temporary”. Powell replied that price spikes were coming from a “small group” of goods and services tied to economic reopening, but the Fed was “monitoring the situation very carefully”.

The Fed’s Beige Book report — which offers anecdotal evidence collected by the central bank’s regional counterparts about the economy — underscored the urgency behind the inflation debate.

Businesses described “broad-based” price pressures, with the most “acute” impact felt across a hospitality sector hampered by “limited supplies of materials and workers”, according to the report, which was released during the congressional hearing.

“While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months,” the report noted.

Still, Fed officials are wary of moving too quickly to pull back their support for the US economy. The US labour market is still far short of its pre-pandemic employment levels, and fallout from the coronavirus crisis on a global scale could still pose risks for the American economy.

During its June meeting, the Fed launched a debate about the timing and conditions of trimming its asset purchases, but Powell suggested a decision was not imminent. The Federal Open Market Committee said it would need to see “substantial further progress” compared to last December on its full employment and price stability goals to start dialling back the stimulus.

“While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue,” the Fed chair said in his prepared remarks. “We will continue these discussions in coming meetings. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases.”

Powell also suggested that while inflation was now well above the Fed’s average 2 per cent target, central bankers would have a better picture of the dynamic by the end of the year in order to assess policy. “The question will be, where does this leave us in six months or so when inflation as we expect does move down,” he said.

US government debt extended its rally as Powell testified, with the yield on the benchmark 10-year Treasury note trading more than 0.05 percentage points lower on the day to 1.36 per cent. The yield on the ultra-long 30-year bond dropped by roughly the same magnitude to steady below 2 per cent.

Short-dated Treasuries, which are more sensitive to policy adjustments, also gained. Yields on the two-year note slipped almost 0.03 points to 0.23 per cent. US stocks, meanwhile, eked out gains in afternoon trading. The S&P 500 edged up 0.1 per cent.

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Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here to get the newsletter sent straight to your inbox every weekday

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Business

Dow Jones Futures Await Fed Chief Powell As Inflation Report Hits Market Rally; Apple, Microsoft Lead But ARK ETFs Offer Warning

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Dow Jones futures were little changed late Tuesday, along with S&P 500 futures and Nasdaq futures. The stock market rally retreated modestly amid a hot inflation report even as Apple stock and Microsoft (MSFT) continued to advance. Federal Reserve chief Jerome Powell will speak during Wednesday’s session.




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Upwork (UPWK) broke out while Mastercard (MA) made a bullish move, offering an early entry.

Before the open, Bank of America (BA), Citigroup (C) and Wells Fargo (WFC) report earnings, along with Delta Air Lines (DAL).

The trio of bank earnings follow Tuesday results from Dow Jones giants JPMorgan Chase (JPM) and Goldman Sachs (GS). Both JPMorgan and Goldman earnings beat views, despite lower fixed-income trading revenue. JPMorgan released $3 billion from loan loss reserves, boosting profits. Meanwhile, the June consumer price indexes boosted the 10-year Treasury yield.

Goldman stock fell 1.2% and JPMorgan 1.5%. BAC stock and Wells Fargo lost about 2% while Citigroup slid 1.5%.

Meanwhile, Delta stock slumped 3.55%. Shares closed below their 200-day line Tuesday as fears and restrictions related to the Delta Covid variant hit airlines, hotels and other travel-related stocks.

Overnight, DAL stock rose a fraction. Late Tuesday, American Airlines (AAL) said Q2 preliminary revenue was slightly above views. AAL stock rose 1% in extended trade after slumping 3.9% on Tuesday.

The stock market rally continues to move along nicely. However, the Nasdaq composite is starting to looking extended. The big-cap Nasdaq 100, which includes Apple (AAPL), Microsoft stock, Amazon.com (AMZN), Facebook (FB) and Google parent Alphabet (GOOGL), is increasingly extended. Meanwhile, the breadth of the advance is looking somewhat weaker. Highly valued growth names in particular have come under pressure in July, as reflected in some ARK Invest ETFs. Tesla (TSLA), which has held up better than many ARK-type stocks, fell back Tuesday.

UPWK stock, Tesla, MSFT and Google are on IBD Leaderboard. Microsoft and Google stock are on IBD Long-Term Leaders. Mastercard stock is on SwingTrader.

Time The Market With IBD’s ETF Market Strategy

Dow Jones Futures Today

Dow Jones futures were just above fair value. S&P 500 futures and Nasdaq 100 futures edged higher.

Fed chief Jerome Powell testifies before the House Financial Services Committee at 12 p.m. ET on Wednesday. Powell will speak before the Senate Banking Committee on Thursday. Investors will listen for any clues on whether policymakers will begin discussing scaling back asset purchases at the July Fed meeting, with inflation picking up steam. But Powell may drop few new hints on monetary policy

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Join investing giants David Ryan and Mark Minervini as they analyze actionable stocks in the market rally on Wednesday’s IBD Live

Stock Market Rally

The stock market rally gave up modest losses after the Nasdaq and S&P 500 index hit record highs intraday.

The 10-year Treasury yield rose 5 basis points to 1.415%, following a stronger-than-expected CPI report. Consumer inflation hit 5.4% in June, with core inflation at 4.5%.

The Dow Jones Industrial Average fell 0.3% in Tuesday’s stock market trading, weighed down by JPMorgan, Goldman Sachs and Boeing (BA). The S&P 500 index lost 0.35%. The Nasdaq composite gave up 0.4%, but the big-cap Nasdaq 100 was flat. The Russell 2000 sank 1.9%, back below the 50-day line, as banks struggled and AMC Entertainment (AMC), a big weight in the small-cap index, slumped 7.7%.

Apple stock rose 0.8% and Microsoft 1.3%, boosting the Dow Jones, S&P 500 and Nasdaq.

Tesla stock, the sixth-largest Nasdaq weight, fell 2.5%, but that’s after rising for three straight sessions following a 50-day/200-day line test. TSLA stock reversed lower Tuesday after coming close to a 700.10 aggressive entry.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) was off 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) edged down less than 0.1%, with MSFT stock a major component. The VanEck Vectors Semiconductor ETF (SMH) gave up 0.2%.

SPDR S&P Metals & Mining ETF (XME) retreated 2.3% and Global X U.S. Infrastructure Development ETF (PAVE) 1.5%. U.S. Global Jets ETF (JETS) gave up 2.6%, with Delta stock a component. SPDR S&P Homebuilders ETF (XHB) pulled back 2.2%. The Energy Select SPDR ETF (XLE) slipped 0.8%, even as crude oil rallied. The Financial Select SPDR ETF (XLF), which includes JPMorgan, Goldman Sachs, Citigroup, Bank of America and other banking giants, gave up 1.1%. The SPDR Regional Bank ETF (KRE), slumped 2.2%.

ARK ETFs Slump

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) skidded 2%. ARK Genomics ETF (ARKG) fell 2.4%, below its 200-day line. Both have been trending lower since the tail end of June after running up sharply from mid-May. Tesla stock is the No. 1 holding across ARK Invest’s ETFs.

After such big run-ups, it’s not surprising that the stocks that make up ARK ETFs are taking a breather. Rising Treasury yields are a headwind for highly valued growth stocks, as investors discount future growth more. But the 10-year Treasury yield fell sharply to start July.

Upwork Stock

UPWK stock jumped as high as 64.49, clearing a 61.31 cup-with-handle buy point, according to MarketSmith analysis. However, with the market rally retreating Tuesday afternoon, Upwork stock closed up 5.8% to 60.70. That’s still actionable from a downward-sloping trend line in the handle, slightly under 60. UPWK stock cleared an early entry just below 52 on June 22.

Mastercard Stock

MA stock popped 2.2% to 383.71 in strong volume. Shares continued to rebound from the 50-day/10-week lines while also crossing short-term resistance near 381. The relative strength line for Mastercard stock has been lagging for the past four months and more broadly since late August. But before then, MA stock had a long record of outperformance.

Mastercard and Verizon (VZ) on Tuesday announced a partnership to work on contactless payments at retail locations without merchants needing point-of-sale terminals. It’s not clear how long before this 5G-related offering would be available.

Market Rally Analysis

The stock market rally had modest losses Tuesday, with the S&P 500 and Nasdaq backing off highs.

It’s probably healthy for the Nasdaq to cool off. The tech-heavy index is 5.2% above its 50-day line, after topping 6% intraday. The Nasdaq 100 is now 6.7% above its 50-day line after trading well above 7% intraday. When the Nasdaq gets to 6% or more above the 50-day line, the odds of a pullback rise with the risks that any such pullback will be larger. However, the Nasdaq has shown it can become significantly more extended, while pullbacks sometimes are a short-lived affair.

The Nasdaq 100 continued to outperform the Nasdaq and other major indexes. Ideally, the big-tech giants would pause or pull back over several days or a few weeks. That could offer a chance for more stocks to pick up. The Nasdaq advance-decline has been lackluster, at best, even as the composite has rallied strongly over the past several weeks.

Investors may want to be cautious about adding net exposure in the near term. The stock market rally could soon hit some short-term limits, especially on the tech side. A narrowing advance, especially among highly valued growth, also makes stock picking harder. But the market so far isn’t flashing sell signals. If your stocks are still working, there’s no need to get especially defensive. But if they’re hitting your price targets or looking extended you may want to sell some into strength.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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Business

Top Fed official warns Delta variant poses threat to global recovery

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A top Federal Reserve official has warned the spread of the Delta coronavirus variant and low vaccination rates in some parts of the world poses a threat to the global recovery as she urged caution in removing monetary support for the US economy.

“I think one of the biggest risks to our global growth going forward is that we prematurely declare victory on Covid,” Mary Daly, the president of the Federal Reserve Bank of San Francisco, said in an interview with the Financial Times.

“We are not through the pandemic, we are getting through the pandemic.”

Daly, who is a voting member of the Federal Open Market Committee this year, pointed to the struggles to contain the virus in Japan and other countries. Surging infections and lagging inoculation campaigns abroad were constraining the economic rebound and could have negative ramifications for the US, she said.

“If the global economy . . . can’t get . . . higher rates of vaccination, really get Covid behind [us], then that’s a headwind on US growth,” Daly said. “Good numbers on the vaccinations are terrific, but look at all the pockets where that isn’t yet happening.”

Daly’s warning came as investors sought out safe havens in droves this week, sending US government bond prices soaring. Treasury yields have fallen sharply as a result, with the benchmark 10-year note trading at its lowest level since February. Global stocks fell on Thursday.

Many market participants attributed the sharp drop in Treasury yields to technical factors. But a growing chorus has expressed concern that the economy will struggle to maintain the red-hot growth rates that have accompanied the reopening to date, and predicted that the recent jump in inflation will quickly fall away.

“In the United States the news has been pretty positive, but the global news hasn’t been all that positive,” Daly said. “It’s been good but it hasn’t been terrific. Markets respond to those things, and that can of course lower yields because they’re pricing in the risk there.”

She added: “What you’ve seen is an increasing sense of the downside risk to the global economy.”

The Fed’s June meeting appears to have been a catalyst for recent market moves. Central bank officials predicted they would be raising interest rates sooner and more aggressively than they had forecast earlier this year.

But speaking to the FT, Daly — who is considered one of the more dovish Fed officials — said there should be no doubt that the central bank would stick to the monetary policy framework it adopted in August 2020. This promised a more lenient approach to temporary overshoots in inflation in the pursuit of full employment.

“Chair [Jay] Powell said this so clearly in his press conference and I think that’s the light to follow here,” Daly said. “That’s the message I keep saying: we’re fully committed to our framework. That means eliminating shortfalls in employment and delivering average inflation of 2 per cent, and that is still absolutely paramount.”

Daly’s comments come at a pivotal time for Fed policymaking, as it discusses removing some of the massive monetary support for the recovery introduced at the start of the pandemic.

Minutes from the June FOMC meeting, released on Wednesday, showed some policymakers believed the Fed could soon start trimming its $120bn per month of asset purchases. But while Daly said the debate around “tapering” was warranted, the central bank had to “keep our eye on the long-term goals, which are full employment and price stability, and really be patient enough and persevere enough to deliver on those commitments which we’ve made to the American people”.

Furthermore, Daly argued increasing interest rates from their current level close to zero would have to wait until after the asset purchases had been wound down. Other more hawkish Fed officials have suggested there could be some overlap.

“We’re ready to taper at the appropriate time,” she said. “Then I’d like to see, how is that going? How does the economy respond to that? Because we can forecast, we can project, but we need to know in order to actually say, ‘oh, OK, now it’s time to move on to the next phase’, which is discussing policy normalisation and the fed funds rate coming up a bit.”

Daly said the split among Fed officials on how quickly to remove support for the economy, which was revealed in the minutes, was healthy as officials brought their “different perspectives” to the table and were not operating in an “echo chamber”.

For her part, the San Francisco Fed president indicated she is not quite ready to move to a post-pandemic environment.

“I think there’s always this excitement that ‘Oh my gosh: look, the vaccinations are working, this could be the end’. But it would be premature to say that we’ve achieved a victory here.”

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Dow Jones Futures: Apple Leads Market Rally After Fed Minutes; Meme Stock Newegg Rockets; Tesla, Nio Fall

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Dow Jones futures nudged higher late Wednesday, along with S&P 500 futures and Nasdaq futures. The stock market rally showed slim gains on Wednesday, with the S&P 500 and Nasdaq composite hitting record highs. Crude oil prices and Treasury yields continued to slide, with the Fed minutes offering few surprises.




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Tech megacaps Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN) continued to lead, while software did well overall while mining and steel plays bounced back.

PayPal (PYPL) rose 1.5% to 297.13, breaking out of a cup-with-handle base with a 296.11 buy point. PYPL stock had topped a 277.96 early buy point on June 17. Upwork (UPWK) now has a handle on its cup base, along with Apple supplier Qorvo (QRVO).

On the downside, chips retreated while many highly valued growth stocks that had rebounded from spring lows lost ground, including EV makers Tesla (TSLA) and Nio (NIO). Both have key news still due this week.

Finally, the latest red-hot meme stock is Newegg Commerce (NEGG), which shot up 148% to 67.57. NEGG stock is up 522% just since June 29. But Newegg is 234% above its 10-day moving average, extremely extended even by meme stock measures.

NEGG stock fell 11% in extended action.

Meanwhile, “old” meme stocks such as AMC Entertainment (AMC), GameStop (GME) and Clover Health (CLOV) have lost considerable ground over the past few weeks. AMC stock sank 9.8% on Wednesday. GME stock slid 4.5% and CLOV stock 2.8%.

Fed Meeting Minutes

Federal Reserve policymakers were getting closer last month to discussing scaling back asset purchases, according to newly released Fed minutes from the June meeting. Some members “expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings.”

Fed chief Jerome Powell had already said that the June meeting was the “talking about talking about” Fed meeting, suggesting that taper talk might start at the late July or September meetings, with actual tapering a few months after that.

Tesla stock, PayPal and Microsoft are on IBD Leaderboard. PayPal stock and Microsoft are on IBD Long-Term Leaders.

Dow Jones Futures Today

Dow Jones futures rose about 0.1% vs. fair value. S&P 500 futures and Nasdaq 100 futures edged higher.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally Wednesday

The stock market rally closed slightly higher on the major indexes, though small caps and several sectors lost some ground.

The Dow Jones Industrial Average in Wednesday’s stock market trading. The S&P 500 index rose 0.3%. The Nasdaq composite closed one point above break-even. The small-cap Russell 2000 fell 0.9%, undercutting its 50-day moving average. The small-cap index has a number of banks and energy companies, while AMC stock is a relatively large weight now.

Apple stock rose 1.8% to 144.57, now just above the 5% buy zone. Microsoft stock edged up 0.8% and Amazon stock 0.6%, both slightly extended from their 5% chase zones.

Crude oil futures fell 1.6% to $72.20 a barrel. Late Monday, U.S. crude oil prices hit a six-year high of $76.98. The 10-year Treasury yield slid 5 basis points to 1.32%, the lowest since February. Intraday, the benchmark yield undercut 1.3%.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) retreated 2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged down 0.1%.  The iShares Expanded Tech-Software Sector ETF (IGV) were just above break-even, with MSFT stock a major holding. The VanEck Vectors Semiconductor ETF (SMH) fell 1.4%.

SPDR S&P Metals & Mining ETF (XME) climbed 1.8% and Global X U.S. Infrastructure Development ETF (PAVE) 1.3%. U.S. Global Jets ETF (JETS) retreated 1.8%. SPDR S&P Homebuilders ETF (XHB) gained 1.7%. The Energy Select SPDR ETF (XLE) slumped 1.6% and the Financial Select SPDR ETF (XLF) edged up 0.1%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) retreated 2.3% and ARK Genomics ETF (ARKG) 2.2%. Tesla stock is the No. 1 holding across ARK Invest’s ETFs.

Five Best Chinese Stocks To Buy And Watch Now

Tesla Stock, China EV Sales

Early Thursday, the China Passenger Car Association will release China EV sales for June. BYD Co. (BYDDF), Nio and peers Xpeng (XPEV) and Li Auto (LI) have already reported June delivery figures. But the CPCA report will give investors insight into Tesla’s China sales. Tesla has already reported record global deliveries for the second quarter.

Tesla stock fell 2.3% to 644.65 on Wednesday, nearing its 50-day and 200-day lines. A move above Friday’s high of 700 might offer an aggressive entry, but 780.89, above the April short-term high, may be the first quasi-legitimate opening.

Nio stock slumped tumbled 8.45% to 46.04 its fourth straight loss after a sharp run-up. Shares could have a 55.23 handle buy point after Thursday. Nio is holding annual Nio Day on Friday, with EV product announcements or updates expected.

BYD stock dipped 0.7% to 28.46, finding support just above its 21-day line. The electric car, bus and battery maker already has a cup-with-handle buy point of 31.40.

Li Auto stock sank 4.6% to 32.03. Like Nio stock, the China EV play is likely to have a handle after Thursday. But the base is 66% deep. An extended handle, or even a short base within the larger consolidation, would be more attractive than a tiny handle.

XPEV stock skidded 5.9% to 41.47, after Xpeng debuted a secondary listing on the Hong Kong exchange. Shares are forming a handle-like pattern, but it’s below the midpoint of a very deep base.

Why This IBD Tool Simplifies The Search For Top Stocks

Market Rally Analysis

Stepping back, the stock market rally had an OK day, which might be just right. The Nasdaq is still 5.5% above its 50-day moving average while the big-cap Nasdaq 100 is now 6.8% above that level.

The Nasdaq opened with a modest gain, with many tech stocks flashing buy signals or extending breakouts. Anyone taking advantage likely saw their positions go negative, slightly, within minutes. That’s because almost immediately, the Nasdaq retreated, turning modestly lower before moving back to roughly break-even for most of the session.

However, the S&P 500 and Dow Jones closed near session highs, as crude oil prices and Treasury yields pared losses.

With Apple, Amazon and Microsoft leading the way, gains in the major indexes can mask underlying weakness. Many growth stocks, especially highly valued names like Palantir (PLTR), Tesla, Nio and ARK-style stocks, have been pulling back after hefty rebounds.

A tumbling 10-year Treasury yield has clearly contributed to tech stocks’ advance over the last several weeks. With a booming economy and inflation heating up, it’s hard to see how that continues, though one could have made that case for weeks. But if Treasury yields rise sharply, techs could struggle.

Crude oil prices have reversed lower from early morning gains for two straight days, despite a seemingly bullish backdrop of no OPEC+ production hike. That may be a sign that crude oil has topped in the short run. Energy stocks may need to take a breather if that’s the case. But so far, most leading energy stocks, such as Denbury Resources (DEN), have held key support.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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GLOBAL-MARKETS-High-flying stocks wait on Fed signals, Apple results

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(Updates to U.S. open)

* Equities lack trend as earnings roll in, bond yields creep up

* Fed expected to stay course but outlook is improving

* Apple, Facebook, Ford, earnings due

* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn

* Graphic: World FX rates http://tmsnrt.rs/2egbfVh

*

By Matt Scuffham and Marc Jones

NEW YORK/LONDON, April 28 (Reuters) – World shares cosied up close to record highs and the dollar and global bond yields nudged up on Wednesday, as traders waited to see if the U.S. Federal Reserve utters the dreaded ‘T’ word later – tapering of its mass stimulus programme.

The broad expectation is that it won’t want to unsettle markets for now, and with a packed day of corporate earnings, economic data and U.S. President Joe Biden’s first address before a joint Congress session, there was plenty to navigate.

MSCI’s broadest index of world shares was sidestepping towards its best month of the year so far.

The index, which tracks shares in 49 nations, rose 0.54 point, or 0.08 percent, to 706.08.

The Dow Jones Industrial Average fell 113 points, or 0.33%, to 33,871.93, the S&P 500 gained 5.3 points, or 0.13%, to 4,192.02 and the Nasdaq Composite dropped 23.69 points, or 0.17%, to 14,066.53.

The pan-European STOXX 600 index rose 0.11%

The dollar was on course for its first unbroken two-day run of gains of the month – April is currently set to be its cruellest month since last July.

Benchmark 10-year notes last fell 2/32 in price to yield 1.6289%, from 1.622% late on Tuesday.

“The thing that we are going to watch most closely is if the Fed says anything along the lines of tapering of asset purchases,” said Jim Caron, a senior portfolio manager at Morgan Stanley Investment Management.

“As long that doesn’t get mentioned, we are all good,” he said, explaining that with the coronavirus pandemic still worsening in many parts of the world, investors would view any move towards tapering as premature.

Most Fed watchers expect Chairman Jerome Powell to repeat the bank’s recent message that its low interest rates and support programmes will remain in place for a long time yet.

Biden will also address Congress and is likely to underscore his administration’s plans for infrastructure and stimulus spending.

These developments would normally be positive for stocks, but analysts say so much economic optimism is already priced into the equity market that it is difficult to budge equities from current levels.

Otherwise, Europe’s traders were waiting to hear from ECB President Christine Lagarde and other top policymakers. Economic data releases showed an unexpected drop in Germany’s GfK consumer confidence reading for May though an equivalent in France at least stayed steady for April.

APPLE EYED

U.S. earnings later include tech and internet giants Apple , Facebook and Qualcomm, as well as Ford .

Facebook is expected to report a revenue rise due to online advertising demand during the COVID pandemic, while Apple is expected to post a more than 32% jump in revenue, driven by 5G phone demand.

There was a mixed bag of earnings from Tesla, 3M , Microsoft, and Google-parent Alphabet on Tuesday.

In the FX markets, the dollar index rose 0.144%, with the euro down 0.21% to $1.2065.

As well as the rise in Treasury yields helping the dollar higher, break-even rates on 10-year Treasury Inflation-Protected Securities, a measure of expected annual inflation for the coming decade, rose to 2.41%, the highest since 2013.

In the cryptocurrency market there was excitement as the European Investment Bank said it would sell a two-year digital bond worth 100 million euros ($120 million) on the ethereum blockchain network.

Rival cryptocurrency Bitcoin fell 0.6%.

In commodities, spot gold dropped 0.4% to $1,769.84 an ounce. U.S. gold futures fell 0.72% to $1,765.20 an ounce.

($1 = 0.8278 euros)

(Editing by Kirsten Donovan and Steve Orlofsky)

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Stocks Wobble Ahead of Fed Minutes

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U.S. stocks wobbled Wednesday as investors awaited notes from the Federal Reserve’s last policy meeting for clues on how officials view inflation and the pace of economic recovery.

The S&P 500 index and the Dow Jones Industrial Average edged higher about 0.1%. The Nasdaq Composite Index slipped 0.1%. On Tuesday, indexes pulled back slightly after closing at record highs at the start of the week.

Signs that the economy is rebounding from its coronavirus-driven slump have buoyed investors and helped propel the major indexes to unprecedented levels this week. The rapidly progressing vaccination rollout, combined with both monetary and fiscal support, is aiding in the recovery of the labor market and the manufacturing sector. Money managers are betting that more of the economy will return to a normal footing soon and give a boost to travel and leisure companies.

“We had been expecting the data to improve about this time, and early signals are that the recovery is absolutely on track,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management. “This is the period where the forecast of a strong recovery in growth is starting to look more like the fact of a strong recovery in growth.”

Some investors remain nervous that the easing of restrictions, coupled with pent-up consumer demand, could drive up inflation and prompt the Fed to raise interest rates sooner than expected.

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Biden says he has not spoken with Fed Chair Powell

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U.S. President Joe Biden said on Tuesday he has not spoken to Federal Reserve Chair Jerome Powell, noting the central bank is an independent agency.

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“I think the Federal Reserve is an independent operation and starting off my presidency I want to be real clear that I’m not going to do the kinds of things that have been done in the last administration,” Biden told reporters.

Biden still has significant room to make his mark on the Fed. Powell’s term is up next February, when Biden can choose to extend his appointment, and there is an empty seat on the Fed’s Board of Governors.

Biden already withdrew former President Donald Trump’s nomination of Judy Shelton to fill that seat.

JANET YELLEN, FED’S JEROME POWELL TESTIFY ON COVID-19 RELIEF, ECONOMY

The Fed was designed to keep a degree of independence in setting interest rates and other key policies from politicians.

Trump clashed openly with Powell, whom he appointed, threatening to fire him multiple times for not keeping rates low enough. The Fed eventually lowered rates near zero percent, where it has kept them as the economy weathered the COVID-19 pandemic.

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Biden has closely coordinated economic policy with Treasury Secretary Janet Yellen, herself a former Fed chair and colleague of Powell’s. When asked about Powell, Biden mentioned that he speaks regularly with Yellen.

(Reporting By Trevor Hunnicutt and Jarrett Renshaw; Editing by Leslie Adler)

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