Market Overview

31 March 2021

Value Stocks and Banks Are Going Up Opposed to Big Techs

"Buying any dips" general strategy still seems to pay its way. It works very well on both American and European stocks except, maybe, for some of the long-suffering big techs. The U.S. S&P500 broad market index is testing highs above 3950 again, while the Euro Stoxx 50 and the German Xetra Dax30 composite already succeeded in hitting their all-time records this week. It looks like almost every bit of the market is ready for an upbeat rally extension at least for the first half of April. 

Slip-ups with some tech stocks like Amazon or Apple have natural causes and may be attributed to their too high popularity for many months, as the market may feel that they are still overheated. As in the case of Tesla, Apple shares may be testing investors' patience in part because of semiconductors' shortage from Asian suppliers. But Apple as a clear captain of industry is probably a stock to hold for a long time, which is not necessary to be bought at any price as soon as possible. At least for now the market does not seem to be eager to take its chances to add more Apple below $120 per share into portfolios. 

Meanwhile, Tesla chief Elon Musk tweeted on Tuesday that battery cell supply constraints may impact production of its long-delayed Tesla Semi electric commercial truck. "Demand is no problem, but near-term cell supply makes it hard to scale Semi. This limitation will be less onerous next year," the billionaire entrepreneur wrote. It was a kind of answer to a news report that Tesla is receiving an order for ten Semi trucks. When Musk first unveiled Semi’s prototype as a model for the future generation, he proposed it would go into production by 2019, but later the timeline was pushed to 2021, but now the mass production could be delayed until 2022. 

This was followed by rather strange reports that Tesla occasionally double-charged some customers for new cars, while the affected buyers, interviewed by CNBC, said they are still trying to get refunds for extra amounts taken from their accounts that range from $37,000, the price of a base version 2021 Tesla Model 3 sedan, to around $71,000, the price of a 2021 Tesla Model Y crossover SUV loaded with premium options. Combined circumstances have led Tesla stocks to some levels below $600 per share at the Wall Street's open yesterday but the shares were quickly bought there, so Tesla finished the session near $633 per share with a resulting performance of almost plus 4%. However, this does not exclude further price hesitations or "soul searching" by Tesla stocks within a horizon of the following weeks. 

As it can be seen from these examples, each tech company has its own specific reasons to slow down. Without such obvious excuses from the news front, Facebook as one more typical tech representative was quickly bought out by the market enthusiasts in March to be lifted from the $255 rebound area to the repeated record prices of about $300 per share. Thus, Facebook is as good in its ability to confirm the consistency of the overall "buy any dips" mood as many offline value stocks like Boeing or McDonald's, Walmart or Coca-Cola. All of the listed quite different companies, and many others, just performed according to such a simple scheme in March. 

All these facts seem to cast reasonable doubts, once again, on a rather ridiculous theory, that big techs are allegedly prevented from growing by too high yields of the U.S. Treasury bonds. Such a thesis is often quoted in some market reviews. But, of course, U.S. bonds can't compete in any aspect with any type of stocks other than maybe some high-dividend stocks, even when bond yields are above 1.77% or higher. To buy and hold long-term or short-term bonds, investment funds usually allocate a completely different, larger and conservative part of their capital, while a set of various potential growth stocks, including technology companies, are participating in the competition among themselves for this risky share inside the typical fund portfolios. 

What really high bond yields are contributing to is the continued rise in bank stocks again. Banking stocks are not concerned with inflation expectations, but rather enjoy them, as banks have additional income based on bond assets. Thus, the Bank of America, Citigroup, or investment-oriented banking groups like JP Morgan Chase are once again trying to go higher while seeking to touch or update their multi-month peaks. 

The upcoming lifting of restrictions on the buyback of banking sector shares, which has been repeatedly announced by the U.S. Federal Reserve, may only contribute to the expectations of better positions for many banking stocks. And even the notorious affair of an almost $6 billion Archegos Capital Management losses which, affected Credit Suisse and Nomura banks that had big fund exposures on Archegos, apparently did not shake the ghost into the other general spectrum of the largest global banking institutions. Credit Suisse and Nomura shares have lost a really remarkable part of their value over the past two days, as their risk-control departments have probably been asleep at the switch of potential troubles with Archegos assets but other big sharks did not follow the same path.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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