CMT tips bond yields to rise, S&P to reverse in 2021 | Fed could exit bond buying this year, official says | CMT singles out Starbucks as market expands beyond tech
Technical analyst Chris Verrone, CMT, says the consensus expectation that US 10-year bond yields will rise to 1.15-1.25 may be too conservative and contends they are capable of rising significantly higher this year, which would benefit financials. In his outlook for 2021, he also predicts an S&P correction in spring or summer, but quotes noted investor Peter Lynch who said "more money is lost waiting for pullbacks than actually in the pullback."
The Federal Reserve could start to wind down asset purchases as early as the end of this year, says Patrick Harker, president of the Federal Reserve Bank of Philadelphia. The action would depend on the health of the economy and progress on tackling the coronavirus pandemic, he said.
A Road Map to the Coming US Economic Cycle With the rollout of the first COVID-19 vaccines beginning this month, the end of the virus - and the trajectory of the US economy - is becoming more clear. AB's senior economist breaks down the coming economic path into three stages.
Technical analyst Ari Wald, CMT, contends that market breadth and strong performance is extending beyond tech entities, boosting sectors including consumer cyclicals, industrials, materials and financials. Among the currently buoyant stocks, Wald notes Starbucks has breached its last high of July 2019 and comments: "We think that is marking a resumption of the stock's long-term uptrend."
The Federal Reserve's secondary market corporate credit facility has purchased $5.4 billion in corporate bonds and $8.4 billion in exchange-traded funds linked to US dollar Libor since it was established in March. Market participants have expressed surprise at the purchase since the Libor-linked bonds have weak fallback language.
Bitcoin has risen to an unprecedented high beyond $40,000 and technical analyst Katie Stockton, CMT, sees no threat to its continued ascent. "The signs of exhaustion that appeared in December were absorbed via a brief consolidation phase, and there are no active overbought 'sell' signals," she comments.
Analysis from S&P Global Market Intelligence shows the final tally of global investment banks' revenue in 2020 will likely reach a record, with coronavirus-induced volatility in capital markets cited as the main contributor. However, S&P Ratings analysts comment the performance is unlikely to be repeated in the coming year unless there is a similar episode of volatility.
Accessing hedge funds with passives The hedge fund universe has expanded to include passive investing options, which opens the asset class up to non-specialist investors and may create new opportunities.
A survey of 904 active investors by E*Trade shows 66% say the stock market is in a bubble, with a further 26% seeing a bubble approaching. Commentator Jeremy Grantham cites overvaluations, explosive price increases, an excessive volume of issuances and "hysterically speculative investor behavior" as factors in the trend.
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The Biden administration and Democratic lawmakers might pursue policies that would leave banks facing increased competition from fintechs and government entities. These could include issuing more bank charters to technology companies, allowing the Federal Reserve to provide digital wallets to consumers, and enabling the US Postal Service to provide retail banking services.
Technical analyst Milan Vaishnav, CMT, notes India's Nifty index has continued its winning run with gains in all but one of the past 10 weeks, but warns its weekly chart now looks exceptionally overstretched and an event such as a jump in US 10-year bond yields or a pullback for the dollar could spark repercussions for the index. "We reiterate that it is all the more important to stay with the defensive sectors and avoid high-beta stocks, which have run up too much, too fast," he cautions.
The commodities sector enjoyed a rally in December, but technical analyst Chris Kimble argues its sustainability will depend to a great extent on a strengthening of the euro. His chart reading shows the currency has been in a falling channel for the past 12 years but is now testing two lines of resistance and a breakout would have a major influence on commodities' progress.
Some misconceptions about technical analysis are based on education and training. Other myths are based on experience. For example, the incorrect use of technical indicators often leads to losses. That doesn't mean the method is necessarily bad - possibly the person just needs more practice and training. Other myths are perpetrated by marketing, promising overnight riches if a simple indicator is bought and used. Rarely is it that easy.
A Chartered Market Technician (CMT) is a technical analyst professional who has completed the CMT designation. It is the highest certification within the industry and is well-known by other industry professionals around the world. Professionals who achieve the CMT designation have proven extensive knowledge of investment risk in portfolio management. This article describes the steps toward CMT certification.
