STATE OF THE MARKETS
Stocks down amid safe haven flows. US stocks dropped on Thursday as investors rotate and flock to bond safety, sending yields lower. Dow (-0.49%), S&P (-1.42%) and Nasdaq (-2.58%) including the small cap Russell (-0.77%) fell. The 30Y yields edged lower to 2.04%, while the 10Y to 1.70% and the shorter 2Y to 0.89% as investors digest US employment situations.
In the commodities market, crude continues to jump past $81.80/bl as investors see economic recovery is sooner than expected and demand is growing. Higher inflation numbers fixed gold higher to past $1,827.00/oz while iron ore past $127.00/tn.
In the FX space, short and medium term risk sentiments were off as safe haven Yen reigned further in demand. Long term accounts were little changed. On Friday, markets look forward to seeing the latest earnings report from BlackRock (BLK), Citigroup ©, JPMorgan Chase (JPM) and Wells Fargo (WFC) as well as the much awaited US retail sales figure and consumer sentiments.
OUR PICK – No New Picks
No new pick going into the weekend. The first couple of weeks in 2022 were not looking good for stocks as major investors continue to liquidate their long term holdings. This week US equities reported a net outflow of $4.3 billion, $1.35 outflow from taxable bond funds, and close to $30 billion of outflows from the short-term money markets. This however, benefits defensive sectors and value stocks as we have seen so far. Furthermore, given the falling Dollar index (DXY) we believe funds are being channeled to commodities and higher yielding currencies.
Equities: Currently we are holding 8 stocks – 7 longs and 1 short. We are long AUY (20% undervalued) with dividends yielding 2.84%, T (11% undervalued) at 7.76% yields and COG (CTRA) (16% undervalued) yielding 2.29%. CLVS is currently 21% overvalued with -8.20 z-score but Tudor Investment had stepped in recently and we decided to hold. We remain bullish with VIPS (47% undervalued with 5.98 z-score), GT (39% undervalued with 1.40 z-score) and CRON (12% undervalued with 9.18 z-score) while bearish GE (15% overvalued with 1.43 z-score).
FX & Commodities: EUR/JPY has reached short-term TP1 and stop moved to breakeven.
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