New Delhi, May 7: It is interesting that FAANG stocks stilllook like they have peaked out against the S&P500 despite the fantasticquarterly earnings reported by these companies last week, according to"Greed and Fear".
Jefferies analyst Christopher Wood, in his stock marketcommentary "Greed and Fear" said in a funny kind of way, the betterthe numbers these companies report, the more it is a sign of their control ofthe marketplace from an anti-trust and other regulatory standpoints. FAANGrefers to leading tech stocks Facebook, Amazon, Apple, Netflix and Alphabet(formerly known as Google).
"Action on the anti-trust front is surely coming sooneror later, just as it has now arrived in China. On top of this, there is theobvious risk of the law of large numbers as regards maintaining such growthrates. Meanwhile Greed & Fear continues to prefer cyclical stocks with theobvious pair trade, in the run up to the inflation scare, that of being longenergy and short tech," Wood said.
"For now, Greed & Fear's conviction remains thatthe financial markets are heading for the biggest inflation scare since theearly 1980s, which is why equity fund managers need to remain razor focused oninflation expectations which are likely to be the lead indicator of the timingof any potential tapering scare.
"For such a surge in inflation expectations will be thetrigger for the markets to stress test the Fed's metal. The US 5-year 5-yearforward inflation expectation rate rose to 2.28 per cent last Thursday, thehighest level since October 2018, and is now 2.26 per cent," Wood said.
If loan growth has not picked up, bank deposits in the UShave continued to surge as a result, in large part, of the increase in transferpayments. The four major banks' total deposits rose by 15.4 per cent YoY in1Q21 and are up 28 per cent since the end of 2019. The Fed's flow of funds datashows that the increase in household deposits in 2020 accounted for 52 per centof the increase in total deposits, the commentary said.
"Still Greed & Fear's base case remains that amajor inflation scare is coming in America triggered by pent up demand,"Wood added.
Another reminder of the extent to which American householdshave been net financial beneficiaries of the pandemic, and therefore therelated pent up demand potential, came with March data released at the end oflast week. Nominal disposable personal income surged by a record 32 per centYoY reflecting the arrival of more stimulus cheques while the personal savingsrate soared to 27.6 per cent.
As a consequence, the net result is that US households havenow lost $509 billion in personal income in the 13 months since the arrival ofCovid and related lockdowns and received $1.77 tn more in transfer paymentsthan the pre-Covid levels.
One issue raised by this transfer payment windfall iswhether there will be an incentive to return to work. On this point, Greed& Fear referred last week to the growing difficulty reported by smallbusinesses in America finding labour.
Thus, the National Federation of Independent Business surveyreleased last month found that a record 42 per cent of small business ownersreported they could not fill job openings, and this data series goes back to1974.
Wood said it has also been estimated that 42 per cent ofunemployed Americans currently make more money staying at home with the currentlevel of unemployment benefit. The unemployed are getting an extraCovid-related $300/week from the federal government in addition to an average$320 benefit provided by the states, though it should be noted that the extraFed top up is meant to expire on September 6.