Closing Market Summary: Wall Street Ekes Out Gains Despite Early Growth ConcernsWall Street finished slightly higher on Wednesday despite global economic growth concerns and volatility extending their reach into 2019. The S&P 500 managed to squeeze out a gain of 0.1% after being down as much as 1.6% in the opening minutes.
The Dow Jones Industrial Average (+0.1%), the Nasdaq Composite (+0.5%), and the Russell 2000 (+0.5%) traded in similar fashion to finish with modest gains.
Stocks opened sharply lower after weak economic data from China reminded investors that a slowing Chinese economy could adversely impact global growth and corporate earnings growth. The latest data showed a contraction in China's manufacturing sector for the first time since May 2017. The data was in-line with the official Manufacturing PMI reading, which was released earlier this week.
Bad news led to another broad-based effort to reduce risk, but it didn't seem bad enough to justify the steep losses. The S&P 500 would quickly recover and teeter between gains and losses for most of the day.
Within the S&P 500, the energy (+2.1%), communication services (+1.3%), consumer discretionary (+0.9%), and financial (+0.7%) sectors helped lead advance, though the defensive-oriented real estate (-2.3%), utilities (-1.8%), health care (-1.4%), and consumer staples (-0.4%) sectors dragged on the broader market.
Energy stocks abruptly reversed course after oil prices swung into positive territory. WTI crude increased 2.0% to $46.38/bbl after reports that Saudi Arabia decreased its crude exports in December by roughly 500,000 barrels per day.
Retail was another group that outperformed and helped lift the consumer discretionary sector. The SPDR S&P Retail ETF (XRT 41.57, +0.58) rose 1.4%.
Longer-dated U.S. Treasuries extended gains, pressuring yields. The 2-yr yield declined one basis points to 2.49%, and the 10-yr yield declined three basis points to 2.66%. The U.S. Dollar Index rose 0.7% to 96.82.
Investors did not receive any notable economic data on Wednesday.
Looking ahead, investors will receive several economic reports on Thursday: the ISM Manufacturing Index for December; the ADP Employment Change report for December; the weekly MBA Mortgage Applications Index; the weekly Initial and Continuing Claims report; and auto and truck sales.
- Nasdaq Composite +0.5% YTD
- Russell 2000 +0.5% YTD
- Dow Jones Industrial Average +0.1% YTD
- S&P 500 +0.1% YTD
U.S. large-cap banks 2019 outlook: Less good doesn't mean bad, buy banks - Barclays
Barclays is bullish on the U.S. Large-Cap bank stocks for 2019. Despite an expected slowdown in GDP growth, post a sharp sell-off into year-end 2018, they believe the U.S. Large-Cap bank stocks have the ability to rise and outperform the S&P 500. They expect high-single-digit EPS growth in 2019 despite a 30% increase in the loan loss provision. JPM remains their Top Pick as it provides both offensive and defensive characteristics. Among the other Money Centers, C, at 0.8x tangible book, is a solid offensive play. They also believe BAC and MS have improved their risk profiles by more than market appreciates. While they expect GS to get through its recent woes, it could take time. Among the trust banks, they view STT as a good offensive play, while BK is more defensive. Looking at the Super Regionals, they expect USB and WFC to turn corner this year, while consumer finance names like ALLY and COF appear overly discounted given their view that unemployment will remain low in the intermediate term. MTB, BBT and PNC should stand out if the backdrop proves more challenging than expected, while CFG and FITB appear more levered to a snapback in sentiment.
Crypto funds appeal for patience after market rout
Collapse in prices in 2018 shakes faith in the future of digital assets
Fund managers specialising in cryptocurrencies are appealing for patience from investors, after a year in which huge falls in prices severely dented their performance.
Investors poured money into funds trading bitcoin and other cryptocurrencies in 2017, seeking to benefit from a sector-wide boom. But with the price of bitcoin down almost three-quarters last year, mirroring big falls in other digital assets, many investors have tried to head for the exits — prompting funds to urge them to stay the course.
In a December letter to investors, San Francisco-based Pantera Capital admitted that 2018 had been “a difficult year for all cryptocurrencies and tokens”.
The firm, which was set up by Tiger Management’s former head of macro trading Dan Morehead and which runs more than $500m in assets, has been urging clients to look to the longer-term case for crypto. A year ago the firm predicted the price of bitcoin could reach $50,000 by 2019 — a far cry from its current level around $3,800.
“After such a prolonged drawdown in the market, it’s important to reflect and re-evaluate the thesis behind utility tokens,” wrote Mr Morehead and Joey Krug, co-chief investment officer, in the letter.
Pantera’s Digital Asset fund is one of the biggest in the sector, gaining almost 150 per cent between launch in November 2017 and the end of that year. But over the first 10 months of 2018 it was down 77 per cent, according to numbers seen by the Financial Times. A separate fund dedicated to so-called initial coin offerings, a popular method of raising cash for crypto start-ups, fell 75 per cent to October last year, after gaining almost 350 per cent in 2017.
“We firmly believe that tokens will achieve real world usage. In fact, it’s already starting to happen in the depths of this bear market,” wrote Mr Morehead and Mr Krug. But they added it could take two to three years for blockchain networks to achieve scale, which would help digital tokens become more widely used. Blockchains are electronic ledgers stored across thousands of computers, protected by cryptography, making them harder to tamper with than traditional stores of information.
Pantera did not respond to a request for comment.
While crypto-focused funds can in theory bet on both rising and falling prices, most have been reluctant to sell assets short, because of 2017’s sharp price rises or because many managers fundamentally believe in the long-term success of cryptocurrencies. That means many were hit hard by the market crash. Crypto hedge funds on average were down 70 per cent in 2018 to the end of November, according to data group HFR.
Galaxy Digital, a crypto and blockchain-focused merchant bank set up by Mike Novogratz, a former hedge fund trader and Goldman Sachs partner, also found the going tough.
Galaxy’s passively-managed Benchmark Crypto Index fund, which charges a 2.5 per cent annual management fee and holds a basket of cryptocurrencies including bitcoin, XRP, ethereum and litecoin, was down 50.6 per cent from launch in May 2018 to the end of October.
“The asset class continues to show signs of maturity, as headlines that once would have led to frenzied trading sessions have given way to patient market participants who want to see and react to results, not headlines,” Galaxy wrote in a November letter to investors.
Galaxy did not respond to a request for comment.
In November Mr Novogratz told the FT that 2018 had been “ challenging” but he has predicted that financial institutions will move from investing in cryptocurrency funds to investing in cryptocurrencies themselves, early this year. “That’s when prices start moving again,” he said.
Not all hedge funds have suffered heavy losses. New York-based Systematic Alpha Management’s Cryptocurrency fund, for example, gained 4.3 per cent in the first 11 months of last year.
The computer-driven fund trades bitcoin futures and tries to profit from upward or downward trends in prices, meaning it was able to profit during November’s 38 per cent slump in bitcoin against the US dollar.
But losses in December mean the fund is likely to have finished the year slightly in the red, according to Peter Kambolin, chief executive.
European Union rebels will lay siege to Brussels in 2019. Voters across the bloc will go to the polls in May to choose a new European Parliament. Simmering anti-elite sentiment and disenchantment with EU rules are expected to give nationalist parties a bigger voice. Sceptics could even infiltrate the European Commission.
The election is shaping up to be the most important since parliamentary delegates were first chosen by direct universal vote in 1979. Though the assembly will shrink to 705 seats from 751 following Britain’s departure, its clout in shaping the EU has been growing.
In contrast with its initial role as a consultative body, the parliament – along with the backing of member states – must now approve EU legislation, such as 2014 rules for winding down banks, or upcoming money-laundering controls. The assembly can also reject the European Commission president, giving it a big say in choosing Jean-Claude Juncker’s successor.
The assembly has traditionally been dominated by Europhile groups like the centre-right European People’s Party and the centre-left Progressive Alliance to Socialists and Democrats. Though eurosceptics such as the French National Front and UK Independence Party have long sent representatives to Brussels and Strasbourg, they have been fragmented and largely irrelevant.
This could change in 2019. Far-right parties including Germany’s Alternative fuer Deutschland and the Sweden Democrats have tapped into anti-immigration sentiment to score electoral gains at home. Italy’s governing coalition partners, the League and 5-Star Movement, have a combined 60 percent in opinion polls despite openly clashing with Brussels about the country’s budget.
Established anti-EU parties and new ones such as Hungary’s xenophobic Jobbik and Poland’s anti-establishment Kukiz’15 could collectively take around 25 percent of the seats in the next European Parliament, according to a Breakingviews analysis of national opinion polls tracked by pollofpolls.eu, a website. Throw in Hungarian Prime Minister Viktor Orban’s Fidesz party and some left-wing radicals, and eurosceptic MEPs could control close to the one-third of the seats required for a blocking minority.
Anti-European voices may also be heard in the Commission, which drafts EU laws. Each member state sends one delegate, with portfolios carved up through horse-trading. Italy, Poland and Hungary, for instance, may dispatch candidates who echo their governments’ nationalist approach.
The rebels may struggle to form a common front, though. In the parliament, nationalist and other eurosceptic parties are split between three different groups. They often disagree on issues like curbing immigration or budget rules. The same is true for the Commission, which tends to take decisions collectively or by majority voting. Two or three dissenting voices could not significantly alter the Commission’s course, though they could water down legislative proposals.
European institutions can probably withstand an insurgency of eurosceptics. Nevertheless, the elections will be another test of public confidence in the 70-year-old European project.
SAO PAULO (Reuters) - Brazil’s newly inaugurated President Jair Bolsonaro has issued an executive order saying that the ministry of agriculture will be responsible for indigenous land in a victory for agribusiness that is likely to enrage environmentalists, according to the official gazette on Wednesday.
During his presidential campaign, Bolsonaro had said that he was considering placing indigenous affairs under the ministry of agriculture, alleging lands should be opened to commercial activities that are currently banned.
A former army captain, Bolsonaro took office in Brazil on Tuesday saying he had freed the country from “socialism and political correctness.”