COVID-19 is still raging, traders are starting to bet on “hornworms around the election,” and the US and China could not even agree on planning a scheduled meeting over the weekend.
None of this is, of course, significant to the stock market. Goldman Sachs became the latest company to increase its price target for the S&P 500 SPX,
stimulating its end of the year by 20%, from 3,000 to 3,600.
Strategists, led by David Kostin, expect returns on 10-year TreasuryTMUBMUSD10Y,
up, from 0.7% now to 1.1% at the end of the year. That, if all is well, would be bad for stocks because it would mean a higher bar on relative valuation to run. But they expect the premium for equity risk to decline.
“Changes in the [equity risk premium] are driven by many factors, including the strength of the economy today, the expected state of the economy going forward, and the confidence that investors have in that path forward, ‘they say.
They expect the risk premium for US equities to fall from 6.3% now to 5.7% at the end of the year, and to 5.2% at the end of the first half of 2021.
The economy, they say, will rise much faster than the market expects next year, driven by the company’s expectation of a coronavirus vaccine that will be approved by the end of 2020 and widely distributed by the first half of 2021.
Their estimate per profit for S&P 500 companies in 2021, of $ 170, is also above Wall Street’s $ 165. “Our EPS estimate is driven by higher sales and an increase in profit margins to 11.4%, back to the 2019 level,” they say, and the addition will be uneven as information technology and healthcare companies lead the way, while energy and financial struggle.
The buzz
The US and China delayed their planned talks on concluding the Phase One trade agreement. Over the weekend, President Donald Trump gave TikTok owner ByteDance 90 days to sell the video-sharing app, and when asked if he would try to ban other Chinese companies, including Alibaba BABA,
he replied, “well, we’re looking at other things, yes.”
New Zealand is delaying elections due to the pandemic, as Italy makes masks mandatory. Novavax NVAX,
said it is beginning the second phase of its coronavirus fax test.
The conversation continued around the release of 13-F filings, which show how the world’s top investors have changed their portfolios, through at least June 30th. Warren Buffett’s Berkshire BRK.B,
bought a stake in gold miner Barrick Gold GOLD,
in the sale of interest in Wells Fargo WFC,
and JPMorgan Chase JPM,
and exit from Goldman Sachs GS,
alhiel.
The economic calendar includes the research survey of Empire State and the National Association of Home Builders housing market index. Japan reported a 7.8% decline in gross domestic product in the second quarter, a record decline but also better than industrialized rivals including the US and Germany.
Politics will be a talking point when the Democratic National Convention kicks off Monday night. The PredictIt market points to both a presidential victory by former Vice President Joe Biden and the U.S. Senate slinging to the Democrats.
Sanofi said it would buy Principia Biopharma PRNB,
an American biotech that focuses on immune diseases, for $ 3.34 billion.
The brands
The Dow industrials DJIA,
rose last week for the fifth week in 7, and stock futures ES00,
YM00,
NQ00,
pointed higher on Monday.
Gold futures GC00,
rose while oil CL.1,
futures fell.
The major overseas movement was in China, where the Shanghai Composite SHCOMP,
increased by 2%.
The map
The rise in market power in both the product and labor markets is a driving force in the decline in the labor force share of income, the increase in profit sharing, the increase in income inequality, the increase in credit-to-earnings GDP ratio, and the accompanying rise in financial instability, finds a new paper from the Federal Reserve. The researchers suggested that increasing taxes could both reduce income inequality and reduce the chance of financial instability.
Random reads
What President Obama really thought about Vice President Biden.
Last used during the plague, Italy’s wine windows have reopened.
Need to Know starts early and is updated until the opening clock, however register here to deliver it once in your inbox. Make sure you check the Need to Know item. The email version will be Eastern at around 7:30 p.m.
.
