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‘More Buyers Than Sellers’ Assumes a New Identity 

‘More Buyers Than Sellers’ Assumes a New Identity 

(Bloomberg) -- Tuesday couldn’t be more welcome coming off a day with curious, conflicting signals.

Wherever you looked there was something that didn’t fully add up. Chips were higher (partially due to a couple sell-side calls ahead of Micron results this week), but the tech-heavy Nasdaq index was riddled with stocks in the red. Meanwhile, the S&P saw 50% more advancers than decliners at one point heading into the final minutes.

It was a risk-off day following poor economic data from Europe, while U.S. PMI data was better than expected. And the S&P 500 was higher for pretty much all of it before selling into the close. The value factor led the momentum trade, which was among the worst performing in the factors-to-watch (FTW) function in the Bloomberg terminal (only beat out to the downside by growth), while the MTUM ETF ended the day higher.

‘More Buyers Than Sellers’ Assumes a New Identity 

But is anyone complaining? Not that I’ve seen. The fragmented nature of performance makes it hard to paint the market with a broad brush, and in theory it should be healthy for individual stock picking, especially ahead of earnings season which is a just few weeks away. Realized correlation has now plummeted well below the multi-year average (remember just a couple weeks ago when pundits sounded the alarm with stocks almost TOO correlated?), as stocks assume their own performance identities.

That becomes important ahead of major earnings on the docket this week with the potential to make waves across industries. Results from Swoosh inventor Nike is due tonight, with competitors and retailers from Under Armour to Foot Locker to Macy’s and Dick’s Sporting Goods waiting with bated breath. One thing to consider in this circumstance, as briefly discussed in Friday’s Taking Stock, is valuation with the stock near the all-time highs at $90.00.

And does that even matter? Normally, when discussing whether stocks are “priced to perfection,” there must be that compelling risk/reward. A few other stocks on the docket today are in similar boats, like Cintas (6% from all-time highs), Synnex (less than 1% from year-highs), AutoZone (shares were ~3% from all-time highs before earnings that just hit the tape showing a comp sales beat and lifting shares slightly) and Carmax (~5% from highs; earnings also just hit with earnings above expectations while comparable sales missed).

Demand Answers

And when discussing elevated valuations, you must take into account a key part of the demand equation that’s divorced from fundamentals. A variety of voices on the subject this week have already weighed in on asset values, including St. Louis Fed President James Bullard, Bloomberg Intelligence’s own Gina Martin Adams and Bernstein portfolio strategists.

“A lack of safe assets” is part the reason why yields on trillions in debt are negative yielding, Bullard said Monday. Similar sentiment was echoed by Bernstein, but this time in regards to stocks. “What traditional investors do in the equity market seems currently irrelevant” after global corporates repurchased $820 billion in stock this year and another $1.3 trillion pending, thereby negating the $246 billion worth of reallocation out of equities by other investors.

That demand setup where buying demand will simply overwhelm selling is a key aspect of what Bloomberg Intelligence strategists wrote about recently. “The idea that U.S. stocks are overvalued misses the big picture,” they wrote, citing the reduction in equity supply as opposed to overextended investor confidence. The strategists go back back to 2013 and write that just within S&P 500 companies, $3.5 trillion worth shares were bought, outpacing new issuance by 174%.

‘More Buyers Than Sellers’ Assumes a New Identity 

Fitting then that that American Express’s multi-billion dollar capital return program Monday ended up leading the Dow Index higher, adding timely credence to the above market voices. Futures this morning are also getting a lift from indications of easing trade tensions between the U.S. and China. The Chinese government has given new waivers to several domestic state and private companies to buy U.S. soybeans without being subject to retaliatory tariffs, Bloomberg reported.

Notes From the Sell Side

Snap received its second upgrade of the past week, with Guggenheim raising the social-media company to buy on its “under-appreciated core fundamental momentum.” The firm also issued a Street-high price target of $22, as analyst Michael Morris sees “strong usage trends” at the Snapchat parent, and added that its younger user base and platform improvements “should drive growth in advertiser demand.”

While shares have more than tripled off a December low, the company’s long-term revenue potential “should support a sustained premium valuation multiple,” Guggenheim wrote. Shares are up 2.4% pre-market.

Zscaler was lifted to buy from hold at Berenberg, which forecast “continued sustained growth” after it attended the cloud-based security company’s user conference. Analyst Joshua Tilton wrote that “Zscaler has superior technology relative to legacy competition,” and that he had “never met a group of customers as positive about a product as these were about Zscaler’s.”

The upgrade comes after a drop of more than 40% from a July record; Berenberg has “increased confidence in the sustainability of the multiple” following the drop.

Sectors in Focus

  • Gold miners likely remain supported with elevated metal prices despite the slight easing in trade tensions
  • E-cigarette makers (PM, MO, BATS LN) amid continued negative vaping headlines, the latest being a criminal probe of JUUL (As a reminder, Altria made a multi- billion investment in the company)
  • China and trade war-exposed stocks (CAT, MU, WMT, QCOM, CSCO, NVDA, AMAT, LRCX, INTC, AAPL, AMD, HUYA, BABA, IQ) after the China appeared to make slight concessions in the trade dispute. Officials there were said to have given waivers for tariff-free American soy purchases
  • Tech and health-focused stocks and accessories after Best Buy pledged to make health care its “next big thing” (FIT, DXCM, TNDM, AAPL)
  • GM strike continues, watch key suppliers and competitors (F, FCAU, LEA, MG CN, AXL, MRE CN, SUP). Reports midday Monday indicated layoffs were beginning in Canada

Tick-By-Tick to Today’s Actionable Events

  • HOG investor meeting
  • MDT investor meeting on surgical robotics platform; watch ISRG
  • 8:00am -- BB CN earnings call
  • 8:30am -- JBL earnings call
  • 8:30am -- LYB investor day
  • 8:40am -- Rett Wallace, Triton Research CEO on BTV
  • 9:00am -- July FHFA House Price Index
  • 9:00am -- July S&P CoreLogic Case-Shiller U.S. HPI0
  • 9:00am -- Lori Calvasina, RBC Capital Markets Head of US Equity Strategy on BTV
  • 10:00am -- September Richmond Fed Manufacturing Index
  • 10:00am -- September Conf. Board Consumer Confidence
  • 10:00am -- URGN investor day
  • 10:00am -- AZO earnings call
  • 10:15am -- U.S. President Trump speaks at the UNGA
  • 10:30am -- LLNW, WU analyst days
  • 2:00pm -- ACLS analyst day
  • 4:15pm -- NKE earnings
  • 5:00pm -- NKE earnings call
  • 5:30pm -- MDT investor day
  • 5:40pm -- Andrew Mason, Co-founder and Former Groupon CEO on BTV

--With assistance from Ryan Vlastelica.

To contact the reporter on this story: Brad Olesen in New York at bolesen3@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Steven Fromm

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