A Wrench Has Been Thrown Into the Market's Process: Taking Stock

(Bloomberg) -- Heck of a way to come back from a three-day weekend as the panic in Italian assets is leading to a slippage in the S&P 500 futures (now poised to open below the recent range 2,700-2,740 on the cash index) and a broader flight to safety with the dollar and treasuries bid up strong -- the yield on the 10-year tumbled more than 10bps to under 2.80% at one point this morning (remember the freakout over 3% yields?).

The U.S. markets haven’t taken their cues from Europe missteps lately, for example the economic data that consistently comes in weaker than expected or the nervousness over Deutsche Bank (shares down 37% year-to-date). But perhaps the political upheaval in Italy, the euro-zone’s third-largest economy, will be the tipping point, depending on how the situation plays out. The Italy ETF to watch here is the EWI, which has already fallen almost 10% in two weeks and is looking lower again this morning, while U.S. listed names with Italy exposure (like TI, CNHI, and FCAU) are getting hit hard in the pre-market.

The question is whether the resilience of this market rears its head again, as we saw buyers step in at several junctures last week when things looked grim off negative trade and geopolitical headlines. The S&P 500 has signaled lately that it wants to go higher, or at least remain rangebound (the intraday gyrations have been minuscule compared to what we saw during earnings season or during the early February meltdown), if you go by how quickly some of these reversals came about. But we are most definitely being thrown a wrench here with the happenings in Italy, so today should be another test for the tape.

Tech may take the brunt of the selling, given its strength and momentum year-to-date, though the semis may be aided by the sanguine reports over potential China approval for the NXP Semi/Qualcomm deal (NXPI up 3.3% pre-market).

Bank stocks should be under pressure today given the massive drop in yields, though note that several of the bulge brackets will be presenting at a Deutsche Bank conference today. On the flip side, we should see the yield proxies (utilities, REITs, telecom, staples) outperform if treasuries remain at these levels, and if the rotation to more defensive groups holds up.

Notes From the Sell Side

Some of the biggest calls so far..

Credit Suisse equity strategist Jonathon Golub is bumping up 2018-19 EPS forecasts, noting that the constructive earnings environment supports his S&P 500 target of 3,000, implying upside of more than 10% from Friday’s close..

Morgan Stanley was the lone bear on ROKU, but no more as analyst Benjamin Swinburne upgrades the stock to an equal-weight (ROKU shares up 2.5% pre-market) on solid user and monetization growth combined with recent multiple compression..

Pivotal Research gives a vote of confidence for SPOT with a buy initiation and price target of $200, which is among the highest on the Street. The analyst goes so far as to compare it to buy-rated NFLX and to add an "S" to the FAANG acronym in the title of the note.

Jefferies upgraded Ford to a buy as it’s getting "no credit for ambitious but credible cost targets and for multiple operating and strategic levers"..

Tick-by-Tick Guide to Today’s Actionable Events

  • Today -- TXMD Pdufa date for TX-004HR
  • 8:30am -- Pembina Pipeline investor day
  • 8:35am -- JPM at Deutsche Bank financials conference
  • 9:00am -- S&P Case-Shiller
  • 9:00am -- Husky Energy investor day
  • 9:30am -- BAC at Deutsche Bank financials conference
  • 10:00am -- Conference Board consumer confidence
  • 10:10am -- MS at Deutsche Bank financials conference
  • 10:30am -- Dallas Fed
  • 11:30am -- C at Deutsche Bank financials conference
  • 4:05pm -- CRM, HPQ earnings
  • 4:15pm -- HEI earnings
  • 5:00pm -- CRM, HPQ earnings calls

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