Big Tech stocks have struggled recently, with Amazon and Apple down about 7% and 5% this month, respectively. However, Alphabet, the parent company of Google, made Cornerstone Analysts’ list of stock picks.
Alphabet’s stock, which is up 35% this year, has more room to run. Analysts stated on Wednesday that Google’s reported new partnership with hospital chain HCA Healthcare is the latest positive development for Alphabet shares.
One of Cornerstone Macro’s stock picks is Estée Lauder, a cosmetics company. Cornerstone Analysts believes Estée Lauder shares will outperform this summer as demand for beauty products rises as mask mandates ease and the economy reopens.
Cornerstone Analysts also forecasted that shares of auto parts retailer AutoZone would increase in value in 2021. On both the top and bottom lines, AutoZone’s latest quarterly earnings results, released on Tuesday, easily outperformed the Street’s expectations. In the last three months, the company’s stock has increased by 21%.
Cornerstone Analysts expects these stocks to outperform their peers as stock picking returns.
Tech could bring the stock market to higher levels
The stock market could head to a new high if technology stocks perform the opposite of what they are expected to, acting as a booster instead of a drag.
According to Scott Redler, a T3Live.com partner, “Is it broken bounce or not? Is it over? If this could be sustained, the S&P could hit new highs heading into the Fed meeting on June 16th.”
“The action in the next day or so should be more important,” he said. “If tech and momentum tech continues to hold in here, it could provide a bit of a tailwind, rather than a headwind like they did in February and March.”
Facebook and Alphabet advanced Thursday, but fellow FANG name Amazon remained under pressure. Some momentum names finished higher, including Palantir, up 2.7% on Thursday; Draftkings gaining 0.4%, and Plug Power, higher by 0.8%.
Redler said it’s important that the S&P hold above 4,150, in order for the market to move to new highs.
CFRA chief investment strategist Sam Stovall said he has a market weight on tech, and says it has been helped by the decline in bond yields. Tech slid as yields rose, and the benchmark 10-year Treasury yield touched 1.75% at the end of March. The 10-year yield, which moves opposite price, has slipped below 1.60% and was at 1.59% late Thursday.
“What is in encouraging is the market seems to be rotating away from extremes,” he said. Stocks have been in a tug of war as investors tossed out tech and growth and bought cyclicals, like industrials and materials.
Stovall this week upped his year-end target on the S&P 500 to 4444, above the median target of strategists surveyed by CNBC of 4,300. He expects the S&P to rise about another 10% by the end of May 2022 to 4,620.
“One reason the yield is backing off is probably [we] won’t end up with such a large infrastructure package as was initially proposed,” said Stovall. “Investor confidence is improving because we won’t likely see a tax increase or it will be a modest one.”
Stovall expects stocks to continue to move higher by gains in global GDP and earnings growth projections. He does expect the market enthusiasm to be tempered by the prospect of a smaller infrastructure package and concerns about inflation and rising interest rates.
Important dates for the Fed — and interest rates — bookend the summer. The markets have been anticipating some clarity on when the Fed could start stepping back from its easing policies.
The Fed has said it would start discussing the tapering its bond purchases at one of its upcoming meetings. Some market pros expect to hear the first talk about tapering to come informally around Aug. 26, when the Fed holds its annual symposium in Jackson Hole, Wyoming.
But first, the market is focused on the next meeting at the start of the summer. The Fed meets June 15 and 16, and Fed Chairman Jerome Powell is widely expected to continue to sound dovish.
“Some traders are worried how the market will react if he joins the other Fed speakers and indicates the Fed should start talking about tapering,” said Redler. “If the message stays steady and he says inflation is transient, chances are the market is going to be on the same kind of cruise control it’s been on in the last couple of weeks.”
Redler said there’s a chance the cyclicals and tech can move higher together if the Fed is not too hawkish in June, triggering a move higher in interest rates.
Stovall said the month of June is not historically strong in terms of market gains, but it does not include big pullbacks either.
“The market rarely swoons in June. Adding up the pullback, corrections and bear markets, for declines of 5% or more, June has the second lowest percentage of all 12 months, second only to December,” said Stovall.
This is where the Bitcoin stands
According to a 41-page note from Goldman Sachs analysts last week, they believe that cryptocurrencies such as bitcoin and ethereum should be treated as an asset class. Goldman requested the views of several outside sources, too.
According to them, this is what they had to say:
‘Choosing the winning cryptocurrency is critical,’ says Goldman.
According to Goldman Sachs commodity analyst Mikhail Sprogis and Jeff Currie, global head of commodities research, cryptos can act as stores of value if they have other real-world uses that create value and reduce price volatility.
“Many investors now regard bitcoin as a digital store of value, comparable to gold, real estate, or fine wine,” Sprogis and Currie wrote in a May 21 note. “But, throughout history, all true stores of value have provided either income or utility, and bitcoin currently provides neither income nor utility.”
They believe that other cryptocurrencies, rather than bitcoin, which, in the opinion of one Deutsche Bank analyst, has gone from being “trendy to tacky,” are better positioned to become the dominant digital store of value.
“We believe that another cryptocurrency with greater practical use and technological agility will eventually dethrone bitcoin as the dominant digital store of value,” the analysts wrote. “Ether appears to be the most likely candidate.”
Today, it is expected to overtake bitcoin, but this is far from certain.”
According to Zach Pandl, Goldman’s co-head of global FX, rates, and emerging markets strategy, bitcoin’s potential for widespread social adoption makes it a viable store of value for future generations.
He emphasized how it has a “strong brand on top of its other properties, such as security, privacy, transferability, and the fact that it is digital.”
Meanwhile, Christian Mueller-Glissmann, a senior multi-asset strategist at Goldman, noted that bitcoin’s short and volatile history makes determining how much of a beneficial role it could play in multi-asset portfolios difficult.
Before investing, institutional asset allocators should consider the overall size and liquidity of cryptocurrencies, he said.
“The market value of global financial assets (stocks and bonds) is approximately $200 trillion, and the above-ground market value of gold is close to $11 trillion, while bitcoin has a market value of only $700 billion,” Mueller-Glissmann stated. “And, with a plethora of other, smaller cryptocurrencies already in existence and many more on the horizon, selecting the winning cryptocurrency is critical.”
He went on to say that “the potential for more regulation of the space, due in part to a lack of transparency and concerns about mining’s carbon footprint, creates significant uncertainty for investors.”
In other news, Goldman’s global head of digital assets, Matthew McDermott, stated that the firm is investing in cryptocurrency due to “client demand.”
‘Calling them currencies is a misnomer,’ says Roubini.
The note titled “Crypto: A New Asset Class?” was published on May 21. Goldman also solicited the advice of outside experts.
Nouriel Roubini, a professor of economics at New York University Stern School of Business who is staunchly anti-crypto, was among them.
“To call them currencies is a misnomer,” he explained.
“Currencies must possess four characteristics: they must be a unit of account, a means of payment, a stable store of value, and a single numeraire. Bitcoin and the majority of other cryptocurrencies lack all of these features.”
He also stated that they are not assets because assets have some form of cash flow or utility that can be used to calculate their fundamental value.
According to Roubini, the idea of corporate treasurers allocating to crypto assets is “completely insane.” “Sure, Elon Musk can do it because he is the boss, though he has since backed off on bitcoin due to environmental concerns.”
Musk’s Tesla revealed in a February SEC filing that it had purchased $1.5 billion in bitcoin and would accept it as payment. However, Musk tweeted on May 12 that the company had “suspended vehicle purchases” using bitcoin due to concerns about the “rapidly increasing use of fossil fuels” for bitcoin mining. The price of bitcoin fell as a result of the tweet.
‘We’ve now reached a critical mass of institutional engagement,’ say investors.
The Goldman note also mentioned Michael Novogratz, co-founder and CEO of investment firm Galaxy Digital Holdings. He is known as a crypto bull, and he believes that the fact that a critical mass of credible investors are investing in cryptos has cemented their position as an official asset class.
“We have now reached a tipping point in terms of institutional engagement” (in crypto). Everyone from the major banks to PayPal and Square is getting more involved, which is a clear indication that cryptocurrency is now an official asset class,” he said.
Novogratz, whose firm is involved in crypto investing and trading, asset management, and venture financing, believes institutional interest in bitcoin will remain strong as long as the current macroeconomic and political environment persists.
In the meantime, Michael Sonnenshein, CEO of Grayscale Investments, one of the world’s largest digital asset managers, believes in cryptocurrencies. He claims that their strong rebound last year reassured investors about their asset class’s resilience, and that institutional investors now generally recognize that digital assets are here to stay.
According to Sonnenshein, investors are increasingly drawn to the finite quality of assets like bitcoin — which is verifiably scarce — as a way to hedge against inflation and currency debasement, as well as diversify their portfolios.
“I have yet to find someone who has truly done their homework on crypto assets who isn’t truly amazed by the asset class’s potential,” he said.
According to Sonnenshein, the arrival of Dogecoin has demonstrated how simple it is to create a digital asset.
“It is critical for investors to examine use cases and whether the asset is viable and has the potential to gain real-world traction by solving a real-world problem versus a solution in search of a problem that may not exist,” he said.
In the meantime, Novogratz stated that dogecoin is a much more speculative asset than bitcoin.
“It is unlikely to have long-term legs because no institution is buying it, and retail will lose interest at some point,” he said.