LIVE MARKETS SEC cash market proposals could dent appeal of top funds

LIVE MARKETS SEC cash market proposals could dent appeal of top funds ...

Dec 22 - Welcome to the home of a market reporter who told you about what he came from. I share the thoughts with you at our house in real time.


New money market reforms proposed by the Securities and Exchange Commission (SEC) would likely dent the appeal of tax-exempt money market funds, if they are implementable.

The SEC last week proposed new rules for money fonds, including new liquidity requirements, scrapping redemption fees and restrictions, and adjusting funds' value to suit transactions, a process known as "swing pricing".

If implemented, this would create an extremely difficult operating environment for institutional prime and tax-exempt funds said JPMorgan fixed income analysts recently in a report. The value proposition of institutional prime MMFs would be lower with the implementation of swing pricing and permanent higher liquidity minimums.

Government-owned, tax-exempt funds invest in short-term credit instruments such as commercial paper as well as US securities.

The implementation of swing pricing, where the NAV of the fund would be re-asked up or down to account for the price impact and the transaction costs generated from large redemptions, would require significant operational adjustment.

If this is for a long time, it could improve the appeal of funds to investors and affect about $620 Mrd. of AUMs now in a major institutional banks.

This, in turn, would mean less yield split between the government and prime banks, said JPMorgan.

The bank expects that some major funds convert to government funds if the proposals are implemented, but noted that demand for commercial paper should remain solid even in this event as there are a diverse group of investors in the sector.

Separately, Fitch Ratings recently commented on the SEC's money market fund move.

(Karen Brettell)



The current direction of the Federal Reserve to raise interest rates for the new year could be hampered by the possibility that rate hikes could invert the yield curve, said a reporter in a report Wednesday.

At issue is that the central banks long-term terminal fracking rate is 2.5%, which would take it above long-term Treasury yields. This move would push the yields of short-term debt above long-term debt, an inversion that has signaled every coming recession since the 1970s.

Certainly the Fed is aware that the risk of pushing interest rates to the point where the yield curve inverts. So now, it's clear, that the Fed's plan is to tread lightly after the first few cycle of interest rates increases next year, said Gillum.

LPL expects the Fed to raise rates in June 2022 and follow a slower, tense, and deliberate direction.

The most important question is how high and fast will the Fed hike? If the Fed is able to continue this hike, the possibility that it can, significantly, be limited at this point, but we're likely to stay in a lower rate for the foreseeable future, said Gillum.

(David Randall)



Clean energy stocks were market darlings last year. However, the blue tide, once again, became a red wave in 2021.

After posting the biggest earnings forecast for this year, 203%, WilderHill has slipped around 30% so far this year. The S&P 500 index is 26% year-to-date (YTD).

Of note, clean-energy stocks have hit a low in the wind since the election of Joe Biden on Nov. 3, 2020.

ECO went paralyzing from that date, ultimately topping 3 weeks after Biden took office. After crashing into a low in May, the group failed to regain the 38.2% index, and retracement of its decline in June, and again in November.

Earlier this week, the ECO made a round trip back to where he was on the day Biden was elected. The index fell to a low of 142.39 on Monday, resulting in a higher value of 141.01. At its low on Monday, the ECO had a half-dozen centigrade from its February peak.

The index has since bounced, but remains well below its descending 200-day moving average (DMA).

When the SPNY went up around 46%, the combined ECO/SPNY ratio has gotten lower since July 2020.

And this is happening so closely as President Biden's "Build Back Better" bill, which was intended to cover the needs of a host of programs to stop climate change, met serious opposition.

Now is unclear whether the ECO's bounce from a near-touch level of Biden election day could be a more lasting rise.

(Royal Gabriel)

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The omicron wave might soon become an active tool for the small and midcap stocks, Jefferies said in separate reports Wednesday.

The small-caps have fallen prey on the possibility that the increasing case counts will affect the economy. Yet signs that the omicron wave is contributing to fewer hospitalizations will probably grow as the share of smaller companies in the new year, wrote BofA strategists.

As of last year, there was a higher correlation between small and large-cap performance, which showed a higher rate of progression to hospitalizations (which recently ticked down), compared to new cases, a report noted.

When comparing a large aquities to the Russell-based benchmark, attractive valuations should also be a boost to the return in the next quarter, noted Jefferies. The price to earnings ratio of the Russell-2000 has fallen to 25 by 32 at the end of January, the report noted.

Smallers should beat big by over 6% over the next 12 months," Jefferies said.

The smallest of the small gains 8.4 per year by a percentage of the year's rise by 3.7%. In the second year in January, the small figures fall by 8.4% at any time in the second quarter, figures reveal.

Among Jefferies' buy recommendations are Dave and Buster, Entertainment Inc., Urban Outfitters Inc., and National Vision Holdings Inc.

(David Randall)


DEFENSIVE?! (1035 EST/1535 GMT)

The S&P 500 has recorded a flurry of failures over the two days, and surpassed the record high set on November 22, and the economy has benefited from some hefty concerns about the hawkish Fed, the Omicron variant spread and the uncertainty surrounding the possibility that the Build Back Better plan will pass in Washington.

For this reason, the tone has been more defensive in the month final, with sectors such as consumer goods and utilities being ranked the top performers thus far in December, while those who get to higher growth prospects like consumer discretionary and technological have lagged, posing the question whether this portends stormy seas for the broader market.

In an announcement recently, Bespoke Investment Group looked at the outperformance using ETFs between the staples and discretionary and found that when the staples outperformed discretionary by 10 or more percentage points on a month-to-date basis, the S&P 500 suffocated in the intermediate-term going back to 1990.

Looking at the industry's performance through Tuesday's close, staples outperforming discretionary stocks by about 9 percentage points:

At Sentiment Trader, Jason Goepfert looked at the recent strength of the staples and found that the percentage of staples trading above their 50-day moving averages reached 90% last week, while fewer than 25% of stocks on the Nasdaq managed to hold that level, the widest spread between these two in at least 30 years.

Even though it didn't compare that to Bespoke's, Goepfert found that comparing the two isn't a good predictor of a market fall, with only one thing leading to a massive and massive decline since 1990.

(Chuck Mikolajczak)

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Wall Street's principal indexes are almost flat on Wednesday morning, with lingering concerns over the omicron variant of the coronavirus and what it might mean for the global economy.

At its current state, the S&P 500 is currently close at around 4,618 feet, a second straight near the DMA's 50-day moving average.

The Nasdaq's 50-DMA is around 15500 feet above the closely watched intermediate-term moving average.

Here's what markets are all about early: trading.

(Dece d'Azur)


S&P 500: BULLS GET A BULLETIN (0,900 EST 1400 GMT)

As the day came when the index closed, the index climbed in about 3 percent from its last round of $712.02 November.

In the meantime, the five day moving average of the CBOE equity put/call ratio (P/C), which can be viewed as an inverse measure of sentiment, is suddenly cooperating with bulls : ) :.!?

In the last week of June 2012, the P/C measure rose to 58% and 58.2% readings on December 6 and December 16 and now stands at 51.8%. Of note, since the bill has dropped to 40.2%, the P/C measure is ranged between high-30% and low-60% readings.

If the pattern is not so long ago, this measure could have signaled that markets fell slightly over the past few weeks, that the SPX could resume its recovery a long time.

Also, traders will be watching for a moment whether the P/C measure can swarm back below 40 percent.

A P/C measure breakouts much lower than the low--60% area may signal the onset of panic. The measure peaked at 10,5 p.m. on March 17, 2020, during the massive S&P 500 collapse.

(Serence Gabriel)

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Our standards: the obliteration of a standard.

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