* S&P ~flat; Nasdaq, Dow cling to small gains
* Small-cap Russell 2000 off highs, but still up >2%
* Industrials, materials lead S&P sector gainers
* Utilities, comm services weakest groups
* Dollar slips, crude tumbles; gold gains modestly
* U.S. 10-Year Treasury yield ~1.35%
Feb 19 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
TIME FOR A BREAK BEFORE DANCING THE CHARLESTON? (1352 EST/ 1852 GMT)
While the market often seems unable to do little else but rise, some investors are waiting for a change.
In his latest report, Brett F. Ewing, Chief Market Strategist at First Franklin Financial Services, says that the market may be "ready for a pause in the short run to digest the recent melt-up."
Ewing also notes that seasonality after a new party takes over the U.S. presidency, tends to be at its worst at the end of February through early April and that with bullish sentiment and risk-taking levels at highs this creates a "tough environment for stocks to push higher immediately."
But the strategist is most bullish on cyclical areas and international stocks that are most tied to reflationary trades and notes that stimulus and an accommodative Fed will prompt investors to buy the dips throughout the year.
With an upgrade cycle in credit markets, Ewing sees high yield as a segment that could benefit most. And savings rates nearing 40-years high should support consumer spending and an "especially strong leisure travel market in the back part of the year."
So he concludes that "the wealth effect is as strong as we’ve ever seen it and is not being talked about enough as something that could usher in a new roaring 20s environment of spending & risk-taking."
(Sinéad Carew)
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PROFIT ESTIMATES LOOKING UP (1301 EST/1801 GMT)
Estimates for first-quarter earnings are rising following upbeat reports and guidance from S&P 500 companies this reporting period.
Analysts' forecast for first-quarter earnings growth has gone from 16.0% on January 1 to 21.1% as of Friday, IBES data from Refinitiv shows.
The improved forecast follows stronger-than-expected fourth-quarter results, with S&P 500 fourth-quarter earnings now expected to have increased 3.7% from the year-ago quarter, based on results from 399 companies and estimates for the rest.
At the start of January, fourth-quarter earnings were expected to have declined 10.3%. The improvement marks the fourth-largest improvement in estimates based on IBES' records going back to the third-quarter of 2002, according to Refinitiv.
Nearly 82% of the earnings reports have beaten analysts' expectations.
At the same time, there have been more positive outlooks from companies versus negative ones. So far, there have been 38 negative EPS preannouncements issued by S&P 500 corporations on the first quarter of 2021, compared with 46 positive, which results in a negative-to-positive ratio of 0.8 for the S&P 500 index, Refinitiv's data shows.
This compares with an average N/P ratio of 2.6 since 1997 and an average N/P ratio of 1.2 for the last four quarters, the data shows.
That improvement has helped to support the outlook for stocks. "Rising commodity prices, a widening yield curve and positive EPS estimate revisions set the stage for abnormally high corporate earnings growth in 2021. This is why risk asset prices are rising!" Nick Raich, CEO of The Earnings Scout, wrote in a note on Friday.
(Caroline Valetkevitch)
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BULLS BACK ON THE CHARGE (1215 EST/1715 GMT)
The percentage of individual investors characterizing their short-term outlook as “bullish” rose to a nine-week high in the latest American Association of Individual Investors Sentiment Survey (AAII). With this, both pessimism and neutral sentiment edged lower.
AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, increased 1.6 percentage points to 47.1%. Optimism was last higher on December 9, 2020 (48.1%). Bullish sentiment is above its historical average of 38.0% for the 12th week out of the past 14 weeks.
Bearish sentiment dipped 0.9 percentage points to 25.4%. The historical average is 30.5%.
Neutral sentiment slipped 0.7 percentage points to 27.6%. Neutral sentiment remains below its historical average of 31.5% for the 54th time out of the past 57 weeks.
With these changes, the bull-bear spread rose to +21.7 from +19.2 last week :
In this week's special question, AAII asked its members whether they are concerned about future inflation.
More than half of all respondents (56%) said that they are very concerned about the possibility of inflation growing stronger in the near future.
This compares to 30% of respondents who stated that they are moderately concerned, but don't think it will have a major impact. In addition, about 12% of respondents said that they are less concerned about the near future but highly concerned about inflation over the long term.
(Terence Gabriel)
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BUYBACKS AND NEW ISSUANCES: HELPING AND HINDERING (1146 EST/1646 GMT)
Exactly a year after the market peak that preceded the 2020 COVID-induced crash, equities have been charging ahead for the most part, and Friday's EPFR Weekly Liquidity Review, from Informa Financial Intelligence shows some of the behind-the- scenes data that's been pulling and dragging.
While U.S. companies are issuing massive amounts of shares each week, putting pressure on market momentum, they are also eliminating a large number of shares through repurchase programs, according to the report.
The firm points to impressive buyback announcements in earnings season, suggesting optimism about the future among U.S. corporations and a level of support for stock prices.
It notes that corporate buying announcements, including new cash takeovers and stock buybacks, jumped to $108 billion in January and has already reached $94.9 billion so far in February. This was the third month in a row that buying exceeded $100 billion, for the first time since the May-July period in 2018, it said.
With stock buyback announcements averaging 6, for $7.8 billion, per day in the first five weeks of earnings season, the volume is running at the fastest pace in the company's records, which date back to 2006.
Of course countering the boost from buybacks is new offerings which have already exceeded $100 billion in 2021, and the research suggests that the flood of new equity issuance is one factor hindering momentum for market averages.
The report cites $10.3 billion, or $2.6 billion/day, of new offers for this holiday-shortened week compared with a massive $24.2 billion, or $4.8 billion/day, in the previous week.
On Friday, the major averages are in positive territory with cyclical sectors among the biggest gainers.
(Sinéad Carew)
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HOME SALES, SERVICES: AN END TO A WINTER OF PANDEMIC DISCONTENT? (1125 EST/1625 GMT)
Home sales and services activity data provided welcome upside surprises on Friday, providing market participants hope that the coming spring will help the U.S. economy dig itself out from the year-long pandemic recession.
Sales of pre-owned homes defied analyst expectations by rising 0.6% in January, to 6.69 million units on a seasonally adjusted annualized basis, according to the National Association of Realtors.
While a slight deceleration from December's 0.9% pace, the number was much brighter than the -1.5% consensus.
Flight to lower-density neighborhoods in search of home office space, along with historically low mortgage rates, has sent demand spiking and inventories shrinking to all-time lows.
However, the constraint comes from record low inventories that are boosting prices and could impact affordability. Also, while mortgage rates remain low, they are edging up and mortgage purchase applications are slowing, a potential signal of some weakening in demand.
"Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market," writes Lawrence Yun, chief economist at NAR. "Sales easily could have been even 20% higher if there had been more inventory and more choices."
In a separate report, global financial information firm IHS Markit released its advance "flash" purchasing managers' indexes $(PMI.UK)$ of business activity in February.
While manufacturing PMI showed a modest loss of momentum, falling 0.7 points to a reading of 58.5, activities in the services sector surprised analysts by accelerating 0.6 points to 58.9.
A PMI number above 50 signals expansion over the previous month.
The customer-facing services sector was hit hard by shutdowns to contain the pandemic, and its revival provides a glimmer of hope that lower-wage services jobs could be set for a rebound.
"The services recovery will maintain its K-shaped nature in the near term, with leisure and hospitality languishing while financial and business services, information technology, and communications proving most resilient," says Oren Klachkin, lead U.S. economist at Oxford Economics. "We expect the recovery’s dynamics to flip in the summer, as vaccines allow the hardest-hit service industries to reopen once herd immunity is reached."
Improved risk appetite attracted buyers to equity markets in morning trading.
All three major U.S. indexes are modestly higher.
(Stephen Culp)
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U.S. STOCKS GRIND HIGHER IN EARLY TRADE (1010 EST/1510 GMT)
Major U.S. indexes are modestly higher in early trade. This is after Markit February manufacturing and services PMIs met, or exceeded, estimates. January Existing Home Sales came in at 6.69 million vs a 6.61 million estimate.
Meanwhile, Caterpillar is leading the Dow Jones Industrial Average higher. CAT is hitting an all-time high after Deere raised its outlook on improved demand.
The VanEck Vectors Agribusiness ETF is rallying around 2% and also hitting a record high.
Chip stocks are also strong. Although, not a record high, the Philadelphia SE Semiconductor ETF is up around 2%. This after brokerages hiked price targets on Applied Materials
, after the chip-equipment maker gave an upbeat forecast.
Here is a snapshot of where markets stand in early trade:
(Terence Gabriel)
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VACCINATIONS AND REFLATION IN CREDIT MARKETS (0941 EST/1441 GMT)
Goldman Sachs analysts are eyeing traces of two global investment trends in the credit markets: vaccinations and reflation.
The divergence between Europe's sluggish vaccination pace and the much faster drive in the U.S. -- evident in a variety of financial assets -- is also starting to make its mark on high yield bond markets on both sides of the Atlantic, they said in a research note.
Goldman Sachs analysts note that sectors directly impacted by COVID-19 in the U.S. high yield bond market have largely held onto the gains they pocketed during the November credit rally.
But in Europe, momentum around the economic reopening theme has started to dampen, which has weighed on the relative performance of its COVID-disrupted high yield sectors.
COVID-hit long-short European sectors are delivering a loss of over 2% relative to COVID-resilient peers in the high yield market in February, while that loss is less than 1% in the U.S.
However, with Goldman Sachs economists expecting Europe to have vaccinated the majority of its population by June, the bank expects the European underperformance to be temporary.
Turning to the other theme of the hour in global markets: the reflation trade, the analysts note that illiquid U.S. dollar investment grade credit has received a boost since the reflation theme came into focus following the U.S. elections in early November.
Low bond yields have increased appetite for particularly illiquid pockets of the market, and reflation hopes provide fundamental macro support.
On top of that, a recovery in market liquidity near pre-pandemic levels likely gives investors more confidence to hold those positions.
Goldman notes that bid-ask spreads -- the ease with which investors can enter and exit positions -- in the U.S. investment grade market are just a handful of basis points away from pre-pandemic levels.
(Yoruk Bahceli)
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NASDAQ COMPOSITE: TIME TO PUT 'EM UP (0900 EST/1400 GMT)
Today marks the one-year anniversary of the Nasdaq Composite's February 19, 2020 top. From that high, the tech-laden index ultimately collapsed more than 30%.
Of note, at this time, a measure of the Nasdaq's internal strength has essentially reached a long-term resistance barrier that stopped its rise in late 2018. Thus, the IXIC appears set for a fight:
Indeed, Nasdaq's cumulative net new highs (running sum of new highs - new lows), on a weekly basis, has risen to a reading of about 169.4k.
This measure is now almost tagging a resistance line from 1998. This line capped strength in the late summer/early fall of 2018, just ahead of what would prove to be a more than 20% collapse in the Composite. The line now resides around 170k.
Meanwhile, as this measure is nearly touching the resistance line, its upside momentum is waning. Its 1-week rate-of-change has fallen to a 3-1/2 month low.
A weekly down-tick in cumulative net new highs, followed by a break of its 10-week moving average, could suggest that an important bearish trend change is occurring within the Nasdaq. Conversely, taking out the resistance line could suggest room for a more protracted bullish phase.
Therefore, given the measure's proximity to the line, it may be put up or shut up time for the Nasdaq.
(Terence Gabriel)
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FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE:
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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