This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Make Room for Tesla
U.S. Investment Policy Notes
Dec. 23: On Monday, Dec. 21,
(ticker: TSLA) replaced
Apartment Investment & Management
(AIV) in the S&P 500. Tesla was added to the S&P 500 Automobile sub-industry index within the S&P 500 Consumer Discretionary sector. Since Tesla is now the fifth-largest company within the
by market value, sector weightings will change—one quite dramatically. In particular, the Consumer Discretionary sector grew by 13.6% from its Dec. 18 representation within the S&P 500 of 11.2% to the 12.8% exposure as of Tesla’s date of entry on Dec. 21. In order to make room for Tesla, all other sectors initially shrank from as little as 1.2% for energy, to as much as 1.9% for financials and materials.
Green Light for Bank Buybacks
Ivan Feinseth Market View 360
Tigress Financial Partners
Dec. 22: Late last Friday, the Federal Reserve announced the results of its second round of stress tests, allowing the nation’s largest banks to resume share repurchases in Q1 2021, subject to certain limitations, as long as Q4 results meet required levels. The sum of common dividends and share repurchases cannot exceed average quarterly reported net income throughout 2020. The good news is that strong banking results throughout this year, with feared loan-loss levels that never materialized, have helped improve banks’ profits, along with their currently cheap levels of valuation versus book value. Expectations are that the six largest banks could repurchase a total of $11 billion worth of stock in the first quarter of next year.
All the major banks gained yesterday on the news, along with many banks announcing new share repurchases.
(JPM) announced a $30 billion buyback. Morgan Stanley (MS) announced a $10 billion share repurchase. Both
(GS) said they would resume share repurchases next year. The news and announcements highlight the strength in the financial sector and a significant turn in business trends.
Don’t Fear Rising Bond Yields
The Leuthold Group
Dec. 22: The relationship between bond yields and the stock market changes dramatically, depending on whether the 10-year bond yield is above or below 3%. When bonds yielded higher than 3% (almost three-quarters of the time since 1900), the stock market did best when yields dropped (+11.7% annualized return), and struggled when yields rose (-0.2% annualized return).
Nevertheless, with yields below 3%, their…
Go to the news source: Tesla’s Inclusion in the S&P 500 Leaves Less Room for Some Sectors