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Apr 22, 2019

Markets I Tech Stocks Are the New Black

The Wall Street Journal.
Markets Bear logo.
Markets
Welcome back. Amrith Ramkumar with you setting up trading for the week ahead.
Stock futures are slightly lower, with major indexes still hovering near record levels. Investors are looking ahead to a first look at first-quarter GDP scheduled for Friday. 
U.S. crude-oil prices are surging on reports that the State Department is expected to announce the end of waivers for countries to import Iranian oil. 
It's a packed week on the earnings calendar, with Whirlpool on deck after the market closes today and tech behemoths Microsoft, Facebook and Amazon slated for later in the week. Results from industrial stalwarts United Technologies, Boeing and Caterpillar are also on tap. 
Plus, our Michael Wursthorn explains why some investors expect the market's favorite internet stocks to keep rising after earnings. 
 

Markets in a Minute

Markets Data
 

Overnight Developments

  • The Shanghai Composite slumped Monday, while European markets were closed for Easter Monday ahead of a packed week of earnings.
 

Low Interest Rates Push Investors Back to FANG

Highflying tech stocks are back in favor as major indexes near records. 
Wall Street’s FANG gang is growing again.
Big money managers and other investors are again buying shares of Facebook, Amazon.com, Netflix, Google parent Alphabet and shares of other fast-growing companies, as the prospects of interest rates remaining low and a still-expanding U.S. economy have pushed investors back into one of the bull market's most profitable trades.
The so-called FANG companies, as well as Apple and Microsoft, have gained $872.5 billion in market value so far this year, nearly recouping the $945 billion in losses those stocks suffered in a punishing fourth-quarter selloff. Their increase has contributed heavily to the S&P 500’s 14% gain since January.
Unlike last year, when the quick rise of technology and other growth stocks spooked investors, several say conditions are ripe for these companies to run higher.
They have still-attractive valuations, and the expectations are that many of those companies will continue to outgrow the broader market.
“The climate couldn’t be any more different from last year,” said Denny Fish, a portfolio manager who co-manages Janus Henderson’s global technology fund. He is bullish on Netflix and maintains significant positions in Microsoft, Alphabet, Amazon and others.
“Investors are now thinking through a more positive outcome, whether it’s China or the Fed,” Mr. Fish added, referring to investors’ expectations of a trade deal between the U.S. and China and the Fed’s more cautious stance.

That has more fund managers crowding into those stocks.
More than 180 fund managers overseeing $547 billion in assets said they considered the FANG stocks, as well as Baidu, Alibaba and Tencent, the second-most crowded trade in the market, behind shorting European equities, according to Bank of America Merrill Lynch’s April fund-manager survey, its highest ranking since the bank’s November survey.
Although fund managers usually view overcrowding in tech as a drawback, a factor that was frequently cited in 2018 as a major risk to the stock market, some say this year's trade is less congested, leaving more room for further upside.
Active fund managers, for example, had higher allocations to FANG stocks last month, compared with the fourth quarter, but allocations remained below levels seen over the last two years, Bank of America added in a separate report.

Market Facts

  • The WSJ Dollar Index surged to its highest level since early March on Thursday following upbeat retail sales data, pulling within 0.1% of its early year peak. The dollar is still up more than 7.5% in the past year after edging lower Friday, threatening corporate profits for large multinational companies.
     
  • The Stoxx Europe 600 climbed for the seventh consecutive session on Thursday, hitting a fresh eight-month high. The index is up 16% for the year and 5.7% below its April 2015 record. European markets were also closed Friday for Good Friday and are closed again today for Easter Monday.
     
  • On this day in 1970, the Dow dropped 1.3% to 762.61, and H. Ross Perot suffered the worst one-day personal investment loss then on record. His Electronic Data Systems dropped from roughly $150 a share to around $80 in chaotic over-the-counter trading, a paper loss of $450 million for Perot.

Key Events

The Chicago Fed National Activity Index for March will be released at 8:30 a.m. ET.
Existing-home sales for March are slated for 10 a.m. and expected to rise at an annual pace of 5.3 million compared to 5.51 million a month earlier.
 

Must Reads

Traders work in the VIX pit on the floor of the Cboe Global Markets building in Chicago. PHOTO: DANIEL ACKER/BLOOMBERG NEWS
With major U.S. indexes approaching fresh records, investors are facing a dilemma: Lock in this year’s startling gains or hang on for the ride. Many fund managers are holding back from adding to stock allocations or even reducing them, worried that the volatility that buffeted markets at the end of last year could return.
Traders wager on calm as volatility evaporates. Stock-market fluctuations have continued to shrink in 2019, a sign that some investors are embracing riskier assets again. 
The U.S. is expected to end waivers for buyers of Iranian oil. The decision could further tighten global supply as the Trump administration aims to drive Iran’s exports to zero.
Why the Uber and Lyft IPOs may lead to higher fares. The ride-hailing services' initial public offerings stand to enrich early investors. But for customers of these services, the IPOs might eventually cost them money as going public brings pressure to generate profits.
Elon Musk to tout robot cars amid Tesla sales slump. Investors are set to get a peek at the auto maker's driverless-car technology today, two days before the company is expected to report a quarterly loss.
How retirees should invest. The key to investing at a time of low interest rates is to create a portfolio that gives a dependable source of cash flow, whatever happens to the economy.
The myth of the "dumb money" is dying. A study of Vanguard clients shows individual investors to be patient and prudent. It also offers a hint as to how investors and their financial advisers can get a little smarter still, investing columnist Jason Zweig writes.
 

What We've Heard on the Street

“For Pinterest and Zoom Video, braving the public waters may be less an act of audacity than an act of necessity.”
—Heard on the Street columnists Dan Gallagher and Laura Forman
 

Stocks to Watch

PayPal Holdings: Executives at PayPal’s digital payments company Venmo have been meeting with banks since late last year to discuss issuing a Venmo-branded credit card, The Wall Street Journal reported. The firm is close to selecting Synchrony Financial as its credit-card issuer and is hoping to announce the card this year.
McDonald’s: The fast-food chain is taking “signature crafted” hamburgers off its menu, after the sandwiches slowed operations at the chain’s restaurants.
Key Energy Services: Goldman Sachs Group has acquired a 7.5% stake in the Houston-based company.
Pinterest: Shares of the online image-search company surged in their market debut Thursday, rising 28% to $24.40 from an initial-public-offering price of $19.
Zoom Video Communications: Zoom shares also rallied on their first day of public trading Thursday, advancing 72% to $62 from their IPO price of $36.
People’s United Financial: The company posted softer-than-expected earnings for its latest period, though it said its net interest margin rose more than anticipated.
Intuitive Surgical: The maker of robotic systems used in surgery reported a slightly smaller-than-expected increase in quarterly sales and missed on profits.
Exponent: The engineering and science consultancy said quarterly profits rose more than expected.

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