Yes, we did it again. The S&P 500 and Nasdaq both set records again. Bond yields rose as the optimism for the economy gain traction. The 10-year Treasury yield rose to 1.35% as the expectation of long term economic demand brightens.
We also see highly sensitive economic stocks such as the Industrial Sector ETF, XLI, rose 0.7%. Financials also see good movement as they benefit from charging higher long-term loans while borrowing at a lower short-term interest rate.
With good vaccine booster jab development, it appears that while the Covid-19 Delta variant continues to be a wild card for businesses, market participants aren’t that worried now about the stalling earnings growth.
Financials On the Spotlight Once Again
We have seen yet another round of stocks buyback from financial forms that bodes well for the sector in the coming months. According to BofA, corporate buybacks is up by 49% on a y-o-y basis. The base effect does work the magic on the figure since the buyback activity is still about 14% lower than in 2019 during this period.
Notably, Pika World has been accumulating financials during the pullback. It seems that the financial firms had moved ahead of technology firms with the largest absolute dollar sum spent on buybacks this year. Hence, we expect the stocks to outperform for the next few months if the firms are buying back stocks on an elevated level.
For that, Pika World appreciates the eagerness for financial firms to return capital to shareholders since the Fed remove the restriction on dividends and ease capital preservation during the pandemic.
Likewise, Pika World favourites, financial ETF, and XLF have gained about 32% this year, and we expect a renewed ascent should the economic recovery sustains its traction.
Tesla: Europe a Blooming Spot
As much as Pika World favours the accumulation of European stocks during this mid-cycle transition phase seen in the US, Tesla is getting a boost from delivering their Model Y crossover vehicle in Europe, which is earlier than expected.
Investors are eyeing the long term plan to boost product expansion to meet its aggressive goals. It is worth mentioning that Tesla had initially planned to deliver the European Model Ys from its Berlin plant, which is expected to complete around October. In this episode, Tesla had shipped some Model Ys from the Shanghai plant instead to cater for the European demand.
Pika World remains optimistic about Telsa despite ramping up competition from legacy auto brands.
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