With second-quarter earnings season set to get under way, optimism for equities appears to be in short supply.
A third-straight losing day could be shaping up for Wall Street stocks as investors count down to comments from Fed Chairman Jerome Powell and hang on for dear life to hopes for interest rate cuts.
Morgan Stanley got the week started by telling investors to sell global stocks on the view any Fed cut will be overshadowed by weaker growth. There’s hope for stocks yet in our call of the day from BlackRock, whose midyear outlook says investors should get slightly more defensive against an uncertain global backdrop and raise some cash.
Unlike Morgan Stanley, they still like some stocks and are sticking to an overweight stance on U.S. equities, owing to “reasonable valuations.” That’s even as they downgraded their global growth outlook for the second half of the year.
“The risk premium that investors demand on U.S. equities has steadily fallen yet is well above the levels seen in previous cycles,” said the BlackRock team, headed by Vice Chairman Philipp Hildebrand, in a note to clients.
Equity risk premium is basically the long-term expected return advantage of holding stocks over assets perceived as risk free. BlackRock added that investors should also consider the fact that the dividend yield on the S&P 500 is comparable to that of the 10-year Treasury yield TMUBMUSD10Y, +0.46%
However, if you’re in the market for equities elsewhere, the asset manager is less keen, downshifting to neutral on European and Japan equities, largely due to exposure to China. U.S. bonds, by the way are less attractive because the Fed may ease less than the market expects.
Read: Could the Fed surprise the stock market by skipping a July rate cut? It’s not out of the question
Getting specific on which stocks to buy, BTIG’s chief equity strategist Julian Emanuel says investors should stick to energy — trade progress is among the factors that could boost oil demand, financials — central banks could boost long-term yields — and health care — “largely insulated from geopolitical crosscurrents.”
Names he likes include: Square Inc. SQ, +5.86% , Thermo Fisher TMO, -0.37% , Exact Science EXAS, +1.11% and Scorpio Tankers STNG, -1.22% and GasLog GLOG, +0.77%
The market
A third session of losses is underway for the Dow DJIA, -0.29% , S&P SPX, -0.07% and Nasdaq COMP, +0.18%
Gold GCQ19, -0.49% is softer, along with oil US:CLN19 US:CLN19 and the dollar DXY, +0.14% is steady.
Europe stocks SXXP, -0.52% got spooked by a warning in the chemical sector. Asia stocks ADOW, -0.35% also slipped.
The chart
Time to rethink your spending? Commercial bank interest rates on credit cards are now above 17% on average, the highest in decades, according to our chart of the day from the Federal Reserve Bank of St. Louis. (h/t The Daily Shot)
Read: U.S. consumer credit expands at solid pace in May for second straight month
The buzz
Shares of PepsiCo PEP, -0.57% are perking up after the drinks maker beat earnings forecasts.
Shares of German chemical giant BASF BAS, +1.56% shocked with a hefty profit warning, that also hit Europe autos, as it blamed a slowing global automotive industry and trade tensions.
Some Home Depot HD, -0.60% shoppers say they’ll boycott the DIY retailer over founder’s plans to donate to Trump’s re-election campaign.
Facebook-owned FB, +1.02% Instagram is trying to stop bullying with a new AI feature that notifies users if their comment is offensive before they post.
Deutsche Bank DB, -2.52% DBK, -2.86% shares remain under pressure a day after big job cuts. Some say the chairman should go.
A U.S. small-business sentiment index dipped on trade jitters. Job openings are still to come.
Ahead of a two-day appearance on Capitol Hill by Fed Chairman Jerome Powell, he’ll give opening remarks at a conference to discuss recent stress tests for banks. Vice Chairman Randal Quarles will speak at that same conference. St. Louis Fed President James Bullard and Atlanta Fed President Raphael Bostic will appear elsewhere.
The quote
“The bill is dead.” — That was Hong Kong leader Carrie Lam, in reference to a controversial bill that would allow extraditions to China. But protesters want the bill officially revoked.
The tweet
That’s a reference to President Trump who was spotted chowing down Monday night with New England Patriot’s owner Robert Kraft, just a few months after the billionaire’s prostitution charge .
Random reads
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