Reopening stocks rally, DAX, Dow, S&P 500 at records

The fallout from the Archegos scandal continues to reveal more damage. Credit Suisse said it will take a charge of $4.7 billion and now expects a first-quarter pre-tax loss of around $960 million. Investment Bank CEO Brian Chin and chief risk & compliance officer Lara Warner are falling on their swords. There is a point to be made here about conflating Risk (are counterparties good for the dosh?) with Compliance (are counterparties terrorists?). Clearly the two are not easily combined. Indeed I cannot think why a trading or investing business would think the two are complementary in any way. Antonio Horta-Osorio will have his work cut out when he joins as chairman. 

US stock markets surged to fresh record highs on Monday as boom in service sector activity last month sets up a handsome economic recovery. The Dow Jones industrial average rose over 370pts to 33,527, a fresh all-time closing high, whilst the S&P 500 rallied 1.4% to set a new record close at 4,077. The Nasdaq also managed to rise 1.7% but remains short of its February record. The Dax has hit a fresh record high today.

The three pillars of the stock market record highs are ultra-loose monetary policy, fiscal support and the proof of the pudding: economic recovery. Jay Powell has (for now) put the doubters about point one to bed, whilst Biden’s Covid relief package and infrastructure bill are more than delivering on point two (and partially point three) by pumping somewhere in the region of 20% of US GDP into the system. That liquidity needs to find a home; and will help with corporate spending. On point three, the evidence is starting to look very good: Friday’s payrolls report delivered a blowout 916,000 jobs, whilst the gauge of US services activity jumped to a record high in March. Pent-up demand and a jobs boom are there.  

European markets rallied firmly as they play catch-up after being shut for Good Friday and Easter Monday. In early trade on Tuesday, the DAX hit a fresh all-time high and the FTSE 100 rallied 1% to hit 6,840 and mark its highest level since January. BP says it will resume buybacks after hitting its debt reduction goal. The domestically-focused FTSE 250 is up another 1% to above 22,000, moving closer the Jan 2020 all-time high as the UK’s economic recovery and exit from lockdown remains on track. Reopening favourites Cineworld, Carnival and National Express were all up about 5%. Deliveroo shares are flat ahead of the start of unrestricted trading tomorrow – let’s see what kind of reaction there is as the thousands of retail clients who have watched the sharp decline last week get a chance to offload (remember these were Deliveroo customers who were not necessarily owners of any stocks before). Overnight the RBA kept rates on hold, whilst the PBOC was said to be asking Chinese banks to limit credit supply for the rest of the year amid fears of a bubble. 

Trading themes…

Tesla rallied over 4% after reporting record first quarter deliveries. In total, Tesla delivered 184,800 units in Q1, about 10k ahead of consensus estimates. That has helped stem the run of declines but the stock price is yet to recover the mid-March level of about $707. 

GameStop declined almost 2% but ultimately held up very well on news the company plans to sell up to 3.5m shares to raise about $1bn to fund its e-commerce strategy. As previously noted, shareholders who have bid up the stock in recent weeks should be pleased. First, although it entrails a meaty dilution, the cash call is entirely expected and two, without a big capital raise now, taking advantage of the price of the stock, Cohen and co wouldn’t have much cash to meet their lofty ambitions. Recent announcements by the company have made it plain Chewy.com founder Cohen has a singular aim of making GameStop the ‘Amazon of gaming’. Meanwhile Roblox shares rallied 5% after Goldman Sachs initiated coverage with a buy rating. 

Yet another familiar theme crops up today: Cathie Wood. We talked last week about the ARKX space ETF’s second-largest holding being another ARK ETF, the 3D printing fund (PRNT). Now ARK is adding Trimble, ARKX’s number one holding, to its flagship Innovation ETF (ARKK). Filings show ARKK initiated a position in Trimble, almost half a million shares on Thursday. ARK already owned more than 2.4 million shares of TRMB through the ARK Autonomous Technology & Robotics ETF (ARKQ). I’m no ETF expert but I don’t like the look of all this.