This is the web version of Bull Sheet, a no-nonsense daily newsletter on what’s happening in the markets. Sign up to get it delivered free to your inbox.
Good morning, Bull Sheeters.
After a volatile week last week, stocks and futures are trading sideways this morning. All the action is in crypto, and it doesn’t look good.
The crypto price board is a sea of red after Tesla CEO Elon Musk over the weekend took on Bitcoin bulls in a series of Twitter exchanges. At one point, $BTC sank to $43,000, before recovering. The fallout didn’t end there. Ethereum is off more than 7%, too.
So, to recap, the bull-case argument for Bitcoin goes something like: it’s the future of money 🚀, completely independent of meddlesome central banks. But Bitcoin bulls are also like, hey, Twitter, can we silence this meddlesome Musk guy? He’s singlehandedly killing my Bitcoin portfolio. 🙄
Let’s spin the globe, and see what’s moving markets.
Markets update
Asia
- The major Asia indexes are mixed in afternoon trading with the Shanghai Composite up nearly 0.8%.
- The slump in Taiwanese equities is being called “the world’s worst.” Stocks in Taipei fells as much as 4.2% at one point on Monday as the government tightens restrictions as COVID flares up there.
- After a slight pull-back last week, copper prices are surging again this morning, surpassing $10,350 per metric ton.
Europe
- The European bourses were a nice shade of green at the open, with the Stoxx Europe 600 up 0.3%, before slipping.
- The British pound climbed this morning and London’s FTSE was up 0.2% out of the gates as the U.K. begins to reopen fully from one of the world’s most stringent set of COVID restrictions. Travel stocks were higher on Monday, before falling.
U.S.
- U.S. futures are down, but off their lows. That’s after all three major averages finished last week in the red despite a nice bounce on Friday.
- Shares in AT&T were up 0.1% in pre-market as reports swirl the telecoms giant will spin off its entertainment units, which include CNN, and merge them with Discovery.
- We’re getting to the end of earnings season, with fewer than 10% of S&P companies still to report. Coming up this week on the calendar are: Walmart, Home Depot (tomorrow), and Cisco on Wednesday.
- Also on the calendar: existing home sales on Thursday.
Elsewhere
- Gold is rallying again this morning, trading above $1,850/ounce.
- The dollar is flat after a rough week.
- Crude is up slightly with Brent trading around $68/barrel.
- Maybe Bitcoin should stick to a Monday-Friday trading schedule. At 3 a.m. ET, it was hovering just over $44,000. I don’t need to remind you that roughly one month ago it hit nearly $65,000.
- Let’s go back to lumber prices. July futures contracts sit at $1,390, a 17% decline in the past week.
***
What to make of last week’s sell-off
Last week was one of those gut-check moments. Through midweek, the S&P 500 had fallen as much as 4% as inflation jitters gripped investors. Tech stocks took the brunt of the sell-off.
But investors jumped back in on Thursday and Friday, uncharacteristically buying in May—buying on the dip, that is. When the dust had settled, the benchmark index ended the week down 1.4%.
All told, eight of the 11 S&P sectors last week finished in the red, with consumer discretionary (-3.7%) and information technology (-2.2%) the biggest laggards. And again this morning tech futures are under pressure.
Looking ahead, what can investors expect? Will the Thursday-Friday rally continue? Or, will inflation worries sink the markets yet again this week?
The S&P performance over the past month may be more indicative of what’s to come. Zooming out, the S&P is virtually flat (+0.78%) over the past month, a stretch that coincides with an impressive corporate earnings period. According to Goldman Sachs, Q1 EPS for S&P firms has grown 46% year-on-year, 20% above consensus estimate.
That’s prompted Goldman to raise its full-year 2021 EPS estimates to $193 for the S&P 500, representing a staggering annual growth of 35%. In short, Goldman believes Corporate America is going from strength to strength.
That should be good for your portfolio. Right?
Not exactly. Even though Goldman is upping EPS, it’s not touching its S&P 500 price target. The three- and six-month price target remains 4,300 (up 3% from today), which would mean stocks will close out the year trading around 22X earnings.
So, in Goldman’s view, the “E” in EPS will grow, and that’s good. But “S” will barely budge—less good for your portfolio.
“We believe three factors will keep the forward P/E multiple unchanged at roughly 22X: Decelerating U.S. growth, a real rate-driven rise in yields, and the likely passage of tax reform,” Goldman’s chief U.S. equity strategist David J. Kostin writes in an investor note.
By Goldman’s calculation, stocks have maybe another 3% of growth packed in them for the rest of the year. That’s better than what we saw last week, but fairly lackluster compared to a year ago.
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
How much inflation will the Fed tolerate? That's the question posed by the Wall Street Journal's James Mackintosh who believes prices could continue to climb and climb and climb, breaching even 5% in the coming year. That alone—as long as it's temporary— won't necessarily trigger a move by the Fed, he argues.
Tax man cometh. It's May 17, which means tax-filing deadline day for some of you. If you made money on your crypto bets, the IRS wants to know about it. As my colleague, Chris Morris, reports, "The IRS is prioritizing an effort to enforce reporting on crypto trades to find people who have neglected to report their windfalls. And it’s starting with two lawsuits."
Fear not. McKinsey's Vivian Hunt offers up three compelling reasons why businesses ought "to do more—to actively embrace" stakeholder capitalism, "making it central to strategic decision-making and corporate values." The first, Hunt says, looking out for others, and not just concentrating on the bottom line, is good for business.
A reminder. On June 8-9, Fortune will host its annual Fortune Global Forum. Fortune's Lee Clifford and I will be your co-chairs. There's a blockbuster lineup of CEOs and business leaders who will join us to discuss what to expect from the economic bounce back, plus tackle the big issues around innovation, growth, sustainability and leading in an age of true disruption. Come and join us for two great days of discussion. Registration is now open.
Some of these stories require a subscription to access. There is a discount offer for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.
Market candy
Quote of the day
This week the housing market took a very tiny step in a buyer-friendly direction. It is still solidly a seller’s market... However, homebuying opportunities could be on the horizon.
That's Danielle Hale, chief economist at Realtor.com who notes there's been a lull in America's raging hot housing market, which could spell a buying opportunity for homebuyers. Alas, there's a catch. Fortune's Lee Clifford explains in our latest 8-minute expert series.
