Equities rebound, but risks remain tilted to the downside

US equities rebounded on Tuesday amid heated discussions about the impact of Facebook on public health and the worst oil spill in California.  

Major US indices traded in the green, as Nasdaq led gains. Both Nasdaq and the S&P500 rebounded back to their 100-DMA levels, but the US 10-year yield advanced to 1.57%, warning that the selling pressure on equities may not be over just yet.  

Still, growth stocks had a good day yesterday. Facebook rebounded more than 2%, along with other FAANG stocks. Netflix jumped more than 5% and Alibaba recovered 2.5%. But again, that doesn’t mean that the danger is over.  

A small parenthesis: discussions on Facebook may not hurt its share price in the longer run. As bad as it sounds, investors weren’t too unhappy hearing that Facebook put profit before data security and social health. Therefore, I wouldn’t expect to see a long-term impact on its share price, unless we have a concrete action taken against the company. 

US ADP report: Soft data could dampen the mood 

Due today, the US ADP report will give the first hint on how well the US labour market did in September. The US economy is expected to have added near 430’000 private jobs in September. We are now talking about numbers far below the 800’000 or a million job additions of the post pandemic recovery.  

Any weakness in the jobs figure could dampen the market mood again, as soft economic data could no longer revive the central bank doves, as the spike in energy prices continue fueling expectations of higher inflation for longer. Therefore, central banks will be forced to cool down the overheating in inflation rather than trying to boost recovery. As a result, any softness in data could send the US equities back below their 100-dma levels. 

Speaking of rising energy prices 

The barrel of US crude flirted with the $80 per barrel on Tuesday, backed by news of the worst oil spill in California in almost three decades. But the upside remained limited approaching the $80pb level, as the latest API data showed that the US oil inventories increased by a million barrels last week, versus 300’000 decline penciled in by analysts. The more official EIA data, due today, will clarify the latest move in US crude inventories. The expectation is a 800’000-barrel increase, if met, could temporarily temper the bulls. But the trend is clearly to the upside, as OPEC plays for higher energy prices, and the natural gas futures continue posting an exponential rise as we start feeling the cold weather knocking at the door. We knew that fighting against the climate change would have a cost, and that cost starts materializing. In this respect, oil bulls will likely continue their journey north, but higher oil prices, combined with the global supply shortages and the bottlenecks can only dampen the earnings expectations for many companies, and weigh on the stock prices into the next earnings season. 

If cryptocurrencies are the future, Bitcoin may not be the future of cryptocurrencies 

Last, but not least, Bitcoin advanced past $50K yesterday as the SEC said the US won’t ban digital coins, and the Bank of America decided to cover the cryptocurrencies as a part of their research, saying the crypto assets are now ‘too large to ignore’.  

But looking at the global energy crunch and the fight for climate, the huge energy consumption of Bitcoin could, at some point, become a burden for Bitcoin and get investors looking for greener versions of Bitcoin.  As such, the real opportunity is in new digital tokens that will address the climate issues. In this respect, energy-light cryptocurrencies will be the future.