Complex concerns boil down to one number for Wall Street
Remember the big deflation scare of 2015? It was only a couple months ago that depressed oil prices and vanishing government bond yields had world markets and central banks on alert for an economic ice age. Now the market is grappling with a quick reversal of the trades associated with deflation anxiety. Oil prices have rebounded strongly, rising 50% from their lows. This will give a lift to inflation readings and removes one weight that was holding down bond yields.
There’s more to the climb in European government and U.S. Treasury bond yields than that. But the bottom line is that stocks and bonds have been falling together with greater regularity the past several days, as weak growth bumps up against a lift in inflation expectations and worry over central banks’ ability to hold it all together.
On Wall Street, such complex macro concerns often get boiled down to a number, and today one of those numbers is 2080. That’s the level on the S&P 500 index (^GSPC) – just nine points beneath Tuesday’s close – where lots of chart-attuned traders promise to become more concerned about downside risk. This, roughly, is the level where the minor uptrend in stocks since February is tracking. The remarkably tight trading range of recent months means that relatively small moves bring the boundaries of the range into play.
We’ve repeatedly seen the indexes run up or down to the outskirts of the range, or even bypass them slightly, only to reverse back into the narrow path. Trading this kind of switchback pattern works until it doesn’t, which is why any breach of 2080 will spark far more drama and commentary than a half-percent decline from here warrants.
Another number to mull over today is $50 billion. That, roughly, is Salesforce.com’s (CRM) market value and would be the starting point for any effort to acquire the cloud-software leader. Reports say Microsoft Corp. (MSFT) is considering a bid, though no talks are said to be underway. Setting aside whether this would be a good strategic move by Microsoft, if bid talks firm up it will mean show the mindset of dealmakers reaching a new level for this cycle.
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So-called transformative buyouts of richly valued growth companies is different from bolt-on acquisitions, which have become relatively common the past couple of years. We can’t extrapolate too much from the Salesforce chatter. The noise over Rupert Murdoch’s bold but brief effort to buy Time Warner Inc. (TWC) last year shows these story lines go as well as come. But a deal frenzy spurred by the desperate hunt for growth and the understanding that debt won’t stay this cheap forever is a factor that not many invcestors had in their base case forecast for this year.
Finally, we’ll get a nice check on the consumer mood and investor attitudes toward slightly dented retail growth vehicles late today when Whole Foods Market Inc. (WFM) reports its results. The stock has been conspicuously weak lately, dropping 16% since mid-February. This can mean the market is sniffing out a rough patch in sales trends after a nice recovery late last year. But it’s a welcome sign on another front: When fancy growth stocks have run up into earnings this quarter, they’ve often invited a nasty selloff response.
Official forecasts have remained firm in recent months, yet analysts remain lukewarm on Whole Foods, with only a minority recommending the stock. This is somewhat encouraging from a contrarian perspective. Junk-food lover Warren Buffett last weekend quipped that shoppers at Whole Foods tend not to smile as they grimly shop for healthy, conscience-soothing fare. Let’s see if the company gives the Street anything to smile about later on.
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