|Bid||79.45 x 1300|
|Ask||79.45 x 800|
|Day's Range||79.33 - 79.93|
|52 Week Range||66.42 - 79.93|
|Beta (5Y Monthly)||1.11|
|PE Ratio (TTM)||12.94|
|Forward Dividend & Yield||3.19 (4.01%)|
|Ex-Dividend Date||Jan 29, 2020|
|1y Target Est||85.95|
(Bloomberg) -- Netflix Inc.’s latest earnings report spurred mixed feelings across Wall Street as growth overseas was offset by a slowdown in the U.S. amid rising competition from Walt Disney Co., Apple Inc. and more forthcoming launches.Needham Co. believes the spike in streaming rivals will increase Netflix’s churn and customer acquisition costs, most likely lowering the lifetime value per subscriber as growth overseas isn’t equivalent to that domestically. Netflix would need to “add four $3-per-month subscriptions in India to offset each U.S. subscriber lost,” Laura Martin, TMT analyst at Needham, wrote in a note.Shares in Netflix fell as much as 3.7% on Wednesday morning, the most in 10 weeks, before trimming some of that decline. The stock has fluctuated since the streaming service reported Tuesday post-market.Analysts remained generally positive about the results and, despite first-quarter guidance missing estimates, believe the forecast appeared to be cautious. Netflix added 8.3 million subscribers internationally in the fourth quarter to surpass 100 million paid memberships outside of the U.S. for the first time.“Netflix is taking a conservative tone to start the year, with the assumption of slight headwinds,” wrote Raymond James’s Justin Patterson. “This reflects content timing, a competitive launch in Europe, and working through 2019’s U.S. churn,” he added.Stifel analyst Scott W. Devitt also said Disney+ appeared to have a less meaningful impact in available international markets than in the U.S. Still, the analyst cautioned about potential effects of the broader rollout of Disney+ in the EMEA region toward the end of the first quarter.Here’s what Wall Street is saying:Morgan Stanley, Ben SwinburneOverweight, price target $400Update reinforces bullish long-term view and, going forward, analyst expects 90% of global paid net additions to come from outside the U.S., amid continued elevated domestic churn.Notes that local originals were the most popular titles in 2019 in countries including India, Japan, Turkey, Sweden and the U.K.Guidance for nearly $1 billion in free cash flow improvement begins the path toward positive free cash flow and reinforces confidence in the earnings outlook.Piper Sandler, Michael OlsonOverweight, price target $400Netflix reported a “strong” fourth quarter thanks to international subscriber additions, though its first-quarter outlook was below consensus and “likely conservative.”Domestic streaming net subscriber additions were below the Street, likely due to the combination of elevated churn from pricing changes applied earlier in the year and new competition from Disney and Apple.Loup Ventures, Gene Munster“A mixed bag,” with domestic competition demonstrated by U.S. churn but with outperformance at the international business, leaving Netflix’s underlying growth opportunity intact.Also notes that from next year, consumers will have to make more thoughtful streaming decisions as promotional pricing from Apple TV+ and Disney+ comes to an end.“Including video offerings with other paid products and services creates a temporary perception of value in the minds of consumers and an opportunity for video providers to hook viewers, but, eventually, that perception changes.”BMO Capital Markets, Daniel SalmonOutperform, price target $440While U.S. churn remained slightly elevated after a price increase and competitive launches, “solid” growth in U.S. subscribers pushes back materially on the most bearish views.Combined with better-than-expected results in non-U.S. subscribers, BMO says that story remains “firmly intact” for growth investors, whereas free cash flow guidance for 2020 coming in better-than-expected should support interest from GARP (growth at a reasonable price) investors as Netflix makes the free cash flow turn.Bernstein, Todd JuengerOutperform, raises price target to $423 from $415International net paid adds accelerated in every region to a new fourth-quarter all-time high, beat the guide, and beat Bernstein’s estimate and consensus. Since international is where all the total addressable market and future growth lies, says Juenger, “perhaps we should just end this report right here.”“Imagine how differently this EPS report might have been received if Netflix had found an additional 200,000 U.S. net adds.” Netflix still grew in the U.S., Juenger wrote.Netflix’s U.S. subscribers “responded to the Disney+ launch by watching more Netflix.”“With very little new original Disney+ content over the next several quarters, we think consumers will be reinforced in their appreciation of Netflix’s unique value proposition: ‘always something new to watch.’”Citigroup, Jason BazinetNeutral, price target $325Citigroup expects the stock to trade flattish as the better EPS outlook is offset by the lower-than-expected net add guidance.“All told, while the firm delivered a solid set of 4Q19 results and issued 1Q20 EPS guidance above expectations, we suspect that management’s 1Q20 net add guidance is less robust than the market expected.”Needham, Laura MartinUnderperform rating“U.S. subscribers historically have been 3x more profitable than international subs. This gap is widening, and India highlights this problem.”Going forward, Netflix will aggregate low return on investment (ROI) international subs with U.S. subscribers, which masks Netflix’s true ROI trends. Management must add four $3-per-month subscriptions in India to offset each U.S. subscriber lost.Needham expects rising U.S. competition to increase Netflix’s churn and customer acquisition costs, which should lower the company’s lifetime value per subscriber versus historical levels, and put downward pressure on valuation multiples.RBC Capital Markets, Mark MahaneyOutperform, price target $420“We are incrementally positive. In a year when Netflix had two hands tied behind its back (material price increases and pullback in marketing spend), it managed to add almost as many global paid subs in FY19 as in FY18.”“That said, the ‘churn coast’ is not yet clear in the U.S., with domestic adds slowing, as Netflix felt roughly equal impacts from last year’s price increase and new competitive launches.”Evercore ISI, Vijay JayantIn-line, price target $300“With the service likely having reached ‘peak net adds’ we remain cautious on longer-term ARPU and margin trends and view the risk/reward tradeoff as fair at best at current valuations.”“While bulls will point to a better content slate in the 2Q as a means of making up any 1Q shortfall, we are less convinced given a flurry of competitive launches as a headwinds to consider and believe it likely that 2018 will ultimately represent peak net additions for the company.”Raymond James, Justin PattersonStrong buy, price target $415“Netflix is taking a conservative tone to start the year, with the assumption of slight headwinds on UCAN and international markets.”“This reflects content timing, a competitive launch in Europe, and working through 2019’s U.S. churn.”(Adds share move in third paragraph, Needham and Raymond James comments to second and fifth, and more commentary in analyst section after BMO.)\--With assistance from Lisa Pham and William Canny.To contact the reporters on this story: Joe Easton in London at firstname.lastname@example.org;Kit Rees in London at email@example.com;Kamaron Leach in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Beth Mellor at email@example.com, Celeste Perri, Jeremy R. CookeFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Clearpool Group, an electronic trading solution and independent agency broker-dealer execution service, in a move to further its impact on modern market microstructure, agreed to be acquired by BMO Financial Group (NYSE: BMO). “We are thrilled to be joining BMO Capital Markets," said Joseph Wald, CEO and Cofounder of Clearpool.
NEW YORK and TORONTO , Jan. 22, 2020 /CNW/ - BMO Financial Group (NYSE, TSX: BMO) today announced that it has entered into a definitive agreement to acquire Clearpool Group Inc., a New York -based provider of holistic electronic trading solutions and an independent agency broker-dealer operating in the U.S. and Canada. The transaction is subject to receipt of required regulatory approvals and other customary conditions and is currently expected to close in the calendar second quarter. The transaction delivers powerful new capabilities to BMO's electronic trading platform.
Moody's Investors Service, ("Moody's") has upgraded two securities from the Canadian Pacer Auto Receivables Trust 2018-1 (CPART 2018-1) and one from the Canadian Pacer Auto Receivables Trust 2018-2 (CPART 2018-2). The transactions are sponsored and serviced by Bank of Montreal (Aa2, P-1). The upgrades were prompted by the build-up of credit enhancement owing to sequential pay structure and non-declining reserve accounts, as well as stable performance.
BMO Financial Group (TSX:BMO) (NYSE:BMO) today announced it has been named to Corporate Knights' 2020 Global 100 Most Sustainable Corporations in the World ranking.
TORONTO and DAVOS, Switzerland , Jan. 21, 2020 /CNW/ - BMO Financial Group (BMO.TO) (BMO) today announced it has been named to Corporate Knights' 2020 Global 100 Most Sustainable Corporations in the World ranking. BMO, the top-ranked bank in North America on the list, was recognized for its sizable portfolio of sustainable loans, as well as its enterprise-wide commitment to creating a sustainable future throughout its operations. In June 2019 , BMO unveiled its Purpose commitments to double the good for a sustainable future, thriving economy and inclusive society.
TORONTO , Jan. 21, 2020 /CNW/ - BMO Financial Group today announced it has been included in the Bloomberg Gender-Equality Index (GEI) for the fifth year in a row. "Our global leadership in the area of gender inclusion is reflective of BMO's focus on building an inclusive society with zero barriers to inclusion," said Mona Malone , Chief Human Resources Officer & Head, People & Culture at BMO Financial Group.
(Bloomberg) -- U.S. Treasuries are stuck in the biggest rut in months, with yields plying tight ranges and a round of central-bank meetings ahead unlikely to offer a lasting jolt.Volatility in the world’s borrowing benchmark is the lowest since May, and the 10-year Treasury yield is hovering mere basis points above its average since July. That’s even after absorbing the following this month: a flareup in Mideast tensions, the signing of a long-awaited U.S.-China trade deal, confirmation that American inflation remains tame amid solid growth, and a record-setting run in stocks.Traders hoping for a catalyst to shake the bond world out of its doldrums may focus on central-bank decisions by month-end from Japan, Canada, the euro region, the U.S., and the U.K. However, all but possibly the Bank of England are seen as staying on hold.A variety of offsetting forces are “taking the malaise in Treasuries and apathy expressed in rates toward the end of last year and pulling them into 2020,” says Scott Kimball, a portfolio manager for the fixed-income unit of BMO Global Asset Management. “It has to be a pretty big catalyst to break through in either direction.”The 10-year Treasury yields about 1.82%. Its six-month average: 1.77%. Its climb to this month’s peak of 1.94% drew eager buyers, and it hasn’t been below 1.7% in that period.Of the major central banks convening by the end of January, Kimball sees the Federal Reserve as having the most market-moving risk because of the chance officials could offer a surprisingly hawkish view, given the strength of the economy. Traders expect that policy makers’ next rate move, if any, will probably be a cut later this year.The Fed’s signaling that it intends to keep rates steady, even after the U.S.-China trade deal, is supporting all assets, including Treasuries, says Jason Ware, managing director and head of institutional trading at 280 Securities.“Unless the Fed becomes more hawkish, it’s status quo for the immediate future: Low volatility and high valuations on assets,” he said. “We’re probably not going to get anything that’s going to create volatility in this next round of meetings.”What to WatchIn a holiday-shortened week, highlights in the economic figures include housing data, as the Fed’s communications blackout begins before its Jan. 28-29 meeting.Here’s the economic calendar:Jan. 22: MBA mortgage applications; Chicago Fed national activity index; FHFA house price index; existing home salesJan. 23: Jobless claims; Bloomberg consumer confort; leading index; Kansas City Fed manufacturing indexJan. 24: Markit U.S. purchasing managers’ indexesThere are no Fed speechesAnd the auction schedule:Jan. 21: $42 billion of 13-week bills; $36 billion of 26-week billsJan. 23: 4-, 8-week bills; 10-year TIPS reopeningTo contact the reporter on this story: Vivien Lou Chen in San Francisco at firstname.lastname@example.orgTo contact the editors responsible for this story: Benjamin Purvis at email@example.com, Mark Tannenbaum, Debarati RoyFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
TORONTO , Jan. 16, 2020 /CNW/ - BMO Financial Group has established an Indigenous Advisory Council with members from Indigenous communities across Canada . The Council will support further education and awareness, provide input on policies and practices, and build on BMO's long-term commitment to diversity and inclusion.
Moody's Investors Service, (Moody's) has assigned a provisional (P)Aaa (sf) rating to the Class A Notes, a provisional (P)Aa3 (sf) rating to the Class B Notes, and a provisional (P)Baa1 (sf) to the Class C Notes of the Series 2020-1 to be issued by Master Credit Card Trust II, (the trust), sponsored by Bank of Montreal (BMO, long-term deposits/long-term senior unsecured Aa2 stable, long-term CR assessment Aa2(cr), short-term deposit P-1, and BCA a3). The ratings are based on the quality of the underlying credit card receivables, the expertise of BMO as servicer, the transaction's legal and structural protections including early amortization trigger events, the credit enhancement provided by the subordinate Class B and Class C notes in the 2020-1 series, and the likelihood of the sponsor becoming insolvent and shutting down its credit card portfolio.
(Bloomberg) -- The Federal Reserve Bank of New York on Tuesday announced plans to conduct repurchase agreement operations through until at least Feb. 13, although the size of term operations will be trimmed to $30 billion from the start of next month. The central bank did not elaborate on plans beyond that.The move extends a program that has been in place since it stepped in to combat funding-market turmoil in September, but indicates the central bank may have one eye on the exit.It announced plans to conduct a series of term repo operations from Jan. 16 through Jan. 30 of $35 billion apiece, in line with the most recent similar actions. Those scheduled from Feb. 4 to Feb. 13 will have a maximum offering size of $30 billion. The newly scheduled operations will provide liquidity through to Feb. 27. The maximum size of the central bank’s daily overnight operations, meanwhile, will be kept steady at $120 billion. These are slated to continue until Feb. 13, according to the New York Fed.“This is consistent with our assumption that the Fed will back off slowly and make sure not to rock the funding boat,” said BMO rate strategist Jon Hill.The Fed has been conducting repo offerings and Treasury-bill purchases in a bid to keep control of short-term interest rates and bolster bank reserves. That has calmed markets since the September spike that took overnight repo rates as high as 10% and helped to quell concerns about a potential cash crunch at the end of December 2019.In the minutes from December Federal Open Market Committee released last week, Lorie Logan, manager, of the System Open Market Account, said January’s calendar could reflect a “gradual reduction” in offerings, though indicated that some repos might be needed at least through April, when tax payments will reduce reserve levels.“We had thought the Fed would proceed in a very gradual manner in which they’re trying to do no harm and that’s exactly what they’re doing,” said Mark Cabana, head of U.S. interest rate strategy at Bank of America. He also raised the possibility that the Fed might tweak its interest on excess reserves rate, which could have knock-on effects for repo operation rates and usage.Some in the market have already been speculating about the possibility of a move in IOER, one of the tools that the central bank uses to help control its main benchmark, the fed funds rate. The effective fed funds rate, which the Fed focuses on to implement monetary policy, has moved closer to the lower bound of its target range, increasing the prospect that the central bank will adjust IOER.If the central bank opts to raise IOER, that should also lift the rate on the repo operations as well, according to Cabana.The Fed also announced Tuesday that it planned to keep unchanged the pace of Treasury purchases it conducts. The central bank will buy $60 billion a month of Treasury bills for reserve management and $20 billion a month of Treasuries of various types for reinvestment purchases, according to the New York branch’s website.(Updates throughout, adds comment.)\--With assistance from Emily Barrett and Debarati Roy.To contact the reporter on this story: Alexandra Harris in New York at firstname.lastname@example.orgTo contact the editor responsible for this story: Benjamin Purvis at email@example.comFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Gold futures declined, extending its retreat from a six-year high last week as the soon-to-be clinched U.S.-China trade pact undercuts the case for havens. Palladium hit a fresh record.Comex gold have lost about 1% this week and analysts including those at ABN Amro Bank NV and BMO Capital Markets predict prices may decline further ahead of the signing on Wednesday. The shift has been reflected in an outflow of holdings from exchange-traded funds, which fell more than 20 tons over the four sessions to Monday, the most in a four-day period since November. “Investors who bought gold for the trade uncertainty will likely take profit,” said ABN Amro strategist Georgette Boele.Gold futures, which briefly rose above $1,600 an ounce last week during the U.S.-Iranian standoff, lost ground for a second session, with the February contract falling 0.4% to settle at $1,544.60 an ounce at 13:30 on the Comex in New York.Prices could decline toward $1,525 or even lower as risk-on sentiment returns to the market, said BMO analyst Colin Hamilton.The recent declines come after the rally had pushed the metal’s 14-day relative-strength index to levels that signaled the advance could run out of steam.“The gold price is no longer overbought as it seems,” Carsten Fritsch, an analyst at Commerzbank, said by phone Tuesday. “We’re still in correction mode after the very strong increase early in the year and in late 2019.” That correction is being driven by continued bullish sentiment across the financial markets amid anticipation of the phase-one trade deal between the U.S and China, he said.In other precious metals, silver also declined on the Comex, while palladium and platinum rose on the New York Mercantile Exchange. In the spot market, palladium gained for a ninth session, hitting a fresh record of $2,191.64 an ounce.\--With assistance from Justina Vasquez and Maria Elena Vizcaino.To contact the reporters on this story: Elena Mazneva in London at firstname.lastname@example.org;Ranjeetha Pakiam in Singapore at email@example.comTo contact the editors responsible for this story: Lynn Thomasson at firstname.lastname@example.org, Joe Richter, Christine BuurmaFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.
BMO Asset Management Inc. Announces Index Change for ZTL, Changes to Risk Ratings for Certain BMO ETF Listings and Clarification of Investment Objectives and Strategies for Certain BMO ETFs
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(Bloomberg) -- Gold prices fell after President Donald Trump said Iran “seems to be standing down,” easing fears of further hostilities that spurred the metal’s earlier rally.Trump said no Americans were harmed by an Iranian missile attack on U.S. bases in Iraq early Wednesday. Iran’s restraint and Trump’s measured remarks in response suggest a path toward easing tensions with Tehran, which surged after the killing of a top general, Qassem Soleimani.The precious metal earlier climbed above $1,600 an ounce, extending its rally to a six-year high, after Iran launched more than a dozen missiles at U.S.-Iraqi airbases. Palladium also soared to a fresh record.Read the latest news and updates on Iran hereGold’s decline “is a reaction to the Iranian attack that now appears clearly to be a de-escalation, and Trump’s team seems to be clearly reading it that way,” said Tai Wong, the head of metals derivatives trading at BMO Capital Markets.Gold futures for February delivery fell 0.9% to settle at $1,560.20 an ounce at 1:30 p.m. on the Comex in New York, snapping a 10-day advance with the largest drop in a month. A Bloomberg Intelligence gauge of big producers of the precious metal fell 1%.“Gold essentially responded to risk-off environments,” Bart Melek, head of commodity strategy at TD Securities, said by phone on Wednesday, before Trump’s statement. “No American lives were lost, and the president was quite clear that if American lives were lost we would retaliate.”Bullion’s blistering start to the year has been driven by the rising hostilities in the Middle East. Before that, the metal was already rallying as the Federal Reserve eased policy last year, governments added gold to reserves, and holdings in exchange-traded funds rose.Silver futures also fell on the Comex, while platinum slid on the New York Mercantile Exchange. Palladium futures rose 2.3% to $2,061.40 an ounce after reaching $2,068.50, a record for a most-active contract.\--With assistance from Yvonne Man, Ranjeetha Pakiam and Elena Mazneva.To contact the reporter on this story: Justina Vasquez in New York at email@example.comTo contact the editors responsible for this story: Luzi Ann Javier at firstname.lastname@example.org, Joe RichterFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.
Toronto-Dominion (TD) and Canadian Imperial Bank of Commerce (CM) will likely incur restructuring charges in fiscal 2020 to drive earnings growth, while other Canadian banks might not.
Toronto Dominion Bank and Canadian Imperial Bank of Commerce chief executives declined to rule out restructuring charges on Tuesday as Canadian banks turn to controlling costs to drive earnings growth in what is expected to be a tough year. Royal Bank of Canada's chief executive, meanwhile, said its focus will be on eliminating unproductive activities rather than employees, while Bank of Montreal's CEO acknowledged "restructure fatigue" after the lender's repeated one-off charges over several reporting periods. The executives spoke at RBC Capital Markets' Canadian Bank CEO conference, which was webcast and monitored by Reuters.
Royal Bank of Canada has no plan to take any restructuring charges, Chief Executive Officer Dave McKay said on Tuesday, following a C$357 million ($274.7 million) charge that Bank of Montreal took in the fourth quarter. "If we were to take a restructuring charge, we would have taken it in Q4," McKay said at the RBC Canadian Bank CEO conference.
Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story...
(Bloomberg) -- Sign up here to receive the Davos Diary, a special daily newsletter that will run from Jan. 20-24.William Dudley, who used to oversee the Federal Reserve’s interaction with financial markets, said the central bank should introduce a long-discussed but never implemented tool to ensure U.S. cash markets remain calm.In a column published Monday by Bloomberg Opinion, the Fed Bank of New York’s former president recommended creating a standing repurchase-agreement facility, joining a chorus of proponents. It should be open, he argued, to a broad set of counterparties and accept Treasury and agency mortgaged-backed securities as collateral.“Such a facility would effectively cap repo rates,” Dudley wrote. “It would also address the potential problem of the Fed providing liquidity to primary dealers but primary dealers not lending the funds to other market participants that might need short-term repo financing.”Fed Needs to Look Forward, Not Retreat to the Past: Bill DudleyA standing repo facility would let participants convert securities into cash on demand, helping keep short-term rates stable by limiting the potential for sudden cash shortages.Dudley proposed other overhauls to the Fed’s monetary policy toolkit, including “de-emphasizing the federal funds rate” as the central bank’s main policy benchmark. His contribution to the debate comes as John Williams, who succeeded Dudley in 2018, and other central bankers contemplate how to keep short-term funding markets under control following the chaos seen in mid-September.Rates for repurchase agreements, which surged to 10% from around 2% during the turmoil, have since returned to normal, but not without major Fed intervention. And it remains unclear whether the central bank can extract itself without problems resurfacing. Dudley, for his part, isn’t worried about larger implications.“The spike in the fall was not a ‘canary in the coal mine’ signaling bigger problems in the financial system,” Dudley wrote. “Instead, it reflects the difficulty in forecasting the demand for reserves given the changes in regulations.”The Fed’s authority to pay interest on reserves allows it to maintain control of short-term interest rates even with a lot of excess reserves, Dudley wrote. This is “far better” than the pre-financial-crisis rate-control regime of that saw the Fed having to intervene via open-market operations on a high-frequency basis, he said in an interview on Bloomberg Radio. A standing repo facility will improve the new regime, and the Fed could communicate more clearly about it, he said.“The markets and the Fed need to embrace a modern operating framework,” said BMO strategist Jon Hill, who supports the idea of a standing facility. It’s worth pausing and studying to make sure we get it right, but the Fed needs to decide on some of these big questions.”Dudley isn’t the only person to endorse a standing repo facility. Two other former Fed officials, Brian Sack and Joseph Gagnon, wrote in a September blog post that one should be implemented, continuing a campaign they began years ago when they worked at the central bank. Less than two weeks after the mid-September repo turmoil, former Minneapolis Fed President Narayana Kocherlakota endorsed the idea in a Bloomberg Opinion column.“Pointing out that the old system is bad isn’t that ground-breaking,” said Blake Gwinn, a rates strategist at NatWest Markets. “The Fed committed to an ample reserves regime a long time ago. Now it’s a question of how you can most efficiently do that.” Gwinn said he’s not convinced that a standing repo facility is necessary and that he’s “lukewarm” about the prospect.Current Fed policy makers have discussed the merits of such a tool, and it was brought up at the December Federal Open Market Committee meeting as something to discuss at a future gathering.“That’s an intriguing idea,” said Cleveland Fed President Loretta Mester, speaking Friday about a standing repo facility during a Bloomberg TV interview. “I would be supportive of the Fed really doing the hard work to assess whether that’s needed going forward,” she added. “But, at this point, we can take our time there, because things do seem to be settled down in those markets.”The Fed’s overnight repo operation on Monday saw its highest usage since Dec. 5, although that was due to runoff in term offerings and it remained well below the maximum offering level. Overnight repo rates, meanwhile were around 1.55%/1.52% in the New York afternoon, ICAP data showed. Tuesday will see both term and overnight actions from the central bank.(Updates with operation details, repo levels.)To contact the reporters on this story: Alexandra Harris in New York at email@example.com;Matthew Boesler in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Benjamin Purvis at email@example.com, ;Alister Bull at firstname.lastname@example.org, Nick BakerFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.
(Bloomberg) -- Stock bulls are facing their first big test of 2020, and seem to be emerging unscathed.After one of the best years for risk assets in decades, investors spent the fourth quarter unraveling safety trades that dominated 2019 and piling on risk. But with geopolitical uncertainty quickly rearing up to test their mettle, some began to wonder whether that rotation was premature.There’s certainly a fresh backdrop for this bunch of newly rejiggered portfolios. Just weeks ago, the low-volatility stock trade was losing its allure, flows into fixed-income funds were slowing in relation to equities, and everyone seemed to be rushing into shares that should outperform in an economic rebound. A U.S. airstrike that killed a top Iranian commander has altered the calculus behind that shift, but -- for now -- investors are holding the course.“People aren’t changing their investment theses based on it,” JJ Kinahan, chief market strategist at TD Ameritrade, said by phone. “They’re going to wait it out a little bit and see what the next escalation point, if there is one, is.”Despite the fiery rhetoric, market reaction so far has been contained. The benchmark’s fallen about half a percentage point from its record highs, after a year in which the S&P 500 Index gained almost 30%. A rebound in economic growth and corporate profits is still widely expected, but with billions of dollars recently shifting from defense to offense, the stakes are high.Investors poured $90 billion into equity ETFs in the three months ended December, the most in two years and more than twice the amount that flocked to bond funds, Bloomberg Intelligence data show. That brought total inflows for stock exchange-traded funds to $161 billion in 2019, and ended three quarters in which debt demand topped appetite for equities.Sector funds tracking technology and energy experienced their best three-month periods since 2016, taking in more cash than any other industry. Meanwhile, bond proxies including consumer staples and utilities ETFs, suffered their first quarter of outflows since the start of 2018.“We’ve gone from ultimate bearishness to essentially euphoria in the last few months,” Mike Dowdall, a portfolio manager at BMO Global Asset Management, which oversees $260 billion, said late December. “It’s a little bit surprising.”Perhaps more surprising is that investors seem to be maintaining their appetite for risk this year, even as tensions in the Middle East ratchet higher.Funds buying oil, energy stocks, gold or Treasuries -- which could all benefit from escalation -- have seen little additional interest. Instead, economically-sensitive areas of the stock market garnered attention, with investors pouring $700 million into the $11.8 billion Industrial Select Sector SPDR Fund on Friday, the most for any day since 2016.Granted, that ETF holds defense stocks alongside machinery companies, but investors also flocked to consumer discretionary and financial funds last week. The SPDR S&P 500 ETF Trust -- the world’s largest ETF -- meanwhile saw inflows of $4.6 billion.“The escalation of tensions with Iran warrants close watching,” said Sandip Bhagat, Whittier Trust’s chief investment officer, citing its potential impact on oil prices and global growth. “Even as uncertainty dissipated on several fronts in late 2019, the early days of 2020 have now seen an unexpected spike in geopolitical risks.”While gold prices have jumped in recent days, cash has yet to flood back into ETFs that own the precious metal. Going into the year, appetite for the safety of gold ETFs had soured, with funds tracking the commodity losing cash in the fourth quarter for the first time in over a year.Still, after weeks of underperformance, Todd Rosenbluth, director of ETF research at CFRA Research, sees potential upside for some more conservative strategies, such as those that pick low-volatility stocks.The firm’s equity analysts hold a year-end price target for the S&P 500 of 3,435. That would imply a gain of roughly 6%, far short of last year’s performance, and potentially a boon for funds like the $37 billion iShares Edge MSCI Min Vol USA ETF, which trades under the ticker USMV.“Given a lower expected return, we think investors will continue to focus on ways to reduce their equity risk profile and USMV is built to do just that,” according to Rosenbluth.(Updates market move in fifth paragraph.)To contact the reporter on this story: Sarah Ponczek in New York at email@example.comTo contact the editors responsible for this story: Jeremy Herron at firstname.lastname@example.org, Rachel Evans, Rita NazarethFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.