Nasdaq's record highs are dropping as investors flee riskier bets. AFP
Nasdaq's record highs are dropping as investors flee riskier bets. AFP
Nasdaq's record highs are dropping as investors flee riskier bets. AFP
Nasdaq's record highs are dropping as investors flee riskier bets. AFP

Business

S&P 500 and Nasdaq hit record highs as investors pump funds into tech stocks

The markets rose allowing the upbeat quarterly results from Salesforce and HP Enterprise

Reuters

August 26, 2020

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The S&P 500 and the Nasdaq hit record highs on Wednesday as investors bought into technology stocks that have thrived during the Covid-19 pandemic following upbeat quarterly results from Salesforce and HP Enterprise.

Salesforce.com, which is set to enter the blue-chip Dow index next week, surged 27.3 per cent as it raised its annual revenue forecast due to high demand for its online business software.

Hewlett Packard added 6.2 per cent as its full-year profit outlook came ahead of market expectations and income-tax filing software firm Intuit advanced 1.1 per cent after it reported a jump in quarterly revenue.

The tech sector climbed 1.5 per cent, but seven of the 11 major S&P sectors eased. The MSCI world equity index hit an all-time high.

"Markets are pricing in uncertainty in regards to some of the coronavirus-related economic impact, due to which the stay-at-home and technology stocks have seen a renewed source of relative strength," said Matt Stucky, portfolio manager, equities, at Northwestern Mutual Wealth Management in Milwaukee, Wisconsin.

Adding to the upbeat mood was early data from Moderna's experimental Covid-19 vaccine which showed it induced immune responses in older adults that were similar to younger participants.

The S&P 500 and the Nasdaq have hit a series of record closing highs recently, driven by stimulus and demand for tech-focused stocks, even though economic data pointed to an uneven recovery from a recession.

All eyes will be on Fed Chair Jerome Powell's address at the virtual Jackson Hole symposium before markets open on Thursday, where he is expected to outline a softer policy stance on inflation.

"Allowing higher levels of inflation that they'd be comfortable with in the economy is a sign that loose financial and monetary policy is going to be the norm for quite some time," Mr Stucky said.

At 11.10 am ET, the Dow Jones Industrial Average was down 66.91 points, or 0.24 per cent, at 28,181.53, the S&P 500 was up 13.24 points, or 0.38 per cent, at 3,456.86. The Nasdaq Composite was up 112.91 points, or 0.98 per cent, at 11,579.39.

Nordstrom tumbled 5.4 per cent after reporting a bigger-than-expected loss as its stores were shut for about half of the reported quarter and consumers stayed at home with little need for designer clothes.

Declining issues outnumbered advancers for a 1.53-to-1 ratio on the NYSE and for a 1.35-to-1 ratio on the Nasdaq.

The S&P index recorded 25 new 52-week highs and no new low, while the Nasdaq recorded 67 new highs and three new lows.

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Favourite book: Peter Rabbit. I used to read it to my three children and still read it myself. If I am feeling down it brings back good memories.

Best thing about your job: Getting to help people. My mum always told me never to pass up an opportunity to do a good deed.

Best part of life in the UAE: The weather. The constant sunshine is amazing and there is always something to do, you have so many options when it comes to how to spend your day.

Favourite holiday destination: Malaysia. I went there for my honeymoon and ended up volunteering to teach local children for a few hours each day. It is such a special place and I plan to retire there one day.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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