Schlumberger New Energy, the CEA and Partners Announce European Commission Approval for the Formation of Genvia, a Clean Hydrogen Production Technology Venture.

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U.S. companies are sitting on the largest pile of cash ever. Investors are trying to gauge how they are going to use it.

Cash holdings at nonfinancial companies grew to a record $2.1 trillion at the end of June, according to a report from Moody’s Investors Service. That is up 30% from that time last year and higher than the previous peak of nearly $2 trillion in 2017. Among the biggest hoarders: AT&T Inc. T 1.06% and Delta Air Lines Inc., DAL -1.37% which each held more than $15 billion at the end of June.

Other measures show some of America’s largest companies continued to hang on to record cash stockpiles at the end of the third quarter. The amount held by S&P 500 companies not in the financial, transportation or utility sectors is expected to total around $1.9 trillion, according to data compiled by S&P Dow Jones Indices. That is the most cash ever held by that group in data going back to 1980.

Among investment-grade borrowers tracked by BNP Paribas, the ratio of current assets to current liabilities—which BNP uses to estimate liquidity—has risen this year to 86% in Europe and 97% in the U.S. Those levels have only been exceeded since 2000 during late 2009-early 2010 in the U.S. and mid-2004 in Europe.

Companies in the Stoxx Europe 600 have also posted a similar rise, with average short-term liquidity ratios forecast to finish 2020 at 172%, up from 159% at the end of 2019 among companies for which data is available in FactSet. In the S&P 500, companies are forecast to finish the year at 192%, up from 170%.

The biggest growth in liquidity ratios forecast is at companies such as Deere DE 0.28% & Co, Booking Holdings BKNG 1.35% and Southwest Airlines Co. LUV -0.48% in the U.S. and Ferrari NV and Volkswagen AG VOW -0.12% in Europe, according to FactSet.

At the same time, many cut share repurchases, dividends or capital expenditures. Now that is starting to reverse, raising hopes for moves such as buybacks, which can drive share prices higher, and paying down debt, which reduces risk for bondholders. Some investors believe that companies will spend on capital projects or hire more employees rather than paying down debt, given that the Federal Reserve expects to keep interest rates near zero for the near future.

Some expect reduced borrowing to boost corporate bond prices next year. In Europe, where the European Central Bank is expected next week to increase the scale of its bond-buying program, the amount of government bonds available for investors to buy is expected to shrink by the most since 2016, according to BofA. That year, net new government bond issuance available to investors in Europe was negative €459 billion, equivalent to negative $558 billion at current exchange rates. Next year it is expected to be almost as much.

Investors also expect more mergers and acquisitions. A flurry of deal activity, including S&P Global Inc.’s $44 billion agreement to buy IHS Markit Ltd. and Facebook Inc.’s move to purchase Kustomer, indicates more companies are looking to expand as the U.S. economy recovers.

M&A activity remains historically low for the fourth quarter, indicating many companies still hesitate to pursue big purchases at this moment. As of Monday, around $313 billion in acquisitions in the U.S. have been announced during the fourth quarter, according to Dealogic, the lowest amount for that period since 2013. 

Roku Launch Philco Roku TV Lineup in Brazil.

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Jefferies says miner Glencore  are positioned to win in race to net zero emissions.

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Jefferies adds PYPL to its "Sweet 16" list of tech stocks that have performed relatively well in 2020.
* Brokerage rates the stock "buy".
* See the "Sweet 16" tech stock lagging in 2021, and their stock performance to weaken - Jefferies
* Brokerage, however, expects their sales growth to improve in 2021.
* PYPL's value more than doubled this year, as of last close.

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With interest rates near zero, a lot of investors have gone deeper into risky areas of the debt market in the search for yield. For those investors, there is some reassuring news: A look at the long-term data for some of these sectors suggests that such investments can be worth the risk.

In the hunt for yield, many investors have opted for low-grade municipal and corporate debt, or “junk” bonds. Such instruments are considered high risk because, while they can pay off over the long run, they can also go south quickly in times of market drops and panics. That is a level of volatility a lot of debt investors cannot stand. 

Examining all high-yield bond mutual funds over the past 30 years, an interesting trend emerges: If you are disciplined and avoid cashing out at the wrong time, high-yield debt can pay total returns near to those of U.S. stocks. Since 1990, the average high-yield debt fund has delivered an average annual return of 7.1% with a volatility of 7.7%. Compare this with the average short-term U.S.-bond fund, which delivered 3.8% with a much lower volatility of 1.5% over the same period. The returns for high-yield bond funds thus don’t really resemble debt at all in a lot of ways, and actually look a lot more like equity. Over the same period, since 1990, the S&P 500 delivered an average annual return of 7.8% but with a high volatility of 14.5%.

Public pension funds set a 22-year performance record in the second quarter, recovering some but not all of their losses from the first quarter. Double-digit stock gains pushed pension returns to a median 11.1% for the second quarter, according to Wilshire Trust Universe Comparison Service.  Even with the rebound, median annual returns for the public pensions whose fiscal years ended June 30 were 3.2%, far short of the funds’ long-term investment-return target of around 7%.  Before the pandemic, public pensions were already trying to plug large funding holes by pursuing aggressive returns to make up for insufficient government funding in past years and decades. State and local pension funds in the U.S. held $4.05 trillion in aggregate as of March 31—$4.93 trillion less than the cost of promised future obligations, according to Federal Reserve data.

Investment shortfalls drive up the amount state and local governments have to pay in. Funds are also bracing for coronavirus-related government-revenue losses.

The $2.2 billion fund took the opportunity to add to holdings in technology stocks including Nvidia Corp., Adobe Inc. and Microsoft Corp., pharmaceutical stocks including Johnson & Johnson, Zoetis Inc. and Thermo Fisher Scientific Inc., and stocks that mix tech and finance such as PayPa Inc., Visa Inc. and S&P Global Inc.  The $194.3 billion New York State Common Retirement Fund, whose fiscal year ended on March 31 in the middle of market volatility, suffered an annual loss of 2.7%.  The roughly $17 billion fund has more than 70% of what it needs to cover future pension promises to K-12 and college teachers, its highest funding level ever, Mr. Spencer said. Though the state expects to pay extra over the following five years, he estimates the fund will lose the opportunity to earn about $40 million in investment returns.

Markets are up around the world despite the pandemic and economic concerns, buoyed by low interest rates. When Brazil’s central bank pushed interest rates down to a historic low of 2% amid Covid-19, it sparked a particularly large shift among Brazilians, who are swapping their dwindling fixed-income investments for stocks for the first time. Fueling the trend are social-media stars who have boosted the market by giving younger Brazilians—lots of them—the confidence to try their luck with equities.

A million new investors entered Brazil’s stock market since March and there are now three times as many investors in the market as there were two years ago. The new interest in the market has paved the way for a flurry of public offerings, with 25 companies going public so far this year, the most in 13 years. The São Paulo-based B3 exchange’s benchmark index, the Ibovespa, is up more than 60% since its March low.

Brazil’s stock market has long struggled to attract local investors. With interest rates as high as 14% here only four years ago, investors had little reason to abandon profitable fixed-income investments to venture into stocks. The stock exchange has also traditionally offered little diversity, with miner Vale SA and oil company Petrobras accounting for a little more than a fifth of all shares in the Ibovespa.

Despite concerns about Brazil’s deteriorating fiscal health, the government has rolled out stimulus amid the pandemic, amounting to 8.3% of output, which has helped buoy the economy and injected confidence into the stock market. Investing in stocks is riskier and more volatile than bonds, since their returns are closely linked to the health of the economy. Right now, equity returns are soaring—not just in Brazil, but globally, boosted by countries’ pandemic stimulus packages.

Brazil also is seeing a shift in the culture and mechanics of investing. Historically, equity investing had been for the elite. Opening accounts and trading securities was prohibitively expensive. The large banks that dominated often limited investments to their own products.

Drugmakers AstraZeneca and Amgen said on Tuesday their experimental asthma drug tezepelumab failed to meet the main goal of reducing patients' dependence on steroids while keeping the condition in check in a late-stage trial.

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