Friday, 27 March 2015

Stocks fall amid concerns over oil and earnings

Stocks fell again on Thursday.

The S&P 500 fell 0.2 percent, declining for the fourth consecutive day and turning negative for the year.

The STOXX Europe 600 fell 0.9 percent and the Nikkei 225 fell 1.4 percent.

Stocks declined as oil prices jumped after news of military strikes in Yemen by five Gulf states and Egypt triggered worries about crude supply.

Stocks are also declining on weakening earnings expectations. Analysts predict that profits for the S&P 500 companies will be down 4.6 percent this quarter from the first quarter of 2014. This would be the first time profits have declined since the third quarter of 2012.

Thursday, 26 March 2015

Stocks fall, oil rises

Stocks fell sharply on Wednesday.

The S&P 500 fell 1.5 percent while the Nasdaq Composite fell 2.4 percent.

The STOXX Europe 600 fell 1.1 percent.

However, oil rose to a two-week high on Wednesday.

It rose further early on Thursday as Saudi Arabia and its Gulf Arab allies began a military operation in Yemen after Houthi rebels drove Yemen's president from his capital Sanaa.

Tuesday, 24 March 2015

Stock market looking like 1931?

US stocks are currently trading near record highs. However, history shows that the trading pattern so far in 2015 may not bode well for stock market returns going forward.

An article in The Wall Street Journal last week reported that analysis by Bespoke Investment Group showed that closing stock prices so far in 2015 were most similar to the closing prices in 1931. That year, the stock market posted its worst yearly return on record, falling 54 percent from 19 March.

Other similar years have not been so bad though. In fact, in computing the 10 years with the highest stock-market correlations to 2015, Bespoke found that the market rose from here on out in every year but 1931, averaging a gain of 8.1 percent. That is better than the average gain for all years since 1928 of 5.4 percent.

Monday, 23 March 2015

Stocks surge while investors turn to junk bonds

Markets rose last week. The MSCI All-Country World Index surged 3.2 percent as several major stock market indices broke or came close to all-time highs.

The FTSE 100 Index soared 4.2 percent to close at a record high. The Russell 2000 Index rose 2.8 percent to an all-time high.

The Nasdaq Composite Index soared 3.2 percent, the Standard & Poor’s 500 Index jumped 2.7 percent and the STOXX Europe 600 Index rose 1.9 percent. The three indices are now around 0.4 percent off their respective record highs.

Stocks rose last week as the Federal Reserve indicated after its monetary policy meeting on Wednesday that it was not in a hurry to raise interest rates.

Bonds also rose last week. The yield on the United States 10-year Treasury note fell 18 basis points to 1.93 percent. Germany’s 10-year bund yield fell eight basis points to 0.18 percent.

With government bond yields so low, especially in Europe, investors seeking yield are being forced to invest in lower-quality debt. From Bloomberg today:

In the negative-yield vortex that is the European bond market, investors are discovering just what lengths they’re willing to go to generate returns.

Norway’s $870 billion sovereign wealth fund said this month that it added Nigeria and lifted its share of lower-rated company debt to the highest since at least 2006. Allianz SE, Europe’s biggest insurer, is shifting from German bunds to bulk up on mortgages. JPMorgan Asset Management is buying speculative-grade corporate debt to boost returns.

This in turn is pushing even US borrowers to sell junk bonds in Europe to take advantage of investor demand for higher-yielding assets, according to another Bloomberg report.

“It all revolves around QE and the dynamic that it’s creating, which is forcing people out of low-yielding government paper into higher-yielding assets,” said Stuart Stanley, a high-yield fund manager at Invesco Asset Management Ltd.

“We are wandering into uncharted territory that’s subject to uncertainty and mistakes,” said Erik Weisman, a money manager at MFS Investment Management. “This probably means we end up seeing all these reverse in a very unpleasant fashion.”

Friday, 20 March 2015

Markets give up gains but US dollar rally may be ending

US stocks fell on Thursday. The S&P 500 declined 0.5 percent, giving up part of the 1.2 percent gain on Wednesday.

Stocks had jumped on Wednesday after the Federal Reserve indicated that day after its monetary policy meeting that it remained in no hurry to raise interest rates.

Treasuries also gave up some of their previous days' gains. Two-year yields rose six basis points to 0.61 percent on Thursday after falling 12 basis points on Wednesday, the biggest decline since March 2009.

The US dollar also made a turnaround on Thursday, recovering almost all its loss on Wednesday against the euro.

Still, in the longer term, the US dollar's rally may be about to end. From Bloomberg:

“The dollar rally is nearing its end,” David Bloom, HSBC’s global head of currency strategy, wrote in a report Thursday. “The dollar bull needs feeding and new factors challenge the consensus view that the dollar can extend in a sustained way.”

HSBC joined JPMorgan Chase & Co. in shifting away from previously bullish views on the dollar by casting doubt on whether its rally can continue. JPMorgan said the dollar may be in the early stages of a bubble in a March 14 report, questioning the U.S. economy’s ability to withstand headwinds and lower inflation brought by the currency’s appreciation.

Friday, 13 March 2015

US stocks jump as retail sales fall

US stocks rebounded on Thursday.

The S&P 500 Index rose 1.3 percent after losing 1.9 percent in the previous two sessions.

The STOXX Europe 600, though, closed little changed on Thursday.

US stocks rose despite a surprisingly weak report on retail sales on Thursday. The Commerce Department reported that retail sales fell 0.6 percent in February after having declined 0.8 percent in January.

The weak retail sales report lowered expectations for a Federal Reserve rate hike. Accordingly, the US dollar fell 0.7 percent to $1.062 per euro on Thursday.