Friday, 20 July 2018

Markets fall but valuations “very attractive, economy doing well”

Markets fell on Thursday.

The S&P 500 fell 0.4 percent, the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 fell 0.1 percent.

Treasury yields fell after President Donald Trump said he disagreed with Fed policy on interest rates and objected to a strong dollar.

“Equity benchmarks are reacting to some disappointing earnings releases today, but we should note that overall moves are modest,” said Matthew Forester, chief investment officer at BNY Mellon’s Lockwood Advisors.

Meanwhile, Wayne Kaufman, chief market analyst at Phoenix Financial Services, said that valuations are “very attractive, and the economy is doing well”, noting that US initial jobless claims fell by 8,000 last week, falling to their lowest since late 1969.

Thursday, 19 July 2018

Markets rise, look set to hit new highs

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.5 percent and the Nikkei 225 rose 0.4 percent.

Stocks rose despite a report showing that US housing starts fell 12.3 percent in June and the Federal Reserve's Beige Books showing shortages of skilled workers and rising costs of raw materials.

“Earnings reports so far have been solid and despite today’s disappointing housing starts, economic data have also been trending higher, providing support for markets,” said Quincy Krosby, chief market strategist, at Prudential Financial.

Indeed, strategists are looking for stocks to set new records.

Samuel Stovall, chief investment strategist at CFRA, said that stocks could hit new highs “by the end of the month, if not the end of the week”.

Wednesday, 18 July 2018

Markets rise even as global growth expectations fall on trade war fears

Markets rose on Tuesday.

The S&P 500 rose 0.4 percent, the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 rose 0.4 percent.

In testimony to the Senate Banking Committee on Tuesday, Federal Reserve Chairman Jerome Powell said: “With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that – for now – the best way forward is to keep gradually raising the federal funds rate.”

However, fund managers have become less optimistic.

According to the July BofA Merrill Lynch survey of fund managers, the percentage of those who expect the global economy to be stronger a year from now is at its lowest since February 2016. It fell to a net of negative 11 percent, down from positive 40 percent at the start of 2018.

“Investor sentiment is bearish this month, with survey respondents eyeing the risks from a possible trade war,” said Michael Hartnett, BofA’s chief investment strategist.

Tuesday, 17 July 2018

Markets fall, risks to global growth “mounting”

Markets fell on Monday.

The S&P 500 fell 0.1 percent, the STOXX Europe 600 fell 0.3 percent and the Shanghai Composite fell 0.6 percent.

With the US earnings season just started, Mark Luschini, chief investment strategist at Janney Montgomery Scott, noted that bank results so far “look pretty good” while retail sales numbers “appear decent”.

“Market should continue to focus on these positive fundamentals unless there’s any further eruption in trade news, which will usurp the fundamental news,” he said.

In contrast, Morgan Stanley thinks that even a strong earnings season will not break stocks out of their range.

In a report on Monday, Morgan Stanley analysts led by chief US equity strategist Michael Wilson wrote that while earnings should come in ahead of analyst forecasts, “we do not see it as a positive catalyst for the U.S. equity market” as future economic growth “is likely to fall significantly”.

Indeed, in its latest World Economic Outlook released on Monday, the International Monetary Fund said that global growth “is becoming less even, and risks to the outlook are mounting”.

Monday, 16 July 2018

Markets gain as investors become more bullish

Markets had another positive performance last week, with the S&P 500 up 1.5 percent and the STOXX Europe 600 gaining 0.7 percent.

Stocks rose as investors became more optimistic.

A quarterly survey conducted by E*Trade last week showed that 57 percent of active managers described themselves as bullish on the market, rebounding from the previous quarter's 52 percent.

The latest AAII Investor Sentiment weekly survey showed that 43.1 percent of investors were bullish, a jump of 15.2 percentage points from the previous week. Bearish views fell by 10.1 percentage points to 29.2 percent.

“Trade has acted like a wet blanket on the stock market, but the fundamentals remain strong. If we can get through this issue, the earnings growth story is positive enough to lift markets,” said Anthony Saglimbene, global market strategist at Ameriprise Financial.

However, Quint Tatro, managing director at Joule Financial, noted that bank stocks have underperformed this year despite a strong economic recovery. “The financials are giving us a warning sign that something’s coming that’s not being reflected in the other sectors,” he said.

As a result, Tatro has sold the big banks and is “very cautious on the rest of the market”.

Jason Goldberg, senior equity analyst at Barclays, is more optimistic. He expects improving loan growth and accelerating share buybacks to be supportive for bank stocks.

Friday, 13 July 2018

Markets rise, yield curve not signalling bear market yet

Markets rebounded on Thursday after falling on Wednesday.

In the US, the S&P 500 rose 0.9 percent while the Nasdaq Composite rose 1.4 percent to hit a new record.

Elsewhere, the STOXX Europe 600 rose 0.8 percent while the Shanghai Composite surged 2.1 percent.

“While equity markets in the U.S. and Europe followed Asian markets lower yesterday in response to Trump’s proposals for additional tariffs, investors appear today to have adopted a much more positive stance about the prospects for an eventual resolution of the conflict,” said analysts at Daiwa Capital Markets in a note.

“We’re seeing technology pick up, and other areas more broadly as well, as fundamentals remain very good,” said Ralph Bassett, head of small and mid-cap equities at Aberdeen Standard Investments.

Meanwhile, strategists at Morgan Stanley on Thursday predicted that the yield curve will invert by the middle of 2019.

While a inverted yield curve is supposed to signal a recession, Larry Light at Forbes said that stocks could still keep climbing after that happens.

“An inverted yield curve is not a sell signal,” he quoted Ryan Detrick, senior market strategist at LPL Financial, as saying. “Recessions aren’t automatically around the corner.”

In any case, Ed Yardeni, president of Yardeni Research, thinks that the yield curve is not a good indicator of a recession and bear market this time.

Yardeni cited work by Federal Reserve economists that suggested that a near-term forward spread may be a better indicator of an imminent recession.

“Unlike far-term yield spreads, the near-term forward spread has not been trending down in recent years, and survey-based measures of longer-term expectations for short term interest rates show no sign of an expected inversion,” the Fed economists wrote.