Friday, 26 May 2017

Stocks rise but oil plunges despite OPEC output cut extension

Markets were mostly higher on Thursday.

The S&P 500 rose 0.4 percent, the Nikkei 225 rose 0.4 percent and the Shanghai Composite jumped 1.4 percent.

However, the STOXX Europe 600 fell 0.1 percent.

Oil fell amid disappointment that the Organization of the Petroleum Exporting Countries’ decided to extend production cuts by just nine months. West Texas Intermediate crude plunged 4.8 percent while Brent fell 4.6 percent.

However, some analysts see hope that a big drop in US oil stocks is finally on the way.

US crude stocks peaked at 533 million barrels in March and were at 516 million as of last week. Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut, said that “we'll easily get below 500 million barrels over the next six to eight weeks”.

“At the pace sustained since the start of March, the crude surplus would be totally gone by end-December,” Standard Chartered analysts said in a note this week.

Thursday, 25 May 2017

Markets higher as China credit rating cut, US stocks getting overbought

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.7 percent.

China's Shanghai Composite Index tumbled early in the day after Moody’s Investors Service cut its rating on the country’s debt but recovered to end the day 0.1 percent higher.

In the US, stocks rose despite the release by the Federal Reserve of the minutes of its monetary policy meeting in May showing broad agreement among officials to shrink its balance sheet.

Indeed, Thomas Kee Jr noted that volatility in the US stock market has been low even as it is coming close to being overbought.

“One of our key indicators, what we call the Sentiment Table, is on the verge of saying the U.S. stock market will likely stall and then fall,” he wrote.

Wednesday, 24 May 2017

Markets shrug off Manchester blast amid positive eurozone data

Markets were mostly higher on Tuesday.

The S&P 500 rose 0.2 percent and the STOXX Europe 600 rose 0.2 percent.

However, the FTSE 100 fell 0.2 percent after a bomb explosion in Manchester left more than 20 people dead.

A report on Tuesday showed that the IHS Markit eurozone PMI held a six-year high in May at 56.8 while Germany's flash manufacturing PMI hit a 73-month high of 59.4. Also, Germany's Ifo business climate index rose to 114.6, an all-time high.

Carsten Brzeski, chief economist at ING, wrote that “the entire eurozone economy could become the positive growth surprise of 2017”.

While US flash PMI readings were mixed, Karyn Cavanaugh, senior market strategist at Voya Financial, said that the eurozone data “bodes well for global equities”.

In addition, Raymond James chief investment strategist Jeffrey Saut said that US corporate earnings “are going to continue to surprise on the upside”.

Tuesday, 23 May 2017

Markets mixed as tech sector raises concerns

Markets were mixed on Monday.

The S&P 500 rose 0.5 percent, the Nikkei 225 rose 0.4 percent but the STOXX Europe 600 fell 0.1 percent.

Despite the rebound in the US, some analysts remain concerned about further weakness.

Michael Stanes, investment director at Heartwood Investment Management, wrote in a note on Monday that “we are in the latter part of the market cycle and sentiment is likely to remain vulnerable to pressure points as we move through the year”.

Matt Maley, equity strategist at Miller Tabak, thinks that tech stocks will be key.

Maley wrote that “if they do not play catch-up as we move through the week, it will raise the odds that we'll see more weakness in the stock market before long”.

On the other hand, others think that investors may be putting too much faith in the tech sector.

The Nasdaq Internet index, with a P/E of 61, “is approaching P/E levels that are as spicy as they were in prior ‘big tops’ in stock markets, and at a time where policy is turning less favorable”, BofA wrote in a note to clients.

Morgan Stanley wrote of “concerns that index-level moves have been driven by tech to a large and perhaps unsustainable degree”.

Monday, 22 May 2017

Keep buying the dips

Stock markets experienced a turbulent period last week. The S&P 500 plunged 1.8 percent on Wednesday, and despite recovering on the following two days, ended the week down 0.4 percent.

Some analysts remain sanguine though.

Immediately after the tumble on Wednesday, Terry Simpson, multi-asset investment strategist at the BlackRock Investment Institute, told CNBC: “If we have mini-corrections like today, it could actually be a nice opportunity to put some capital to work.”

Similarly, Nick Colas, chief market strategist at Convergex, thinks that investors should continue to buy the dips in the stock market.

Saturday, 20 May 2017

Stocks continue rebound, tech sector sees big inflows

Markets rose on Friday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.2 percent.

The S&P 500 ended the week down 0.4 percent but analysts remain hopeful that the downside is limited.

“This week political risk has caught up on the market but it’s still unclear whether it has any legs,” wrote Deutsche Bank strategist Jim Reid and research analyst Craig Nicol in a note on Friday.

“U.S. policy uncertainty is arguably greater than at any time since last November’s elections, but that should not entirely cloud what remains a generally supportive growth backdrop for equity markets, especially in the eurozone,” said Ian Williams, an economist and strategist at Peel Hunt.

The Nasdaq Composite rose 0.5 percent on Friday but fell 0.6 percent for the week.

This week's setback for technology stocks comes after a record-breaking run for the sector that has, according to Bank of America Merrill Lynch, seen money moved into the sector at a rate that, if it keeps up, would mark the biggest inflows to the space in 15 years.

Friday, 19 May 2017

US stocks rebound but analysts see rotation to Europe

Markets were mixed on Thursday.

After the US market plunge on Wednesday, the Nikkei 225 fell 1.3 percent and the STOXX Europe 600 fell 0.5 percent.

However, later on Thursday, the S&P 500 rose 0.4 percent.

JP Morgan said in a note that “equities could see further weakness in the short-term” but “fundamentals remain supportive”.

Meanwhile, a CNBC report suggests that a rotation to European stocks makes sense.

“With the U.S. and Brazil beset by political turmoil and Chinese stocks on the downswing, the big trade of 2017 increasingly looks like a rotation to Europe,” the report said.

“The fundamental backdrop continues to support a positive stance on the European market,” said Ronan Carr, European equity strategist at Bank of America Merrill Lynch.

Thursday, 18 May 2017

Markets fall on Trump turmoil

Markets fell sharply on Wednesday.

The MSCI All-Country World Index fell 1.2 percent as the S&P 500 tumbled 1.8 percent, the Nasdaq Composite plunged 2.6 percent and the STOXX Europe 600 fell 1.2 percent.

The US 10-year Treasury yield fell 11 basis points to 2.22 percent. Benchmark yields in France and Germany fell six basis points to 0.83 percent and 0.378 percent respectively.

Analysts attributed the declines to political turmoil in the US centred on President Donald Trump.

“If he’s preoccupied defending himself and if it goes a lot further, then any hope of his legislative agenda coming to the fore is going to be reduced,” John Stopford, head of fixed-income at Investec Asset Management Ltd in London, said.

“What has been setting in over the course of the day is that political uncertainty is something that’s likely going to be with us for a significant amount of time,” said Dennis Debusschere, Evercore ISI’s head of portfolio strategy and quant.

However, some technical analysts think that further declines will be limited.

Katie Stockton, chief technical strategist at BTIG, said that the S&P 500 has an initial support level of 2,340 but thinks that “a decline of that magnitude will be avoided”.

“For the most part we really do see this contained,” said Sameer Samana, global quantitative strategist at Wells Fargo Investment Institute.

On the other hand, Ilya Feygin, managing director and senior strategist at WallachBeth Capital, thinks that if Trump's proposed tax reforms, deregulation and infrastructure spending are cancelled, “this market is going to go down so hard that we haven't seen anything like it in the last few years”.

Wednesday, 17 May 2017

Markets mixed, investors see higher stock prices despite high valuations

Markets were mixed on Tuesday.

In the US, the S&P 500 fell less than 0.1 percent but the Nasdaq Composite rose 0.3 percent to close at a record for the second consecutive day.

Elsewhere, the STOXX Europe 600 was flat while the Nikkei 225 rose 0.3 percent.

Some investors are concerned about high stock prices.

“Prices aren’t at all justified by valuations or economic data,” said Adam Strauss, portfolio manager at Appleseed Fund. He warned that investors are “taking a lot of risk by staying in the S&P 500”.

Investors, though, appear to be ignoring valuations.

MarketWatch reported that according to investor surveys conducted by Robert Shiller, although 40 percent of both institutional and retail investors view current stock prices as cheap, the lowest since 1999, more than 90 percent of investors expect prices to continue to rise for another year.

And it could get worse. Goldman Sachs wrote on Monday that the earnings momentum that started the year has already shown signs of stalling.

Wouter Sturkenboom, senior investment strategist at Russell Investments, thinks “that profit margins will contract and revenue growth will disappoint”, and that stocks at current levels are “not worth the risk”.

Monday, 15 May 2017

China loans grows but some analysts see no crisis ahead

Data from the People's Bank of China on Friday showed that China's banks extended 1.1 trillion yuan in net new local currency loans in April, rising from 1.02 trillion yuan in March, though household loans fell to 571 billion yuan from 797.7 billion yuan.

Analysts were not alarmed by the data.

“April's credit expansion could have been due to front-load funding demand ahead of regulatory tightening, and the risk tilts to the downside in the coming months,” said ANZ's China economists David Qu and Betty Wang in client note.

Julian Evans-Pritchard, China economist at Capital Economics concluded that “the deceleration in credit growth which began last summer continued uninterrupted last month with a pick-up in loan growth more than offset by a decline in bond issuance”.

Indeed, an article by Bernstein’s Michael Parker and Kelman Li concluded that while China had “lots of debt”, they see “no crisis”.

“So, yes, tightening – in the form of a slowdown in credit formation growth - is likely in the second half,” they wrote. “But that tightening is, in our view, the next step in the rehabilitation of Chinese policy making… and equity markets.”

Saturday, 13 May 2017

Markets mixed, VIX and recession risk falls

Markets were mixed on Friday.

The S&P 500 fell 0.1 percent but the Nasdaq Composite rose 0.1 percent.

Elsewhere, the STOXX Europe 600 rose 0.3 percent but the Nikkei 225 fell 0.4 percent.

The CBOE Volatility index fell 1.7 percent to 10.42.

“No one really knows what it means to have such a low VIX at a time of such high uncertainty, rising rates, high valuations, and corporate profits that aren’t particularly strong,” said Jonathan Angrist, chief investment officer of Cognios Capital. “It is very unusual.”

Meanwhile, recession risk is also falling, according to Morgan Stanley, which places the probability of a US recession over the next 12 months at 25 percent.

“A stronger global backdrop and the delayed promise of tax reform have lowered this assessment from 30% previously,” wrote Ellen Zentner, a Morgan Stanley economist.

Friday, 12 May 2017

Markets fall as investors wait for Fed rate hike

Markets were mostly lower on Thursday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 fell 0.6 percent.

However, the Nikkei 225 rose 0.3 percent to close at a 17-month high.

Mark Kepner, managing director of sales and trading at Themis Trading, said that “with earnings season almost over, we might see some sideways moves until June when the Fed is likely to raise rates”.

Thursday, 11 May 2017

Stocks rise, oil jumps

Markets mostly rose on Wednesday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 rose 0.3 percent.

Markets largely shrugged off President Donald Trump's firing of the FBI director.

Michael Hewson, chief market analyst at CMC Markets, said that “investors don’t appear to be too concerned about the risks of sharp selloffs”.

Stocks were supported by a rally in oil. West Texas Intermediate crude rose 3.2 percent on Wednesday after US government data revealed the biggest weekly decline in domestic crude supplies so far this year. Brent rose 3.1 percent.

However, Tyler Richey, co-editor of the Sevens Report, said that “fundamentals are not yet pointing to a decided break higher in oil prices any time soon”.

Wednesday, 10 May 2017

Markets mixed but bull market "still intact"

Markets were mixed on Tuesday.

In the US, the S&P 500 slipped 0.1 percent but the Nasdaq Composite rose 0.3 percent to close at another record high.

European stocks rose, with the STOXX Europe 600 rising 0.5 percent to end at its highest level since August 2015.

Asian stocks were mixed. The Nikkei 225 fell 0.3 percent but the Hang Seng Index jumped 1.3 percent.

Some analysts remain optimistic.

“The bull market is still intact and in the absence of negative news we may see prices drift higher,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.

“The risk-on trade is in full swing and traders are considering the recent pullback in the European market as an opportunity,” said Naeem Aslam, chief market analyst at Think Markets.

Other analysts are more cautious.

“This is a market that needs an unequivocal solid package of economic data to move higher,” said Quincy Krosby, chief market strategist at Prudential Financial in the US.

There are also doubts on European stocks.

“Market-wise, this is the end of the European rally,” said Steen Jakobsen, chief economist at Saxo Bank, in a note on Monday. “We came into this election convinced that Macron would win and believing euro assets were undervalued; this has now run its course.”

Tuesday, 9 May 2017

US stock market ekes out record, tech seen outperforming

Markets were mixed on Monday.

The S&P 500 rose less than a point but still ended at a record high.

However, the STOXX Europe 600 fell 0.1 percent despite the pro-EU centrist Emmanuel Macron's victory in France's presidential election.

In Asia, the MSCI Asia Pacific ex Japan Index rose 0.8 percent while the Nikkei 225 surged 2.3 percent after returning from a three-day market holiday.

In currency markets, the euro fell against the US dollar after touching a six-month high earlier.

"A Macron win is largely priced into the euro," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

Investor sentiment remained positive though. The CBOE Volatility Index closed at 9.77, its lowest since December 1993.

"We remain largely constructive of the equity market and view that the path of least resistance is higher," said Bill Northey, chief investment officer at Private Client Group of US Bank.

Among stocks, Goldman Sachs sees the tech sector outperforming the broader market.

Monday, 8 May 2017

Macron wins French election

Pro-European centrist Emmanuel Macron won France's presidential election on Sunday.

"I will fight with all my strength against the divisions that are undermining us," Macron said at his campaign headquarters.

Markets reacted positively to the news. S&P 500 futures rose, as did Asian markets in early trading, and the euro rallied to a six-month high.

Saturday, 6 May 2017

US stocks hit records amid good jobs report

US stocks hit record highs on Friday.

The S&P 500 and the Nasdaq Composite rose rose 0.4 percent to close at new all-time highs.

Elsewhere, the STOXX Europe 600 rose 0.7 percent to end at a 21-month high but the Shanghai Composite Index fell 0.9 percent.

US stocks were supported by a good jobs report. The Labor Department reported on Friday that the US economy created 211,000 jobs in April while the unemployment rate fell to 4.4 percent from 4.5 percent.

“April employment data should put to rest concerns that somehow the economy was slowing to a complete stall,” said Stephen Blitz, chief US economist at TS Lombard.

In Europe, investors were focused on the French presidential election on Sunday, where centrist Emmanuel Macron is expected to beat far-right Marine Le Pen.

Peter Donisanu, analyst at Wells Fargo, said that while “the most immediate effect of a Macron win on Sunday would be to ameliorate concerns about the rise of populism in Europe for at least the next few months”, there could be “a short-term ‘buy the rumor, sell the news’ pullback in European risk assets”.

Friday, 5 May 2017

Stocks mostly rise but oil plunges

Markets were mostly higher on Thursday.

The S&P 500 rose just under 0.1 percent and the STOXX Europe 600 rose 0.7 percent.

However, earlier on Wednesday, Asian stocks mostly fell. The Shanghai Composite fell 0.3 percent.

Oil plunged, weighing down energy stocks, especially in the US. West Texas Intermediate crude and Brent fell 4.8 percent.

In Europe, investor sentiment improved after a televised debate between French presidential candidates Emmanuel Macron and Marine Le Pen suggested that the market-friendly centrist Macron remains favoured to win the election.

Thursday, 4 May 2017

Markets slip as Fed holds but summer rate hikes could trigger correction

Markets were mostly lower on Wednesday.

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

After a monetary policy meeting, the Federal Reserve released a statement on Wednesday saying that the slowing in growth during the first quarter is “likely to be transitory” and that job gains were “solid”.

“That officially puts two more interest-rate increases on the table,” said Matthew Peterson, chief wealth strategist at LPL Financial.

The yield on the US 10-year Treasury note rose four basis points to 2.32 percent on Wednesday.

On Tuesday, Jeffrey Gundlach, chief executive officer of DoubleLine, had said he expects the 10-year Treasury yield to move higher, and a summer interest rate rise should “go along with a correction in the stock market”.

Wednesday, 3 May 2017

Markets rise amid robust US earnings and strong eurozone manufacturing

Markets rose on Tuesday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.8 percent and the MSCI Asia Pacific Index rose 0.4 percent.

Robust corporate earnings helped US stocks maintain their upward momentum, with Phil Orlando, chief equity market strategist at Federated investors, declaring that the “earnings recession is over”.

However, Mislav Matejka, an equity strategist at JP Morgan Cazenove, wrote in a note that “the near-term risk-reward might be getting less exciting” as “[s]ome of the positive catalysts we have been looking for, such as a robust earnings season and the easing in political tail risks, have delivered and are now behind us”.

European stocks rose after coming back from holidays after Greece reached an agreement with its creditors on austerity measures to be taken for the next tranche of bailout money.

Markets were also boosted by strong manufacturing data. A report from Markit on Tuesday showed that its eurozone manufacturng PMI rose to 56.7 in April, the highest since 2011.

Tuesday, 2 May 2017

US stocks rise as Nasdaq hits record but Europe looks cheaper

Markets rose on Monday.

The S&P 500 rose 0.2 percent while the Nasdaq Composite rose 0.7 percent to another record high.

Earlier on Monday, the Nikkei 225 rose 0.6 percent while most markets in Europe were closed for holidays.

US stocks were boosted by an agreement reached over the weekend to keep the US government funded.

Meanwhile, even as US tech stocks continued its record-breaking run, many analysts think that there's probably more to come.

“If you look across the board, tech fundamentals have been very good in internet, software, and semiconductors, so there's been a good backdrop,” Joshua Spencer, portfolio manager at T. Rowe Price, told CNBC last week.

European stocks could also be set to outperform.

Michael Batnick wrote that European stocks have underperformed US stocks over the past few years. “That underperformance combined with investors’ attitudes toward European stocks — which are apathetic at best — has caused the valuation gap between US and European equities to widen into a gulf,” he wrote.

Batnick concluded that “with the difference in valuations, the recent performance, and investor flows, it might be time to consider investing at least a portion of your portfolio outside the United States”.

Monday, 1 May 2017

How overvalued are stocks?

CNBC's Alex Rosenberg asked: Just how overvalued are stocks? He looked to Jeremy Siegel and Robert Shiller for answers.

... In a Wednesday interview on CNBC's "Trading Nation," Shiller, a Yale University professor of economics, said that the market "hasn't been this overvalued except for a couple times in history—around 1929, around 2000."

Shiller is referring to the cyclically adjusted price-earning (or CAPE) ratio...

... Jeremy Siegel, a professor of finance at the University of Pennsylvania's Wharton School ... says the CAPE ratio is now giving off a false signal.

... "We are in a low interest rate world. We shouldn't use a 10-year lagging average now, especially with the growth that we're seeing."

There is a problem in comparing Shiller with Siegel.

Robert Shiller is probably most famous for writing the book Irrational Exuberate in 2000 that suggested that the stock market was overvalued just as it hit a peak.

Jeremy Siegel is probably most famous for writing the book Stocks for the Long Run that showed that stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years.

In other words, while Shiller has shown some prescience in forecasting for the short to medium term, Siegel is only known for his forecast for the very long term.

John Hussman did a thorough analysis of market valuation in his article last week "Valuation Breakevens" and concluded that "current valuation extremes present a hostile combination of weak prospective return and steep risk".

Saturday, 29 April 2017

Markets fall but buying opportunity could be coming soon

Markets fell on Friday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 fell 0.3 percent.

Ian Winer, head of equities at Wedbush Securities, said that this “feels like a breather after a hell of a rally this week”.

However, the rally may be set to resume soon, according to Simon Maierhofer.

Writing in MarketWatch, Maierhofer said that a “number of longer-term indicators suggest higher prices” and that the best buying opportunity of the year in stocks could be coming up soon.

Friday, 28 April 2017

Nasdaq hits record high, S&P 500 could follow even as it “looks dangerous”

Markets mostly slipped on Thursday.

In the US, the S&P 500 fell less than 0.1 percent but the Nasdaq Composite rose 0.4 percent to a record high.

The STOXX Europe 600 fell 0.2 percent despite European Central Bank President Mario Draghi telling a news conference that “the euro area economy is becoming increasingly solid”.

Similarly, the Nikkei 225 fell 0.1 percent as the Bank of Japan raised it economic forecasts.

In the US, Patti Domm at CNBC wrote that “strong earnings momentum could drive the S&P 500 back to its all-time high in the very near future”.

Indeed, Nobel laureate Robert Shiller told CNBC that the stock market “could keep going up” even as he warned that it is overvalued and that it “looks dangerous”.

Thursday, 27 April 2017

Markets mixed as Trump tax plan released amid high stock valuations

Markets were mixed on Wednesday.

The S&P 500 fell less than 0.1 percent but the STOXX Europe 600 rose 0.5 percent and the Nikkei 225 jumped 1.1 percent.

Stocks fell in the US despite Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn releasing a one-page outline of President Donald Trump’s tax-reform plan in a press conference on Wednesday.

“The market was looking for more specific color on rates and the reduction of exemptions, but color on the repatriation tax, which is the single most important issue, was left unaddressed by that press conference,” said Nicholas Colas, chief market strategist at Convergex.

Investors may also be getting more nervous as the US stock market becomes increasingly expensive. Ben Carlson noted on Wednesday that the S&P 500’s cyclically-adjusted price-to-earnings ratio reached 30 this week.

However, that has not stopped Morgan Stanley from raising its allocation to US equities this week.

“Tactically, the outcome of the first round of the French elections has been market-friendly and investor sentiment does not look extended. We add to U.S. equities. We fund this by taking cash to neutral,” wrote Andrew Sheets, a strategist at Morgan Stanley, in a report.

Wednesday, 26 April 2017

Markets rise, Nasdaq breaks 6,000

Markets rose on Tuesday.

In the US, the S&P 500 rose 0.6 percent while the Nasdaq Composite rose 0.7 percent to close at a record 6,025.49.

The STOXX Europe 600 rose 0.2 percent, with the DAX 30 closing at a record high and the CAC 40 finishing at a nine-year high.

The MSCI Asia Pacific Index rose 0.7 percent.

Michael Antonelli, equity sales trader at Robert W. Baird & Co, noted that US corporate earnings “have been strong” and “so far it looks like the market is very optimistic on tax cuts”.

Meanwhile, Barclays on Tuesday reiterated its overweight rating on European equities. “A reduction in political risk, coupled with an end to the seven-year stagnation in earnings, should lead to an acceleration in foreign investor buying of European equities,” Barclays strategist Dennis Jose wrote in a note.

In contrast, some analysts think that investors' enthusiasm for Asian stocks is waning on concerns that economic and business cycles may have peaked.

Tuesday, 25 April 2017

Markets surge on French election result

Markets surged on Monday following the strong showing by centrist Emmanuel Macron in the French presidential election.

The S&P 500 rose 1.1 percent and the STOXX Europe 600 jumped 2.1 percent, with the CAC 40 surging 4.1 percent.

Asian markets were mixed though. While the Nikkei jumped 1.4 percent, the Shanghai Composite Index tumbled 1.4 percent on worries over potential government action to reduce market risk.

Safe-haven assets like gold, the Japanese yen, and US Treasuries all fell. The CBOE Volatility Index dropped more than 25 percent to below 11, its largest one-day percentage drop since August 9, 2011.

“With Macron heavily favored in head-to-head polling against Le Pen, it seems most likely that the negative market scenarios—priced in over recent weeks—will recede between now and the runoff,” said Timothy Graf, head of macro strategy for Europe, the Middle East and Africa at State Street Global Markets.

Monday, 24 April 2017

Markets relieved as Macron wins first round in France

Investors heaved a sigh of relief at the end of the weekend as centrist Emmanuel Macron won the first round of voting in the French presidential election on Sunday.

Macron will face far-right leader Marine Le Pen in the final voting on 7 May.

Following the Sunday vote, the euro jumped the most in a month and the yen retreated. US stock-index futures and Japanese shares also rose.

Jordan Rochester, a foreign exchange strategist at Nomura Holdings Inc, said that the market “will likely fully price in the outcome of the second round today in favor of Mr Macron”, adding that Macron as the next president of France “should be positive for the French economy and for broader European economic stability”.

Chris Weston, chief market strategist at IG Ltd, said he expects the CAC 40 Index to open about 140 points higher when trading begins in Paris, signaling gains of almost 3 percent. “There’s going to be some relief coming through.”

Saturday, 22 April 2017

Markets mixed after Paris attack

Markets were mixed on Friday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 was flat and the MSCI Asia Pacific Index rose 0.7 percent.

Oil fell. West Texas Intermediate crude fell 2.2 percent while Brent fell 1.9 percent.

Markets generally held up well on Friday after an attack in Paris on Thursday night that left a police officer as well as the assailant dead.

Nevertheless, Michael Hewson, chief market analyst at CMC Markets, noted that the attack could influence France's presidential election, increasing the likelihood “of a face-off between Marine Le Pen on the right and Melenchon on the left”, which “is unlikely to be well received by the markets”.

Markets were also possibly supported by an announcement by US President Donald Trump that he would be releasing a “massive tax cut” package next week.

Friday, 21 April 2017

Markets rise as politics dominate trading

Markets mostly rose on Thursday.

The S&P 500 rose 0.8 percent and the STOXX Europe 600 rose 0.2 percent. Asian stocks were little-changed though.

US stocks were boosted by some better-than-expected corporate earnings reports as well as comments by Treasury Secretary Steven Mnuchin that a tax bill is likely to be unveiled very soon.

European stocks were boosted by a 1.5 percent jump in the CAC 40 after a poll showed centrist candidate Emmanuel Macron coming out ahead of far-right candidate Marine Le Pen in France's presidential election.

With markets becoming increasingly focused on political developments, Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, said on CNBC on Wednesday that “all trades are purely political” and “all economic data is irrelevant”.

Schlossberg added that if the Trump administration fails to get tax reform and infrastructure spending done in the summertime, then “a huge part of the 'Trump rally' just simply dies on the vine”.

Schlossberg also said that the progress of far-right and far-left candidates to the next round in the French presidential election would be the “absolute worst-case scenario for the market”.

Thursday, 20 April 2017

Markets mixed as investors move out of expensive US stocks

Markets were mixed on Wednesday.

The S&P 500 fell 0.2 percent but the STOXX Europe 600 rose 0.2 percent.

Earlier in Asia, the Shanghai Composite Index fell 0.9 percent but the Nikkei 225 rose 0.1 percent.

US stocks were dragged down by oil. West Texas Intermediate crude fell 3.8 percent on Wednesday while Brent fell 3.6 percent.

US stocks also fell amid the reallocation of funds away from them towards other markets, according to Bank of America Merrill Lynch's latest global fund manager survey.

“A net 83% of investors think [the] U.S. is the most overvalued region, the highest response on record,” said BAML strategists Michael Hartnett and Jared Woodard in a note.

Wednesday, 19 April 2017

Markets fall, UK stocks plunge on election announcement

Markets fell on Tuesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 fell 1.1 percent and the MSCI Asia Pacific Index fell 0.5 percent.

Tepid corporate earnings weighed on stocks in the US while a surprise announcement of an early UK general election pulled the FTSE 100 down 2.5 percent.

“The market is very fragile,” said Nicholas Teo, a trading strategist at KGI Securities in Singapore. “The strategy seems to be that investors are selling when the market is up.”

Tuesday, 18 April 2017

Markets mixed but stocks “only game in town”

Markets were mixed on Monday.

The S&P 500 rose 0.9 percent, the Nikkei 225 rose 0.1 percent but the Shanghai Composite Index fell 0.7 percent. European markets were closed.

Paul Nolte, portfolio manager at Kingsview Asset Management, said that “while valuations are still way too high, stocks remain the only game in town if you’re looking at them versus bonds”.

However, in China, stocks fell over an escalating regulatory crackdown on stock manipulation, and despite a report on Monday showing that the economy grew 6.9 percent in the first quarter from a year earlier, accelerating for the second consecutive quarter.

Monday, 17 April 2017

US stocks expensive but Japan “too cheap to ignore”

With US stocks expensive, John Hussman thinks that investors should keep their powder dry.

“Based on current valuation extremes, the outlook for prospective 12-year S&P 500 total returns remains dismal, likely averaging less than 1% annually by our estimates,” he wrote in his latest article. “Dry powder has considerable value here, not because of the return it currently generates, but because of the opportunity it may afford to establish constructive and even aggressive market exposure over the completion of this cycle, at higher prospective returns than are currently available.”

Alternatively, investors may want to consider the Japanese stock market. According to a Bloomberg report, Japanese stocks have become “too cheap to ignore”.

“It’s a buying opportunity,” Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management, was quoted as saying.

Braver investors could consider emerging stock markets. A New York Times article noted that emerging market stocks have risen almost 17 percent in the 12 months through March.

“What has been driving emerging market returns in the last year was the recovery in commodity prices, which led to a number of commodity producers’ doing well,” said Arjun Divecha, head of the emerging markets equity team at GMO.

Saturday, 15 April 2017

Geopolitical tensions rattle markets but it is China's debt that may explode

Markets have been rattled in recent days by geopolitical tensions in Syria and North Korea.

Then on Thursday, the US used its largest non-nuclear bomb to attack the Islamic State's holdings in Afghanistan.

And on Friday, as the aircraft carrier USS Carl Vinson sailed towards the Korean Peninsula, China's Foreign Minister Wang Yi urged all parties “to stop provoking and threatening each other and not to make the situation irretrievable”.

However, ZeroHedge reminds us that it is China's huge debt that could really threaten global financial markets.

ZeroHedge asserts that “just one number truly matters: that of the global credit impulse, which as we cautioned for the first time two months ago, had recently turned negative, mostly as a result of the recent deceleration in China's credit creation”.

ZeroHedge added that “the reflation trade of the past year was entirely the function of Chinese credit dynamics”, so this deceleration could adversely impact the global credit impulse.

On Friday, Reuters reported that China's banks made 1.02 trillion yuan in new loans in March, down from 1.17 trillion yuan in February.

However, China's total social financing, a broad measure of credit and liquidity in the economy, surged to 2.12 trillion yuan in March from 1.15 trillion yuan in February, reflecting probably a surge in off-balance sheet lending.

Wendy Chen, an economist at Nomura, said: “We don't think the strength in shadow banking activity will continue.”

Indeed, the concern is that bad loans may already be at destabilising levels, with Reuters noting that “some China watchers warn a debt crisis may be inevitable if loan and money supply growth continues to sharply outpace the rate of economic expansion”.

Friday, 14 April 2017

Stock markets fall but gold rises

Markets fell on Thursday.

The S&P 500 fell 0.7 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.7 percent.

Stock markets fell as fear appears to be creeping back into markets, with the Credit Suisse Fear Barometer, which measures the cost of buying protection against declines in the S&P 500 Index, nearing an all-time high this week.

However, gold rose 0.8 percent on Thursday and the US dollar fell after US President Donald Trump said the currency “is getting too strong”.

Brien Lundin, editor of Gold Newsletter, said that gold “seems likely to build upon its gains in the weeks ahead”.

Thursday, 13 April 2017

Markets mixed, volatility rises

Markets were mixed on Wednesday.

The S&P 500 fell 0.4 percent and the Nikkei 225 fell 1.0 percent but the STOXX Europe 600 rose 0.2 percent.

“We think the rally driven by hope of faster growth was overdone and there is a potential for disappointment,” said Wouter Sturkenboom, senior investment strategist at Russell Investments.

Indeed, the US 10-year Treasury yield fell three basis points to 2.27 percent while the CBOE Volatility Index rose to a five-month high.

Bloomberg reports that investors such as Rick Rieder at BlackRock Inc. and Bob Michele at J.P. Morgan Asset Management say they have been betting that price swings will grow more dramatic in the days and months ahead.

Wednesday, 12 April 2017

Markets fall amid geopolitical concerns

Markets were mostly lower on Tuesday.

The S&P 500 fell 0.1 percent, the Nikkei 225 fell 0.3 percent, the DAX 30 fell 0.5 percent but the FTSE 100 rose 0.2 percent.

Ongoing geopolitical concerns over Syria and North Korea kept safe haven assets supported. The US 10-year Treasury yield fell six basis points to 2.30 percent while gold rose 1.6 percent.

Richard Perry, market analyst with Hantec Markets, wrote in a note that “there has been a negative shift in risk sentiment as safe haven assets outperform” and as a result, “equities will tend to suffer”.

Oil rose though amid talk of a possible extension to the OPEC-led production cut agreement. West Texas Intermediate crude rose 0.6 percent and Brent rose 0.5 percent.

Tuesday, 11 April 2017

Markets mixed as investors look to earnings for further gains

Markets were mixed on Monday.

The S&P 500 edged up 0.1 percent, the STOXX Europe 600 was flat and the Nikkei 225 rose 0.7 percent.

“Stocks are not cheap, and it’s tough to find something that looks inexpensive, but we’ve seen them much more expensive and we should continue to grind higher as we get into earnings,” said John Brady, managing director at RJ O’Brien & Associates.

Phil Orlando, chief equity market strategist at Federated Investors, agrees. “We’re expecting good numbers and I think we’ll break to the upside if the numbers come in positive, but markets are always vulnerable to any kind of disappointment,” he said.

However, Avi Gilburt wrote that while he is “still looking for a much higher U.S. stock market in 2017”, he expects further weakness until May.

This decline represents a buying opportunity, he wrote, as he expects the S&P 500 to “rally to the 2,500 region into the summer”.

Monday, 10 April 2017

Markets likely to shrug off Syria strike

US stocks fell last week, with the S&P 500 declining 0.3 percent.

The S&P 500 ended the week with a slight 0.1 percent dip on Friday. A US military strike on a Syrian airbase initially provoked selling but the market recovered later in the day.

Reactions among analysts to the attack on Syria were mixed.

Sean Callow, senior strategist at Westpac Banking Corp, said that “there is likely to be a lingering sense of unease”.

However, Shane Oliver, head of investment strategy at AMP Capital Investors, said that the strike is “unlikely to have a lasting impact in markets”, an opinion shared by Jim McCaughan, CEO of Principal Global Investors.

Indeed, Kevin Marder said that “the market has bullishly become more of an earnings-driven affair”, while geopolitical incidents may “provide a buying opportunity”.

Saturday, 8 April 2017

Markets mixed after weak US jobs report and military strike on Syria

Markets were mixed on Friday.

The S&P 500 dipped less than 0.1 percent but the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.4 percent.

US stocks were held back by a weak employment report. A Labor Department report showed that the US economy created just 98,000 new jobs in March, the smallest gain in almost a year.

Some analysts see a silver lining though.

“It wasn’t exactly a disaster, maybe it backs off some of the ultrahawks [on the Fed] and we only get two rate hikes this year,” said Bill Stone, chief investment strategist at PNC Asset Management Group.

A US military strike against a Syrian airbase on Friday helped boost stocks of defence contractors but Nigam Arora thinks that apart from very mild boosts to gold and oil, markets will not be significantly affected in the long term.

Friday, 7 April 2017

US and European stocks rebound as Trump-Xi meeting begins

Markets were mixed on Thursday.

The S&P 500 rose 0.2 percent and the STOXX Europe 600 rose 0.2 percent.

However, the MSCI Asia Pacific Index fell 0.8 percent as the Nikkei 225 plunged 1.4 percent.

“We are seeing a short-term snap back from yesterday’s sharp selloff with the hardest-hit sectors recovering,” said Frank Cappelleri, chartered market technician at Instinet.

“Every time the market dips, investors come back,” said Paul Nolte, portfolio manager at Kingsview Asset Management.

Investors will be keeping an eye on the two-day meeting between US President Donald and Chinese President Xi Jinping that began on Thursday.

Connor Campbell, financial analyst at Spreadex, wrote in a note that “there is the chance for fireworks in the next 24 hours”.

However, Julian Evans-Pritchard, China economist at Capital Economics, said “we don’t expect any major policy announcements to come out of the meeting”.

Thursday, 6 April 2017

US stocks reverse sharply after Fed releases minutes

Markets were mixed on Wednesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 was flat and the Nikkei 225 rose 0.3 percent.

The US 10-year Treasury yield fell after the minutes of the last Federal Reserve monetary policy meeting showed that it would not substantially shrink its bond holdings.

The Fed minutes also showed that some officials thought that stock prices were “quite high relative to standard valuation measures”.

Perhaps investors think so too.

Mark DeCambre at MarketWatch noted: “After staging what was shaping up to be a healthy stock-market surge, equity-index benchmarks buckled Wednesday, ending squarely in the red and registering their worst reversal since February 2016.”

Wednesday, 5 April 2017

Markets mixed amid tension over Trump/Xi meeting

Markets were mixed on Tuesday.

The S&P 500 rose 0.1 percent and the STOXX Europe 600 rose 0.2 percent but the Nikkei 225 fell 0.9 percent.

Oil rose. West Texas Intermediate crude oil rose 1.6 percent while Brent rose 2.0 percent.

“Markets are trading in a very tight wait-and-see range,” said Jeff Kravetz, regional investment strategist at the Private Client Reserve at U.S. Bank.

“There is justifiable tension/apprehension building over the meeting between Presidents Trump and Xi this week as the former's China bashing over alleged mercantilist policies presumably sets the stage for what could be testy talks,” said Vishnu Varathan, an economist at Mizuho Bank.

“There is an undercurrent of worries that the economy is losing momentum,” said Quincy Krosby, a market strategist, at Prudential Financial.

And while Mark Kepner, managing director of sales and trading at Themis Trading, thinks that the “price action in the stock market suggests there is still a ‘buy the dip’ mentality”, Nicholas Colas, chief market strategist at Convergex, wrote in a note that “with equity valuations high and volatility low, time isn't necessarily our friend”.

Tuesday, 4 April 2017

Markets mostly fall but Nikkei 225 rises on improved business sentiment

Markets mostly fell on Monday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 fell 0.5 percent.

The yield on the US 10-year Treasury note fell 5 basis points to 2.335 percent.

“I expect we’ll see some softness until earnings start to come in,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.

Earlier on Monday, however, the Nikkei 225 rose 0.4 percent after the Bank of Japan's quarterly survey showed that the diffusion index of large manufacturers’ views on their current business conditions improved for the second consecutive quarter.

Indeed, Goldman Sachs strategists wrote in a report that now could be the time for foreign investors to return to Japanese equities.

Or braver investors could move into emerging markets. A Bloomberg report suggested that a widened growth gap, improving earnings outlooks and a greater valuation discount support a bullish outlook for emerging equity markets.

Monday, 3 April 2017

US corporate profitability at turning point?

The S&P 500 rose 0.8 percent last week. While it was flat for March, it rose 5.5 percent for the first quarter as a whole.

The sustained rally in the US stock market has made stocks expensive, but Michael Batnick at Yahoo Finance pointed to a Credit Suisse paper that noted that US companies have become more profitable in recent decades, which might justify their higher valuations.

However, John Hussman wrote that going forward, US economic growth is likely to be constrained by slowing labour force and productivity growth. Slowing economic growth and a tighter laboor market will in turn widen the wage share of GDP and narrow corporate profit margins.

Saturday, 1 April 2017

Markets fall as positive fundamentals offset by stretched valuations

Markets mostly fell on Friday.

The MSCI World Index fell 0.4 percent, the S&P 500 fell 0.2 percent and the Nikkei 225 fell 0.8 percent.

However, the STOXX Europe 600 rose 0.2 percent.

Despite the dip on Friday, the S&P 500 ended the week up 0.8 percent. It was flat for March but up 5.5 percent for the first quarter.

“The reflation trade certainly lost some steam this month, but overall fundamentals are still positive, especially considering that earnings outlook for the first quarter is great,” said Quincy Krosby, market strategist at Prudential Financial.

Some analysts are not so sure about the outlook, however.

“Valuations are as stretched as they ever get,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co. “Certainly that's cause for concern if earnings don't grow the way they are anticipated to grow.”

Friday, 31 March 2017

Markets rise as US economy shows momentum

Markets mostly rose on Thursday.

The S&P 500 rose 0.3 percent and the STOXX Europe 600 rose 0.5 percent.

Earlier in Asia, however, stocks fell. The Nikkei 225 fell 0.8 percent and the Shanghai Composite fell 0.9 percent.

Economic data helped prop up markets in the West.

In the US, a report showed that the economy expanded at a 2.1 percent annualised rate in the fourth quarter, slightly faster than the previously-reported 1.9 percent rate, while another report showed that jobless claims fell by 3,000 to 258,000 in the latest week, near their lowest level in decades.

“This is a market that looks like it may be gaining some traction as we go into the end of the month. The upward revision to GDP suggests economic momentum, and that’s providing some lift,” said Alan Gayle, senior investment strategist at RidgeWorth Investments.

In Germany, inflation fell to 1.5 percent in March from 2.2 percent in February, which helped ease expectations of a rate hike by the European Central Bank.

Thursday, 30 March 2017

Markets rise amid optimism, UK triggers Brexit

Markets rose on Wednesday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose less than 0.1 percent.

Oil rose. West Texas Intermediate crude rose 2.4 percent while Brent rose 2.1 percent.

Analysts are optimistic on stocks.

Randy Frederick, vice president of trading and derivatives for Charles Schwab, said that “economic data remains strong and markets are optimistic that we’ll see progress on tax reform out of Washington”.

“We’re probably going to get double-digit earnings growth this quarter, showing that things are getting better even without Administration changes,” said Karyn Cavanaugh, senior market strategist at Voya Financial.

In Europe, stocks rose as investors largely ignored the UK's official notification of its decision to leave the European Union.

Wednesday, 29 March 2017

Markets rebound amid positive economic data

Markets rose on Tuesday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 jumped 1.1 percent.

Positive economic data on Tuesday in the form of a jump in consumer confidence and rising house prices helped boost investor sentiment.

Mark Kepner, managing director of sales and trading at Themis Trading, said the “markets have fared pretty well with a little consolidation going on”.

However, Peter Cardillo, chief market economist at First Standard Financial, warned that the “Trump setback on health-care reform will likely spell trouble for equities in the days ahead”.

Tuesday, 28 March 2017

Markets fall but S&P 500's long-term momentum “still very solid”

Markets fell on Monday.

The S&P 500 fell 0.1 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 plunged 1.4 percent.

“Equity valuations have been underpinned by the Trump reflation trade since November, but the failure of the health-care bill raises major doubts about the strength of the administration and risks unwinding all the gains that the market has seen over the past five months,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.

The S&P 500 did recover from a much deeper decline on Monday, with Patti Domm at CNBC attributing it to end-of-quarter buying.

Domm also reported that according to Sam Stovall, chief investment strategist at CFRA, April is on average the second best month of the year for the S&P 500.

Beyond that, technical analyst Katie Stockton said on CNBC on Monday that the long-term momentum of the market “is still very solid”.

Monday, 27 March 2017

S&P 500 expected to survive Trump's health-care failure

The S&P 500 fell 1.4 percent last week. It slipped 0.1 percent on Friday after President Donald Trump failed to secure enough votes to pass his health-care bill.

However, Patti Domm at CNBC wrote on Friday that the market is likely to shrug off the health-care debacle.

“The market is expected to quickly move past the fallout from the House's failure to vote on a plan to replace Obamacare, and watch the play by play on President Donald Trump's promise to start work on reducing corporate and individual taxes,” she wrote.

“If they can get past this and move on to Trump's other programs, the market will breathe a sigh of relief,” Art Hogan, chief market strategist with Wunderlich Securities, was quoted as saying.

“I don't think it necessarily spells doom and gloom for the rest of the pro-growth agenda,” said Tom Simons, money market economist at Jefferies.

“If the president didn't deliver 100 percent, you were bound to get some kind of insecurity in the stock market, but I think what people are forgetting is the underlying fundamentals are still there, and that's what's going to drive the stock market,” said Richard Bernstein, CEO of Richard Bernstein Capital Management.

Writing at Forbes, Tom Aspray agrees.

Aspray said that “the stock market is not on ice that is thin enough to indicate a new bear market” and “I expect stocks to survive Trump's big legislative failure”, but added that “a further correction is now more likely”.

Saturday, 25 March 2017

US stocks fall with Trump's health-care bill

Markets were mixed on Friday.

The S&P 500 slipped 0.1 percent, the STOXX Europe 600 fell 0.2 percent but the Nikkei 225 rose 0.6 percent.

US stocks fell after President Donald Trump failed to secure enough votes to pass his health-care bill.

Kate Warne, investment strategist at Edward Jones, said the “inability of the Congress to pass the health-care bill would send a signal that other policies, such as tax reforms may be delayed too.”

Friday, 24 March 2017

Markets mixed, US stocks in “consolidation phase”

Markets were mixed on Thursday.

The S&P 500 slipped 0.1 percent but the STOXX Europe 600 rose 0.9 percent and the Nikkei 225 rose 0.2 percent.

“We think this is a normal pullback and consolidation phase after everything that's happened over the past six months,” said Lisa Kopp, head of traditional investments at US Bank Wealth Management. “The economic data seems to be positive; that's why we are still positive on stocks for the year.”

However, Canaccord Genuity chief market strategist Tony Dwyer thinks that it is not time to buy.

Speaking to CNBC on Wednesday, Dwyer said that “we just want to be market neutral until those things get oversold enough”.

And on Thursday, Todd Gordon of TradingAnalysis.com told CNBC: “The underperformance of the small caps over the last two months coupled with a significant reversal in the Nasdaq makes me very cautious of this market going forward.”

Thursday, 23 March 2017

Markets mixed as US stocks rebound

Markets were mixed on Wednesday.

The S&P 500 rose 0.2 percent but the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 plunged 2.1 percent.

“My feeling is we are running into a period of risk-off sentiment,” said Christoffer Moltke-Leth, director of global sales trading at Saxo Capital Markets.

Nevertheless, the rebound in the US kept some analysts optimistic.

“The market’s decline was relatively short-lived and economic data are amazingly strong, so we are still in a bull market and view this as a buying opportunity,” said Randy Frederick, managing director of Trading & Derivatives at Schwab Center for Financial Research.

In contrast, Kathleen Brooks, research director at City Index, wrote in a note that “the market is sending us some signals that could suggest a deeper pullback is on its way”.

Wednesday, 22 March 2017

Markets fall but investors “not throwing in the towel”

Markets fell on Tuesday.

The S&P 500 fell 1.2 percent, its steepest fall since 11 October. The Dow Jones Industrial Average and Nasdaq Composite fell 1.1 percent and 1.8 percent respectively, their worst declines since September.

Elsewhere, the STOXX Europe 600 fell 0.5 percent and the Nikkei 225 fell 0.3 percent although most other Asian markets rose.

Jack Ablin, chief investment officer at BMO Private Bank, said that investors have lost some of their enthusiasm over President Donald Trump as “a lot of his policies got mired in the legislative process”.

Nevertheless, analysts appear to remain sanguine about stocks.

“Investors are not throwing in the towel but they are resetting their expectations,” said Ablin.

“This doesn’t feel like a selloff, though, at least not at this point,” said Steve Sosnick, equity-risk manager at Timber Hill/Interactive Brokers Group.

A recent survey of global fund managers by Bank of America Merrill Lynch showed that most respondents thought that higher interest rates will be the most likely catalyst to end the bull market but for now, Treasury yields remain too low to hurt stocks.

Tuesday, 21 March 2017

Markets fall as protectionism risk rises

Markets mostly fell on Monday.

The S&P 500 fell 0.2 percent, as did the STOXX Europe 600.

In Asia, the Shanghai Composite rose 0.4 percent but stocks were mixed elsewhere in the region while the Japanese market was closed.

Over the weekend, finance ministers and central bankers at a G-20 meeting had dropped a pledge against protectionism in a policy statement, a move pushed by the US.

Citigroup economist Ebrahim Rahbari wrote in a research note. “Our base case is still cautiously benign, but we see a major rise in protectionism as one of the main risks to the global outlook.”

Analysts mostly appear to remain sanguine about market prospects though.

“At this stage, sideways or a move lower on the S&P 500 would make sense and perhaps that’s what we are seeing after gains in February,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co.

“We have one of the most business-friendly administrations, which we expect to spur capital spending by companies, leading to better earnings growth,” said Maris Ogg, president at Tower Bridge Advisors.

Monday, 20 March 2017

Oil turns down even as stocks hold up

Notwithstanding a small gain last week, oil has been selling off in recently. From Bloomberg:

The exodus of oil-price optimists has begun.

Money managers cut bets on rising West Texas Intermediate crude by a record amount during the week ended March 14, while wagers on a further price drop doubled as oil remained below $50 a barrel.

In contrast, investors are still waiting for a sell-off in stocks. From MarketWatch:

Investors who have been looking for a big pullback in stocks to scoop up some bargains have been waiting a long time, and they may be waiting even longer to jump into that opportunistic drop if the current trend holds.

Saturday, 18 March 2017

Markets mixed

Markets were mixed on Friday.

The S&P 500 fell 0.1 percent but the STOXX Europe 600 rose 0.2 percent while Asian markets were mixed.

Despite the decline on Friday, the S&P 500 finished the week with a 0.2 percent gain.

Karyn Cavanaugh, senior market strategist at Voya Financial, said that “investors are content to just sit tight” but Adam Sarhan, chief executive officer at 50 Park Investments, said that “there’s no question that we’re in a period with lofty valuations and stretched positive sentiment”.

Friday, 17 March 2017

Markets mixed but analysts remain optimistic

Markets were mixed on Thursday.

The S&P 500 fell 0.2 percent but the STOXX Europe 600 rose 0.7 percent and the Nikkei 225 rose 0.1 percent.

Oil fell. West Texas Intermediate crude fell 0.2 percent while Brent fell 0.1 percent.

Nevertheless, analysts remain optimistic.

Bloomberg reports that Credit Suisse Group AG and UBS Group AG have told their clients that now is the time for them to jump back into stocks.

Indeed, market technician Michael Kahn thinks that “the bull market has years to run”.

In the meantime, Shelley Goldberg thinks that any further drop in oil from current levels will likely be “short-lived”.

Thursday, 16 March 2017

Markets rise as Fed raises rates

Markets mostly rose on Wednesday.

The S&P 500 rose 0.8 percent and the STOXX Europe 600 rose 0.4 percent. However, the MSCI Asia Pacific Index finished little-changed.

The Federal Reserve raised its benchmark rate by 25 basis points on Wednesday, a move that failed to dampen investor sentiment.

Indeed, Tomi Kilgore at MarketWatch wrote that investors should celebrate as “interest rates and the stock market usually trend in the same direction over the long term”.

Nevertheless, Goldman Sachs has downgraded its outlook on equities to neutral from overweight over the next three months.

“The asymmetry for equities is turning increasingly negative,” Christian Mueller-Glissmann, an equity strategist at Goldman Sachs, said in a report. “High equity valuations alone are not a reason for drawdowns in the short term, if they reflect stable or improving macro conditions; but they indicate elevated drawdown risk,” he added.

Wednesday, 15 March 2017

Markets fall with oil as Fed rate hike looms

Markets fell on Tuesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 0.1 percent.

Stocks were dragged down by falling oil prices. West Texas Intermediate crude fell 1.4 percent while Brent fell 0.8 percent after a report showed that oil production from Saudi Arabia is increasing.

Also possibly weighing on investors' minds was Federal Reserve monetary policy tightening as the Federal Open Market Committee kicked off its two-day meeting on Tuesday.

However, while a rate hike on Wednesday is considered likely and would be the Fed's third increase since December 2015, analysts remain mostly sanguine.

Neil Staines, head of trading at The ECU Group, noted that “when the real fed-funds rate is negative, as it is now, equities have gone up an average of 3.6% over the next three months” following a third rate rise.

Sam Stovall, chief investment strategist at CFRA, thinks that the Fed’s tightening schedule is probably already “baked into” stock prices.

Tuesday, 14 March 2017

Markets mixed as US stocks seen overvalued

Markets were mixed on Monday.

The MSCI Asia Pacific Index rose 0.8 percent and the STOXX Europe 600 rose 0.4 percent but the Dow Jones Industrial Average fell 0.1 percent while the S&P 500 was little-changed.

Investors in the US may be getting nervous at the extreme valuations of US stocks.

Brett Arends at MarketWatch wrote on Monday: “This is the most dangerous and overvalued stock market on record.”

Arends quoted John Hussman as saying: “Presently, we observe the broadest market valuation extreme in history.”

He also cited the World Bank in saying that the US stock market is now valued at more than 150 percent of annual gross domestic product, way above historic norms and about the same as it was at the market extreme of 2000.

However, John Bollinger, creator of Bollinger Bands, thinks that the charts are pointing to even more highs for stocks.

Monday, 13 March 2017

US stock market “not a bubble” but weakness in small caps “disturbing”

The US stock market is not in a bubble, so stay invested.

At least, that is what Eddy Elfenbein said at the Crossing Wall Street blog.

“If the Street’s estimate for 2018 is accurate, that means the S&P 500 is currently going for 16 times next year’s earnings,” he wrote. “To my mind, that’s a bit above average, but it’s hardly excessive.”

Elfenbein also said that a recession “doesn’t appear to be on the horizon”.

He concluded that while the market will “see some ups and downs”, he sees “no reason for us to expect any severe troubles for the next several months”.

However, Art Cashin, a market veteran and director at UBS, commented on CNBC last week that a “counter-intuitive” trend is appearing in the market with small-cap stocks. The IWM, the small-caps stock tracking ETF, has lost almost all of its gains year to date.

Cashin calls the trend “slightly disturbing” as “one of the Trump initiatives would be in international trade, therefore the multinationals might be under some stress, and the small caps should be fine”.

Cashin also thinks that problems could emerge as “the Trump agenda will be far later in being implemented than people thought”, as well as from geopolitical events like tensions in North Korea and the upcoming French elections.

Saturday, 11 March 2017

Stocks rise to “rare state” as US rate hike next week “a near certainty”

Markets rose on Friday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 jumped 1.5 percent.

A report on Friday showed that the US economy added 235,000 jobs in February.

Karyn Cavanaugh, senior market strategist at Voya Financial, said that the “jobs report is an affirmation of everything else we’ve been seeing on the data front” while Jasper Lawler, senior market analyst at London Capital Group, said that it “makes a rate hike at next week’s meeting of the Federal Reserve a near certainty”.

Meanwhile, Business Insider quoted CNBC's Michael Santoli as saying: “Stocks in a rare state, crossing above 20x P/E w/ 20% gain over the past year.”

That is based on a chart from Brian Belski, chief investment strategist at BMO Capital Markets, who also said in a note: “U.S. stocks remain in the midst of a secular bull market with many years of life left to it.”

Friday, 10 March 2017

Stocks rise, oil falls, Eurozone rates unchanged

Markets were mostly up on Thursday.

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

“The sharp decline the last two days may have left room for a short technical rebound,” said Bruce McCain, chief investment strategist at Key Private Bank.

However, oil prices continued to fall. West Texas Intermediate crude fell 2.0 percent while Brent fell 1.7 percent.

At its monetary policy meeting on Thursday, the European Central Bank decided to leave interest rates unchanged.

Thursday, 9 March 2017

Oil plunge drags stocks down

Markets mostly fell on Wednesday.

Oil led markets lower after the US Energy Information Administration reported that domestic crude supplies rose last week to lift total commercial inventories to a record weekly level. West Texas Intermediate crude plunged 5.4 percent and Brent fell 5.0 percent.

The S&P 500 fell 0.2 percent as energy stocks plunged 2.5 percent.

In Asia, the Nikkei 225 fell 0.5 percent and the Shanghai Composite fell 0.1 percent after China reported a trade deficit for February.

However, the STOXX Europe 600 rose 0.1 percent.

While US stocks fell for the third consecutive day on Wednesday, they remain in a relatively calm period.

CNBC reports that the S&P 500 has posted its 100th consecutive trading day without a decline of 1 percent or more, its longest such run since 1994.

Wednesday, 8 March 2017

Markets fall, triggering warning signal

Markets fell on Tuesday.

The S&P 500 fell 0.3 percent for the second consecutive day, the STOXX Europe 600 fell 0.3 percent, its fourth consecutive decline, and the Nikkei 225 fell 0.1 percent.

Analysts mostly remain sanguine about the market.

“We had a very good run-up, especially last week, so the market is in consolidation at the moment,” said Mark Kepner, managing director of sales and trading at Themis Trading.

However, a warning sign did flash on Tuesday, being the second consecutive day that the number of New York Stock Exchange-traded stocks hitting 52-week lows exceeded those that hit 52-week highs.

Chart specialist Tom McClellan said on Tuesday that lows surpassing highs within seven trading days of a 1-year high for the S&P 500 is an Ohama Titanic Syndrome, a preliminary sell signal. The S&P 500 put in a high on 1 March.

Tuesday, 7 March 2017

Stocks fall after entering “danger zone”

Markets were mostly lower on Monday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 fell 0.5 percent and the Nikkei 225 fell 0.5 percent.

Markets fell as Business Insider noted that stocks have entered the “danger zone” according to Jeff Saut of Raymond James.

Indeed, a report from CNBC said that in order to make the case for buying stocks based on valuation, one has to believe that earnings will “truly shoot skyward”, a prospect that Matt Maley, equity strategist with Miller Tabak, sees as “far-fetched”.

Monday, 6 March 2017

With no historic metrics to prove bullish case, is stock market in new era?

In an article today titled “The Most Broadly Overvalued Moment in Market History”, John Hussman wrote:

On Wednesday, the consensus of the most reliable equity market valuation measures we identify (those most tightly correlated with actual subsequent S&P 500 total returns in market cycles across history) advanced within 5% of the extreme registered in March 2000. Recall that following that peak, the S&P 500 did indeed lose half of its value, the Nasdaq Composite lost 80% of its value, and the tech-heavy Nasdaq 100 Index lost an oddly precise 83% of its value. With historically reliable valuation measures beyond those of 1929 and lesser peaks, capitalization-weighted measures are essentially tied with the most offensive levels in history. Meanwhile, the valuation of the median component of the S&P 500 is already far beyond the median valuations observed at the peaks of 2000, 2007 and prior market cycles, while our estimate for 10-12 year returns on a conventional 60/30/10 mix of stocks, bonds, and T-bills fell to a record low last week, making this the most broadly overvalued instant in market history.

However, if history does not support the bullish case, one can always ignore history.

Long-time bull Laszlo Birinyi, president of Birinyi Associates, was quoted by the New York Times over the weekend as saying: “My attitude is, the market is likely to continue to do better, though I can’t point to historic metrics to prove my case the way I usually can.”

In other words, it is a new era.

Saturday, 4 March 2017

S&P 500 rises, “to continue on to higher levels”

Markets were mixed on Friday.

The S&P 500 rose less than 0.1 percent but the STOXX Europe 600 fell 0.1 percent and the Nikkei 225 fell 0.5 percent.

For the S&P 500, the gain on Friday helped the index finish the week up 0.7 percent, its sixth consecutive weekly rise.

Jim Paulsen, Wells Capital Management's chief investment strategist, told CNBC that stocks are likely to rise further. “I think this is going to continue on to higher levels and yields are going to move higher ... before we get a significant correction,” he said.

Paulsen pointed out that the correlation between stocks and bonds is positive right now. “Once that turns negative again, then I think I'm going to turn more negative on the stock market overall,” he said.