Tuesday, 22 August 2017

US stock market rises but “looks wobbly”

Markets were mixed on Monday.

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

While the US stock market was positive on Monday, analysts were not particularly upbeat about its prospects.

“With earnings season coming to an end, there is not much to be bullish about right now,” said Richard Perry, a Hantec Markets analyst. He added that geopolitical risk is “still elevated on the Korean Peninsula” while “the political risk of Trump’s presidency remains a driving factor”.

Sam Stovall, chief investment strategist at CFRA, said in a note that “the market’s current technical action points to the possibility of a decline of deeper proportions”.

JPMorgan's Jason Hunter said the S&P 500 could see a sell-off of as much as 8 percent as soon as next month while Paul LaRosa, Maxim Group chief market technician, said that the market “looks pretty wobbly”.

Monday, 21 August 2017

US market seeing cracks ahead of worst month for stocks

The S&P 500 fell 0.7 percent last week, its second consecutive weekly decline.

A Reuters report last week suggested that things are not likely to get better soon.

“September ranks as the worst month for stocks, according to the Stock Trader's Almanac, producing an average price return for the S&P 500 of negative 0.5 percent,” the report noted.

The report also said that more stocks have been making new 52-week lows than highs.

“There are some cracks in market breadth,” said Peter Cecchini, chief market strategist at Cantor Fitzgerald.

Also, with the S&P 500 trading at 17.7 times expected earnings, many investors consider it expensive and at risk of a selloff.

“When you're at these valuation levels in a lot of these names, it doesn't take much,” said Stephen Massocca, senior vice president, Wedbush Securities.

However, CNBC reported that stocks still look cheap relative to bonds.

“Now, the triple-B bond yield is trading about 1.5 to 2 percent below that of the earnings yield,” said Jack Ablin, chief investment officer at BMO. “Now I would argue for at least more attractive capital going into equity over bonds.”

Saturday, 19 August 2017

Markets fall, US stocks most expensive since 2003

Markets fell on Friday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 fell 0.7 percent and the Nikkei 225 plunged 1.2 percent.

While US stocks were lower for the week for the second consecutive week, the S&P 500's earnings per share increased 10.8 percent in the second quarter, the first time the index has posted two quarters of double-digit gains since 2011.

However, the US stock market remains expensive. According to Bank of America Merrill Lynch, the S&P 500's forward P/E ratio rose to 17.7 in July, its highest level in 13½ years.

Bill Baruch, senior market strategist at iiTrader, said that the market has gotten “a little ahead of itself” while Samuel Rines, chief economist and global macro portfolio manager at Avalon Advisors, said that a rise in interest rates “should lead to multiple contraction”.

Other analysts are unperturbed.

Erin Gibbs, portfolio manager at S&P Global, said that the S&P 500's forward P/E ratio would have to touch about 19 times to appear “peakish”.

In the meantime, BMO's Brian Belski said that “we are now closely monitoring our target models to determine if an upward revision is needed”.

Friday, 18 August 2017

Markets fall amid concerns over terrorism and US presidency

Markets fell on Thursday.

The S&P 500 plunged 1.5 percent, the STOXX Europe 600 fell 0.6 percent and the Nikkei 225 fell 0.1 percent.

US stocks were particularly hit by news of a suspected terrorism attack in Barcelona, Spain and concerns that Gary Cohn was resigning as economic adviser to President Donald Trump.

“With the light volume, Barcelona is not something that the market is going to handle well,” said Mark Kepner, managing director of sales and trading at Themis Trading.

“There’s no direct market impact in what Trump has done recently, but if things continue to be so polarized that his agenda is completely dead on arrival, that would have a negative impact,” said Mark Spellman, portfolio manager at Alpine Funds.

Indeed, Brett Arends at MarketWatch noted that over the past 100 years, when the US president has become too politically weakened to lead effectively, the Dow Jones Industrial Average lost an average of 14 percent of its value in constant dollars.

Thursday, 17 August 2017

Markets rise as tensions over N Korea recede

Markets were mostly higher on Wednesday.

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

“Over the past couple of days we’ve seen a decent rebound in equity markets as risky assets start to regain some of their attraction, as concerns about tensions in North Korea show signs of settling down a little,” wrote Michael Hewson, chief market analyst at CMC Markets.

Indeed, a Bloomberg report noted that compared to other times in the last few years when the S&P 500 took one-day plunges of between 1 percent to 3 percent, the rebound since Thursday ranks among the fastest.

Wednesday, 16 August 2017

Most analysts think US market overvalued

Markets were mixed on Tuesday.

The Nikkei 225 jumped 1.1 percent, reversing the previous day's 1 percent decline, but the STOXX Europe 600 rose just 0.1 percent and the S&P 500 fell less than 0.1 percent.

The latest Bank of America Merrill Lynch Fund Manager Survey showed that a net 46 percent of respondents considered stocks overvalued, the biggest gap ever recorded in the survey.

At the same time, investors have lowered their expectations for corporate earnings, with a net 33 percent saying profits will improve over the next 12 months, down 25 percentage points from 2017.

However, long-time bull David Tepper, head of Appaloosa Management, does not seem to agree.

“Any comparisons to past overheated markets are ridiculous,” he told CNBC. “I'm not saying stocks are screaming cheap, but you're nowhere near an overheated market.”

Tuesday, 15 August 2017

Markets rise, earnings forecasts fall

Markets were mostly higher on Monday.

The S&P 500 rose 1.0 percent, the STOXX Europe 600 rose 1.1 percent and the Shanghai Composite rose 0.9 percent.

“After some short-term knee-jerk reactions last week, the market is having that moment of clarity rally—earnings are marching forward, the economy is strengthening, [and] global economic conditions are gaining steam,” said Karyn Cavanaugh, senior market strategist at Voya Financial.

Other analysts are not so sure.

Ryan Vlastelica at MarketWatch said that despite strong earnings growth in the second quarter, analysts have lowered S&P 500 earnings forecasts for 2018 by 0.2 percent since the end of June.

Monday, 14 August 2017

US stock market declines but bull run may not be over

The US stock market fell 1.4 percent last week but some bulls remain undaunted.

John Tobey suggested that “it's time to ride stocks and leave the worrying to others”.

Tobey said: “[T]his market is filled with concerns – its calm rise, higher valuations and the supposed complacency of others. Therefore, there is no bubble to pop.”

Instead, Tobey said that recent warnings about stock investing dangers are a “bullish indicator”.

He quoted Richard Barley as saying that “the real time to worry should be when no one is worried” and that “day has yet to arrive.

Similarly, Jeffrey Saut, Raymond James' chief investment strategist, recently said on CNBC that “it's still a secular bull market”.

However, Saut noted that there has been “some technical damage done” and that he is “not sure the downside is over with”.

Nevertheless, for the longer term, Saut said that earnings have been coming in better than expected and that should help drive the secular bull market.

Saturday, 12 August 2017

US stocks buck falling trend but still at risk

Markets were mostly lower on Friday.

Asian stocks plunged. With Japanese markets closed, the Hang Seng led the declines, tumbling 2 percent. The KOSPI fell 1.7 percent and the Shanghai Composite fell 1.6 percent.

European stocks fared little better. The STOXX Europe 600 fell 1.0 percent to its lowest close since 28 February.

Asian and European stocks were mostly reacting to ongoing tension between North Korea and the United States but US stocks managed to buck the trend as the S&P rose 0.1 percent after a report showed that US consumer prices rose just 0.1 percent last month.

“Because the numbers came in lower, the market saw that as an indication that the Fed won't raise rates in September,” said Robert Pavlik, chief market strategist at Boston Private.

Despite the rise on Friday, the S&P 500 ended the week down 1.4 percent.

Ryan Vlastelica at MarketWatch warned of the risk of “further losses ahead” for the US stock market.

Vlastelica noted that both the S&P 500 and the Nasdaq Composite fell below their 50-day moving averages on Thursday and failed to regain those levels on Friday.

“This isn’t a sign that you need to sell everything, but it is a sign you need to be more careful,” he quoted Frank Gretz, market analyst and technician for brokerage Wellington Shields & Co, as saying.

Friday, 11 August 2017

Markets plunge but strategists don't see bear market

Markets plunged on Thursday as geopolitical tension showed no sign of easing.

The S&P 500 fell 1.5 percent, the STOXX Europe 600 fell 1 percent and the MSCI Emerging Market Index fell 1.4 percent.

Government bonds rose. The US 10-year Treasury yield fell five basis points to 2.20 percent and the German 10-year yield fell two basis points to 0.41 percent.

“The markets in general are very on edge and they’re very leery about risk,” said Mariann Montagne, a portfolio manager at Gradient Investments LLC.

CNBC reported that many stock strategists see the possibility of a 5 percent correction for the US stock market but do not see the current selloff turning into a bear market.

“We don't think this is a bear market,” said Julian Emanuel, equity and derivatives strategist at UBS.

Sam Stovall, chief investment strategist at CFRA, said that economic and financial indicators “all tell me now we're not near a recession”.

Thursday, 10 August 2017

Markets fall as N Korea threatens strike on US

Markets fell on Wednesday.

The S&P 500 fell less than 0.1 percent, the STOXX Europe 600 fell 0.7 percent and the Nikkei 225 fell 1.3 percent.

Markets fell after North Korea threatened a missile strike on the US territory of Guam.

“Definitely the primary reason stocks are down is geopolitical tensions,” said JJ Kinahan, chief strategist at TD Ameritrade.

“A war is still far from erupting but given recent gains and pricey valuation, prudence suggests it’s best to capitalize on the rising geopolitical tension by taking some money off the table,” said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc.

Wednesday, 9 August 2017

Markets mixed as analysts see correction despite better earnings

Markets were mixed on Tuesday.

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

US stocks fell after President Donald Trump warned North Korea about facing “fire and fury” if the latter continued to threaten the US.

“The geopolitical tensions could be the catalyst for the market's direction in the next coming weeks depending on how it all shakes out,” said Robert Pavlik, chief investment strategist at Boston Private.

However, other analysts noted the underlying strength of the market.

“Earnings have been getting better and better,” trader Peter Costa said.

“You've got this underlying strength that is so broad-based and we haven't seen that and that's what's keeping this market aloft in this very steady upward trending motion,” said John Blank, chief equity strategist at Zacks Investment Research.

However, Chris Johnson, CEO of Johnson Research, said that “the market is still a little bubbly” and suggested waiting for “a bit more of a correction” before getting in.

That correction, though, might turn out to be somewhat more than many investors are thinking, according to Bank of America Merrill Lynch chief investment strategist Michael Hartnett.

“I think there will be a moment and quite a significant moment, probably in October or November, but it could be September, when the markets are going to correct and correct quite meaningfully,” he said.

Tuesday, 8 August 2017

US stocks hit record highs but “inflation could lead to unpleasant surprises”

Markets were mixed on Monday.

The S&P 500 rose 0.2 percent to a new record and the Nikkei 225 rose 0.6 percent. However, the STOXX Europe 600 slipped 0.1 percent.

Despite the US stock market's record-breaking run, some investors remain cautious.

“I’m cautious about what I’m doing,” said Robert Pavlik, chief market strategist at Boston Private Wealth. “I don’t need to chase the market, and nothing is exciting me enough to rush out and spend the cash I have on hand.”

Indeed, a CNBC report suggested that inflation poses an under-appreciated risk to the US stock market.

Scott Clemons, chief investment strategist at Brown Brothers Harriman, wrote in a recent report that “ignoring the risk of inflation, as remote as it may be, could lead to unpleasant surprises”.

Similarly, Bryce Doty, senior portfolio manager at Sit Investment Associates, wrote in an email to CNBC that investors are “unprepared for rising inflation”.

In addition to inflation, Gina Sanchez, CEO of Chantico Global, is concerned that growth expectations have “gotten ahead of reality” and “earnings could under-deliver”.

That, together with high market valuations, “could create a situation where investors should be considering consolidating their positions and getting into wait-and-see mode for the end of the year,” she told CNBC.

Monday, 7 August 2017

Dow at record high but “bearish trends lurking”

The Dow Jones Industrial Average closed on Friday at a record high, its eighth consecutive record.

MarketWatch charts the important Dow milestones.

Just over five months after hitting 21,000 and over six months since hitting the major 20K milestone, the Dow Jones Industrial Average made history again on Wednesday and closed above the 22,000 level. The 109-session surge to 22,000 is the eighth-fastest 1,000-point advance in the index’s history. It’s the third time the Dow has hit one of these psychologically important 1,000-point milestones this year.

See chart.

However, MarketWatch reports that beneath the glow of stock-market records, darkly bearish trends are lurking.

Market breadth, a measure of how many stocks are rising versus the number that are dropping, has turned “exceedingly negative”, according to Brad Lamensdorf, a portfolio manager at Ranger Alternative Management.

Saturday, 5 August 2017

Markets rise after positive US jobs report

Markets were mostly higher on Friday.

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

Markets were boosted by a report showing that the US economy gained 209,000 new jobs in July.

“European and U.S. markets are pushing higher after an overwhelmingly positive U.S. jobs report, despite the fact that this greatly increased the likeliness of a third and final interest rate hike by the Federal Reserve in 2017,” said IG market analyst Joshua Mahony in a note.

Jeff Zipper, managing director of investments at US Bank Private Client Wealth Management, said that with corporate results “coming in nicely”, stocks “will continue to grind higher until the end of the year”.

Friday, 4 August 2017

Markets mixed, pullback may have further to go

Markets were mixed on Thursday.

The Dow Jones Industrial Average rose marginally to close at another record high but the S&P 500 fell 0.2 percent.

The STOXX Europe 600 rose 0.1 percent. The FTSE 100 rose 0.9 percent but the DAX 30 fell 0.2 percent.

In Asia, the Nikkei 225 fell 0.3 percent but the KOSPI slumped 1.7 percent, dragged down by a 2.5 percent plunge in Samsung Electronics as its de facto head testified for the first time at his corruption trial.

“Investors are leaning a little bit more cautiously simply for the very, very near term because of bullish sentiment being higher than normal,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co.

“We think this pullback has further to go,” said Deutsche Bank’s European equity strategists in a note on Thursday.

While valuations are keeping some investors cautious, Goldman Sachs said that there is one measure that suggests stocks may still be cheap.

The “S&P 500 is expensive according to most valuation metrics, but appears attractively valued on free cash flow yield due to reduced capex investment,” said Goldman's Chief US equity strategist David Kostin.

Thursday, 3 August 2017

Dow crosses 22,000 as investors ignore valuations

Markets were mixed on Wednesday.

In the US, the Dow Jones Industrial Average rose 0.2 percent to close above 22,000 for the first time but the S&P 500 edged up less than 0.1 percent and the Nasdaq Composite was flat.

Elsewhere, the STOXX Europe 600 fell 0.4 percent while in Asia, the Nikkei 225 rose 0.5 percent but the Shanghai Composite fell 0.2 percent.

“Valuations do look stretched relative to historical norms, but investors are looking a little farther out, and valuations don’t look that bad in that context,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.

Investors in technology stocks, in particular, are ignoring valuations, according to Arjun Kharpal at MarketWatch.

He quoted an investor as saying last week: “forget about valuations, just own the damn thing”.

In contrast, a CNBC report noted that the tech sector has seen “a divergence between momentum and price action that signals the market may be getting reading to consolidate”.

Jason Hunter, head of fixed income and equities technical analysis at JPMorgan, suggested that the market is “setting up for a pullback in the next few weeks”.

Meanwhile, Brett Arends at MarketWatch suggested that investors could consider global stocks.

But be careful about Japanese stocks. Some analysts think that the months-long lull in Japanese equities could take an abrupt turn in the second half of the year.

Wednesday, 2 August 2017

Markets rise, Greenspan warns of bond bubble

Markets rose on Tuesday.

The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.3 percent.

US Treasuries rose, with the yield on the 10-year note falling 3.9 basis points to 2.253 percent.

While some analysts attributed the low bond yields to low inflation, former Federal Reserve chairman Alan Greenspan warned that bonds are in a bubble.

“By any measure, real long-term interest rates are much too low and therefore unsustainable,” said Greenspan. “When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.”

Tuesday, 1 August 2017

Markets fall as analysts see trouble ahead for stocks

Markets were mostly lower on Monday.

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

The euro rose above US$1.18 for the first time since January 2015.

“The longer this U.S. dollar slump goes on, the more worrying it becomes. It is this that is behind the ongoing rise in the euro and sterling, and it is this that spells trouble ahead for stock markets as August looms,” said IG’s chief market analyst Chris Beauchamp in an note.

However, Avi Gilburt said that while a pullback is approaching, that pullback “will set up the next rally phase”, taking the S&P 500 “toward the 2,600 region into 2018”.

Strategas Research technical analyst Todd Sohn also warned that “there's a seasonal risk into August” but added that once October starts, “you usually see the bullish equities seasonals take over”.

However, for the longer term, analysts at Goldman Sachs said in its third-quarter outlook that annualised returns on the S&P 500 10 years out were in the single digits or negative 99 percent of the time when starting with valuations at current levels.

In light of this, Goldman suggested a look at international small caps, which it said are “well positioned to benefit from the global economic expansion”.