Saturday, 25 February 2017

Markets mixed but Dow hits another record high

Markets ended mixed again on Friday.

US stocks rose, with the S&P 500 gaining 0.2 percent and the Dow Jones Industrial Average closing at a record high for the 11th consecutive day.

However, the STOXX Europe 600 fell 0.8 percent and the Nikkei 225 fell 0.45 percent.

“Markets are reacting to the risk of delay in fiscal stimulus and unwinding some of the recent optimism that followed President Trump's phenomenal tax package remarks,” said Ric Spooner, chief market analyst at CMC Markets.

Nevertheless, Lawrence Glazer, managing partner at Mayflower Advisors noted that “there are still significant inflows, because now even the pessimists want a piece of the action”.

“It’s momentum driven, not fundamentally driven,” he added.

Friday, 24 February 2017

Dow ekes out 10th straight record but Europe looks more affordable

Markets were mixed on Thursday.

In the US, the Dow Jones Industrial Average rose 0.2 percent to a tenth consecutive record close but the S&P 500 was flat.

Elsewhere, the STOXX Europe 600 fell 0.1 percent and the Nikkei 225 fell 0.4 percent.

“It would appear investors are unwilling to go against the rally, but at the same time, there’s little conviction in it either,” said Craig Erlam, senior market analyst at Oanda. “At some point, in the absence of details on Trump’s tax and stimulus plans, the rally may run out of steam.”

However, Kevin Marder at MarketWatch said that the rally “will likely continue until higher-volume selling comes into the averages or leading stocks come undone technically”.

In the meantime, he suggested: “Don't fight the tape.”

For investors nervous about the US market, Jeff Reeves at MarketWatch suggested investing in Europe instead.

Reeves noted that “many European stocks are doing great in 2017” while “trading for much more affordable valuations than stocks elsewhere in the developed world”.

Thursday, 23 February 2017

Markets mixed as Fed seen ready to raise brick wall

Markets were mixed on Wednesday.

The S&P 500 slipped 0.1 percent but the Dow Jones Industrial Average rose 0.2 percent to hit another record high.

Elsewhere, both the STOXX Europe 600 and the Nikkei 225 were flat.

Stocks were held back by concerns that US interest rates will rise after minutes of the Federal Reserve meeting earlier this month showed that many Fed officials indicated support for higher rates if the economy strengthened.

“A rate increase in March is most likely on the table even though the minutes don’t necessarily indicate that and it seems the Fed is prepping the market for it,” said Bob Pavlik, chief market strategist at Boston Private Wealth.

“Although we recognize that rates are below normal, the fact is that when the tightening process begins, the ‘full speed ahead’ of climbing stocks will run into a brick wall,” said Peter Cardillo, chief market economist at First Standard Financial.

Wednesday, 22 February 2017

US stocks hit record high again

Markets rose on Tuesday.

The S&P 500 rose 0.6 percent to close at another record high.

The STOXX Europe 600 rose 0.6 percent to its highest since 2 December 2015.

Asian markets were also mostly higher, with the Nikkei 225 rising 0.7 percent.

Analysts have mixed views on whether the rally in stocks will be sustained.

“The rally is getting long in the tooth, and once the euphoria wears off we will need to know when we’ll get policies and how they will impact corporate profits,” said Katrina Lamb, head of investment strategy and research at MV Financial.

“Those waiting for the other shoe to drop can be waiting for a long time,” said Karyn Cavanaugh, senior market strategist at Voya Financial. “Economic data is coming in on the upside, global growth is accelerating, there’s an increase in M&A, and optimism is higher, so the good outweighs the bad until we get anything that changes that scenario.”

Tuesday, 21 February 2017

Japanese stocks flat but increased disbursment of cash may benefit investors

Markets rose on Monday.

The STOXX Europe 600 rose 0.2 percent while the Shanghai Composite rose 1.2 percent.

The Nikkei 225 was flat though after Japan reported a bigger-than-expected trade deficit in January.

However, Bloomberg reported that a quiet revolution may be underway in the Japanese stock market.

Japan’s companies have for years sat on record piles of cash... The issue has been deploying those funds for shareholder benefit.

A key part of Abenomics has been sharpening the focus on return on equity, and now --through a mix of carrots and sticks -- some investors see change on the horizon...

“I have been in this industry 25 years but I have never seen this kind of approach before,” Yasunori Iwanaga, the Tokyo-based chief investment officer at the Japan unit of Amundi, which manages more than $1 trillion globally, said in an interview this month. “Reactions we have seen over the last few years are increasing dividend payouts or buybacks. This trend should continue over time.”

Monday, 20 February 2017

S&P 500 at new high but may be facing more risk

The S&P 500 rose 1.5 percent last week to end at another record high.

Indeed, a Bloomberg report early in the week had noted: “Investors haven’t been this optimistic on the global economy since 2011.” It cited a survey from Bank of America Merrill Lynch that showed that 23 percent of investors expect an outright “boom” while the number predicting negligible growth over the next 12 months has fallen by more than half to 43 percent.

“Macro optimism is surging,” wrote the team.

However, in his latest article today, John Hussman reminds us: “It’s precisely when economic optimism is strongest, when caution is seen as misguided, and when bullish enthusiasm is most exuberant, that the stock market reaches its speculative apex and becomes most vulnerable to collapse.”

Hussman added that with the degree of overvaluation in the market, a mere retreat to historical levels would mean a market loss of 60 percent.

Robert Naess, portfolio manager at Nordea Bank, is similarly cautious.

“There’s too much optimism,” he said in an interview with Bloomberg last week.

Naess said that companies missing earnings growth estimates pose the biggest risk to stock markets.

Naess also said that investors are putting “too little weight” on potential risks from US President Donald Trump's policies. “There’s more risk now than before.”

Saturday, 18 February 2017

US stocks resume rally, Dow 30,000 next?

Markets were mixed on Friday.

The S&P 500 rose 0.2 percent, the STOXX Europe 600 was little-changed and the Nikkei 225 fell 0.6 percent.

With the S&P 500 finishing up 1.5 percent for the week, analysts continue to be optimistic on stocks.

Richard Hastings, a macro strategist at Seaport Global Securities LLC, said that “the bias higher seems intact”.

“I still remain optimistic on the market going forward,” said Gary Anetsberger, chief executive officer at Millennium Trust Co.

“The broader uptrend is intact thanks to renewed optimism about the global growth outlook and supportive bottom-up corporate earnings,” Ian Williams, a Peel Hunt strategist, wrote in a note.

Indeed, while the Dow Jones Industrial Average closed little-changed at 20,624.05 on Friday, Nigam Arora at MarketWatch wrote that the “fundamental case for Dow 30,000 during Donald Trump's first term has strengthened”.

“The biggest single factor in the long-term direction of stocks is earnings growth,” Arora wrote.

While the current consensus for S&P 500 operating earnings is $133 per share, Arora said that tax cuts could add about $13 while deregulation could add another $7.

“If gross domestic product growth were to accelerate to 4%, S&P 500 earnings could reach as high as $190 by the end of Trump's first term,” he said.

Friday, 17 February 2017

Stocks fall but gold preparing for “healthy rally”

Stocks mostly fell on Thursday.

The S&P 500 fell 0.1 percent, ending its record-breaking run. However, the Dow Jones Industrial Average rose less than 0.1 percent to close at another record high.

The STOXX Europe 600 fell 0.4 percent, ending its seven-day winning streak.

Asian stocks were mixed. The Nikkei 225 fell 0.5 percent but the Shanghai Composite and Hang Seng indices rose 0.5 percent.

Some analysts are unperturned by the end of the S&P 500's record-breaking streak.

“We’ve had a big run in the near term, so some weakness is normal especially if you want the bull run to continue,” said Ryan Detrick, senior market strategist for LPL Financial.

Others are less sanguine.

“This rally may come to a quick end if expectations for a March rate hike begin increasing,” warned ADS Securities researcher Konstantinos Anthis in a note on Thursday.

While stocks fell on Thursday, oil rose 0.5 percent and gold rose 0.7 percent to its highest finish in more than three months.

“The dollar is weaker, Treasury yields are down and stocks are lower,” said Michael Armbruster, principal and co-founder at Altavest. “That is a nice trifecta for gold.”

Ned Schmidt, editor of The Value View Gold Report, said that the “odds still favor gold and silver beating the U.S. equity market in 2017”.

And in an article at ValueWalk, Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, thinks that gold is “preparing for a healthy rally into higher territory”.

Thursday, 16 February 2017

US stocks at record high again, becoming extremely overbought but no sell signals

Stock markets rose on Wednesday.

The S&P 500 rose 0.5 percent to close at a record high for the fifth consecutive day.

The STOXX Europe 600 rose 0.3 percent to close at its highest since December 2015.

The Nikkei 225 rose 1.0 percent, reversing Tuesday afternoon's sell-off.

Lawrence McMillan at MarketWatch wrote that the US stock market “is becoming extremely overbought, but no sell signals have appeared yet”.

Indeed, Jeff Cox at CNBC concluded that despite all the uncertainties associated with President Donald Trump and his administration, “Wall Street believes one thing above all — that the Trump administration will survive and the U.S. economy will thrive”.

Wednesday, 15 February 2017

S&P 500 at another record high but Treasuries stuck in trading range

Markets were mixed on Tuesday.

The S&P 500 rose 0.4 percent to a record high for a fourth consecutive day.

However, the STOXX Europe 600 rose less than 0.1 percent and the Nikkei 225 fell 1.1 percent.

US Treasuries also fell after Federal Reserve Chair Janet Yellen said waiting too long to raise interest rates “would be unwise”. Yields across the curve rose by 3-5 basis points, with the 10-year settling around 2.47 percent.

Still, a Bloomberg article points out that the 10-year Treasury yield “have been stuck in a 25-basis-point range this year”.

“It’s possible we get to a 3.5 percent 10-year yield,” Rick Rieder, chief investment officer of global fixed-income at BlackRock Inc., was quoted as saying. “But it’s hard to envision it getting much higher than that, particularly with the aging population, demographics and the potential for growth in the rest of the developed world.”

Indeed, Rieder warned that “if there is disappointment on the fiscal front and a view that we’re not going to get progress on fiscal initiatives, there’s no doubt we can trend to lower yields, even approaching 2 percent”.

Tuesday, 14 February 2017

Stocks rise, time for bears to throw in the towel?

Stocks rose on Monday.

The S&P 500 rose 0.5 percent to close at a record high for the third consecutive day.

The STOXX Europe 600 rose 0.8 percent, rising for a fifth day and hitting its highest close since 7 December 2015.

Asian stocks also rose. The Nikkei 225 rose 0.6 percent while the Shanghai Composite Index rose 0.4 percent.

“The combination of proposed regulatory and tax reform, stronger than expected earnings amplified by growing consumer sentiment that President Trump will accomplish a large portion of his agenda has permitted stock to rise to valuations not experienced since 2004,” said Kent Engelke, chief economic strategist at Capitol Securities Management Inc.

Indeed, Mark DeCambre at MarketWatch said: “It may be high time for stock-market bears to throw in the towel.”

DeCambre noted that despite “suspiciously low fear gauge” and “heady stock valuations”, global stocks have been rallying.

DeCambre quoted Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, as saying: “Usually you have some pull back. We really didn’t have that pull back, we held those gains, which is major.”

Oil did not join the rally on Monday though. West Texas Intermediate crude fell 1.7 percent while Brent fell 2 percent.

Monday, 13 February 2017

S&P 500 rally may have further to go

The S&P 500 rose 0.8 percent to a new record high last week. It was its third consecutive weekly gain.

Some analysts think that the rally will continue.

Sue Chang at MarketWatch wrote: “The juggernaut of optimism unleashed by President Donald Trump’s presidency will continue to steamroll its way through the market, paving the way for stocks to carve out new highs and keep hungry bears at bay.”

“The case for U.S. equities is strong,” Binky Chadha, chief strategist at Deutsche Bank, wote in a report. “A V-shaped recovery in gross domestic product and earnings growth, unfolding for a year now, has further to go.”

Dubravko Lakos-Bujas, head of US equity strategy at JP Morgan Chase & Co., expects corporate tax cuts to boost S&P 500’s earnings per share by $8 while David Kostin, chief US strategist at Goldman Sachs, projected adjusted earnings per share among S&P 500 companies will rise 5 percent.

However, Jeffrey Saut, chief investment strategist at Raymond James, thinks stocks will not be able to rise further without a near-term correction.

Indeed, NorthmanTrader.com founder Sven Henrich told CNBC that fewer and fewer stocks are moving above their 50-day moving averages. “So, that shows underlying weakness as we are stretching to go to higher prices.”

Saturday, 11 February 2017

US stocks at new high, may see more gains despite Trump worries

Markets rose on Friday.

The S&P 500 rose 0.4 percent to a second consecutive record close.

The STOXX Europe 600 rose 0.2 percent for its fourth consecutive gain.

The Nikkei 225 surged 2.5 percent, leading other Asian stock markets higher.

Despite the record-breaking streak, Quincy Krosby, market strategist at Prudential Financial, noted that the “breadth of the market is very narrow”.

“Historically, a situation when valuations are stretched, breadth is narrow and complacency high, it sets a stage for pullbacks,” he said.

On the other hand, worries over President Donald Trump's policies may actually prove no impediment to a strong stock market performance.

While Trump has an approval rating of 45 percent according to the 3 February Gallup Poll, analysis from Ned Davis Research found that historically, a rating between 35 and 50 percent has been associated with an S&P 500 gain for the year of 12.4 percent.

Friday, 10 February 2017

US stocks at record high as investor sentiment rises

Markets mostly rose on Thursday.

The S&P 500 rose 0.6 percent to a record high after President Donald Trump hinted of a tax cut announcement in the coming weeks. The Dow Jones Industrial Average and Nasdaq Composite also closed at all-time highs.

Elsewhere, the STOXX Europe 600 rose 0.8 percent and the Shanghai Composite Index rose 0.5 percent but the Nikkei 225 fell 0.5 percent.

Walter Todd, chief investment officer at Greenwood Capital Associates, noted that the S&P 500 has “broken through overhead resistance at the 2,300 level” and “could continue to grind higher from here”.

Indeed, the American Association of Individual Investors reported that its sentiment survey this week showed that the percentage of bullish respondents rose 3.0 percentage points to 35.8 percent while bearish sentiment fell 6.5 percentage points to 27.7 percent.

Thursday, 9 February 2017

Markets rise as sentiment hits bullish extreme

Markets were mostly higher on Wednesday.

The S&P 500 rose less than 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose 0.5 percent.

“The market is on a pause,” said Karyn Cavanaugh, senior market strategist at Voya Financial, but “is likely to continue to grind higher because the economic background is good and earnings are growing, regardless of whether we will get any fiscal stimulus or not.”

However, MarketWatch reports that according to the latest weekly survey by Investors Intelligence, US advisors are at their most bullish on the stock market since 2004.

“Judging by record stock prices, low volatility and extremely bullish sentiment, investors are ignoring a significant rise in the riskiness of their portfolios, leaving them vulnerable to major drawdowns,” said Anora Mahmudova in another MarketWatch report.

Wednesday, 8 February 2017

Markets mixed amid increased risk aversion and overvaluation

Markets were mixed on Tuesday.

The S&P 500 was flat, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 fell 0.4 percent.

Peter Andersen, chief investment officer at Fiduciary Trust Co, thinks that “if you set aside the political aspects, we’re very positive on the health of U.S. companies, with corporate earnings, and with U.S. equities in general”.

However, Karyn Cavanaugh, senior market strategist at Voya Financial, sees “a more risk-averse market”.

Indeed, Ernesto Ramos, head of equities at BMO Global Asset Management, told CNBC that the market is in a “fragile spot”, with all the potential positives from a Trump administration already priced in but very little of the potential negatives.

Meanwhile, another report by CNBC reminded us that the US stock market is overvalued.

The report noted that the total market cap of the Wilshire 5000 index as a percentage of US gross domestic product is about 120 percent, far above the 45-year average of 75 percent.

Mark Tepper, president of Strategic Wealth Partners, pointed out that “even if we were to see exceptionally fast growth over the course of the next eight years to the tune of 8 percent nominal GDP growth per year, we would still be at 80 percent market cap to GDP, which still puts us above that long-term average”.

Tuesday, 7 February 2017

US stocks fall as Hussman warns of additional signs of risk

Markets were mostly lower on Monday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 fell 0.7 percent.

However, earlier on Monday, the Nikkei 225 rose 0.3 percent.

“Last year, a lot of expectations were priced into U.S. markets, those expectations are being weakened,” said Herald van der Linde, head of Asia equity strategy with HSBC in Hong Kong. “There is doubt about the amount of growth it can generate. That allows some of the money to come back to emerging markets.”

However, John Hussman is seeing something more sinister for the US market.

In his latest article, he wrote that “an additional class of risk signatures, typically active in only a small percentage of historical data, shifted to warning mode” last week. According to Hussman, these signatures have in the past been associated with events such as air-pockets, panics and crashes.

Monday, 6 February 2017

Will Trump take on China?

During his election campaign, Donald Trump accused China of being responsible for the loss of American jobs. Some doubt, however, that as president, Trump will be willing or able to take action against China.

Komal Sri-Kumar, president and founder of Sri-Kumar Global Strategies, wrote in a Bloomberg article that Trump’s tangle with Mexico may dissuade him from taking on China.

Sri-Kumar argued that limiting Mexican imports with tariffs would actually also affect US jobs and raise prices for US consumers.

“Such considerations probably explain why Trump’s initial focus has been Mexico rather than China,” he wrote. “Action on his part could be met by Chinese retaliation limiting access by U.S. multinationals to the country's estimated 300 million middle- and upper-income consumers, which would significantly affect the companies’ growth prospects.”

Jeffrey Sachs, University Professor and director of the Center for Sustainable Development at Columbia University, made a similar argument in an article for The Boston Globe.

Sachs said that the idea of cornering China is unwise.

“Trump blames China for the plight of American workers left unemployed by China’s exports to the United States, but he fails to understand or acknowledge the many gains to the United States from our trade with China, including the higher profits and wages of US companies exporting to China and the lower costs enjoyed by US consumers of China’s exports,” he wrote.

Sachs also thinks that restraining China is unachievable.

“China,” he pointed out, “has a larger economy, is four times more populous, and is America’s creditor, not its debtor. China has strong and growing trade, investment, and diplomatic relations with other countries all over the world that would likely be strengthened, not weakened, by US belligerence.

Saturday, 4 February 2017

US stocks rise after strong jobs report but face “severe risks from Trump’s actions”

Markets were mostly up on Friday.

The S&P 500 rose 0.7 percent and the STOXX Europe 600 rose 0.6 percent.

However, in Asia, China's stock market resumed trading after a week-long holiday to see a 0.6 percent decline in the Shanghai Composite Index. The Nikkei 225 was little changed.

The US employment report on Friday showed that the economy added 227,000 job in January.

“A lot of traders are back in buy mode with economic data being OK,” said Sahak Manuelian, managing director of equity trading at Wedbush Securities. “A lot are feeling better that sentiment is improving.”

Indeed, Kervin Marder at MarketWatch noted that US stocks are easily shaking off bad news, a sign of strength.

In contrast, Tyler Durden at ZeroHedge sees that as a reason for worry.

“Financial markets are overly complacent to the severe risks from Trump’s actions and a nasty correction is possible,” he wrote on Friday.

Friday, 3 February 2017

Stocks mixed but bull market "well underpinned"

Markets were mixed on Thursday.

The S&P 500 rose less than 0.1 percent while the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 1.2 percent.

The rally in stocks may have lost momentum but Bill Miller, founder, chairman and CIO of LMM, thinks that the bull market will continue.

“As long as the economy is growing and earnings are growing, the market is well underpinned,” he told CNBC on Thursday.

Thursday, 2 February 2017

Markets up as Fed leaves rates unchanged

Markets were mostly up on Wednesday.

The STOXX Europe 600 rose 0.9 percent and the Nikkei 225 rose 0.6 percent.

In the US, the Dow Jones Industrial Average rose 0.1 percent but the S&P 500 was flat.

Wednesday also saw the Federal Reserve decide to keep interest rates unchanged at its monetary policy meeting. In its statement following the meeting, the Fed said that “measures of consumer and business sentiment have improved of late” but business investment remains “soft”.

Sue Chang at MarketWatch noted that the “January trifecta” consisting of the so-called Santa Claus rally, the market’s direction in the first five days of January, and the January Barometer were all higher, suggesting that “2017 will likely be another gratifying year for investors”.

However, Anora Mahmudova at MarketWatch pointed out that US stocks are very expensive and volatility is very low.

“Volatility is the most mean-reverting index,” said Charlie Bilello, director of research at Pension Partners LLC. “Stocks can certainly get more overvalued, but the risk/reward is clearly tilting more towards the risk side,” said Bilello.

Wednesday, 1 February 2017

Markets decline, could fall further in weeks ahead

Markets fell on Tuesday.

The S&P 500 slipped 0.1 percent, the STOXX Europe 600 fell 0.7 percent and the Nikkei 225 plunged 1.7 percent.

Chris Weston, chief market strategist at IG Group, sees a “buyers’ strike” in the market. “People are just waiting to see what happens under the Trump administration to see how the landscape lies over the next couple of weeks,” he said.

Peter Cardillo, chief market economist at First Standard Financial, in emailed notes, “believes the indexes are likely to consolidate in a defensive trading range without much direction”.

Indeed, MKM Partners chief market technician Jonathan Krinsky told CNBC that he expects to see the S&P slip 3 to 6 percent in the weeks ahead while Eddy Elfenbein of the Crossing Wall Street blog thinks that the market could fall 5 to 7 percent.