US economy makes "solid" start to 2016 as JP Morgan warns of recession and bear market

The Wall Street Journal reported that the US economy started 2016 on a "solid footing" after data on Friday showed that consumer spending rose 0.5 percent in January.

The positive consumer spending data comes on the heels of a warning from JP Morgan: "Absent a pickup in consumption and further weakening in the U.S. dollar, we continue to see rising risk of earnings recession in the U.S."

While the January consumer spending data perhaps mitigates the recession concern somewhat, JP Morgan also warned in its note that its Qualitative Macro Index measuring business conditions shows "a cycle that remains in contraction (weak and decelerating) over the coming months."

A QMI at current levels has signaled a bear market 34 percent of the time, with the four readings below having generated average peak-to-trough plunges of 35 percent in the S&P 500.

Stocks finish mixed

Markets finished mixed on Friday.

The S&P 500 fell 0.2 percent but the STOXX Europe 600 jumped 1.5 percent, the Shanghai Composite Index rose 0.9 percent and the Nikkei 225 rose 0.3 percent.

Longtime bull Tom Lee told CNBC on Friday that "investor confidence has been shattered" but thinks that a recession is not likely.

Chinese stocks plunge, emerging markets "trade of decade" or global recession coming?

Chinese stocks plunged on Thursday but the rest of the world shrugged off the decline.

The Shanghai Composite Index tumbled 6.4 percent, its worst one-day decline since 26 January.

"The key reason [for today’s slide] seems to be a tightening in monetary conditions after the overnight repurchase rate rose 16 basis points to 2.12 per cent. Tighter liquidity in general is not supportive of Chinese stocks,” Audrey Goh, investment strategist from Standard Chartered Bank, said.

However, elsewhere, the S&P 500 rose 1.1 percent, the STOXX Europe 600 jumped 2 percent and the Nikkei 225 gained 1.4 percent.

Despite the plunge in Chinese stocks on Thursday, HSBC’s head of Hong Kong and China equity research Steven Sun expects the Chinese market to rebound over the coming months.

Indeed, Research Affiliates LLC, a sub-adviser to Pacific Investment Management Co., considers emerging-market assets as a whole “the trade of a decade”, while BlackRock Inc., Franklin Templeton and Goldman Sachs Asset Management are also turning bullish on emerging markets.

In contrast, John-Paul Smith, the founder of research firm Ecstrat Ltd., sees no sign of a turnaround for emerging markets and says the current environment resembles that of the late 1990s, when Asia and Russia were hit by financial crises.

However, it is not just emerging markets at risk. Citigroup Inc. says the chances of a global recession are high and going up.

US stocks reverse losses with oil

US stocks endured a volatile session on Wednesday before finishing with a gain.

The S&P 500 rose 0.4 percent, rebounding from an earlier decline of as much as 1.6 percent.

Stocks moved with oil. West Texas Intermediate oil futures fell 3.7 percent before rebounding to show a gain of 0.9 percent.

European stocks did not enjoy the benefit of the rebound. The STOXX Europe 600 fell 2.3 percent for the day.

Earlier on Wednesday, the MSCI Asia Pacific Index fell 0.9 percent.

The sharp rebound in oil on Wednesday perhaps illustrates the point made by Vikram Kumar, a money manager at London-based TT International, that shorting oil is a “dangerous trade”.

Markets fall, renminbi lower

Markets fell on Tuesday.

The S&P 500 and STOXX Europe 600 fell 1.2 percent, the Shanghai Composite Index fell 0.8 percent and the Nikkei 225 fell 0.4 percent.

US crude oil fell 4.6 percent.

Global growth worries were rekindled after the People’s Bank of China fixed the renminbi’s value against the dollar at a weaker level.

Kevin Kelly, chief investment officer at Recon Capital Partners, said that “we need economic data to really lend conviction that we won’t see growth slow down any further”.

Markets rally, US stocks look "too cheap to ignore"

Markets rallied strongly on Monday.

The S&P 500 rose 1.4 percent, the STOXX Europe 600 rose 1.7 percent, the Nikkei 225 rose 0.9 percent and the Shanghai Composite Index jumped 2.3 percent.

Oil surged after the International Energy Agency said it expects US shale-oil production to fall in 2016 and next year. US crude rose 6.2 percent.

The stock market may be rallying because of valuations.

John Stoltzfus, Oppenheimer & Co.’s chief market strategist, wrote on Monday in a report that stocks become “too cheap to ignore” once the S&P 500 falls to between 16.5 to 17 times earnings, as it did when it hit its low on 11 February. The index rebounded 6.1 percent from that low through Friday, matching the average one-month gain after six earlier instances since 2014 when it fell to that valuation.

Is there real opportunity in stocks?

After the strong rally last week, some analysts are looking for more gains ahead for the stock market.

Alison Deans, consultant at AA Deans Advisors, told CNBC on Friday that profit growth has been sluggish recently but by the second half of the year, the pressure on the market will be less as "comparisons get easier".

Jim Tierney, chief investment officer at AB's Concentrated Growth Fund, told CNBC that the market sell-off is an overreaction and that there is a "real opportunity" for investors.

More pessimistically, Todd Gordon, founder of TradingAnalysis.com, said that the rally had been driven by crude oil which, however, is likely to make new lows ahead.

Gordon also noted that consumer staples and utilities have led the rally, "not what you want to see".

Stocks post big gain for week but face big drop for year

US stocks were little changed on Friday, leaving the S&P 500 up 2.8 percent for the week, its best gain since the week ended 20 November.

The STOXX Europe 600 finished the week up 4.5 percent for its best weekly gain since 23 January while the Nikkei 225 rose 6.8 percent for its best week since the end of October 2014.

“You had a big drop, now you had some stabilization, and everyone’s waiting to see which way it’s going to go,” said Jesse Lubarsky, equity trader at Raymond James.

Mark D. Cook, who runs The Mark D. Cook Advisory Service for investors and traders, thinks that it is going down.

“A 30% slide for U.S. stocks in 2016 could be more likely than ever,” he wrote in a MarketWatch article.

He said that the market looks “alarmingly similar to 1987, 2000, and 2008”. He added: “Each of these bear-market years resulted in declines in excess of 35%.”

US stocks end rally, bottom "not close"

The US stock market ended its three-day rally on Thursday with the S&P 500 falling 0.5 percent.

Elsewhere, the Nikkei 225 jumped 2.3 percent, the Shanghai Composite Index fell 0.2 percent and the STOXX Europe 600 was unchanged.

Jim Stack, president of Stack Financial Management and InvesTech Research, thinks that stocks are in a bear market and that the recent rally was not sustainable.

Last Friday, in his InvesTech newsletter, he wrote: “Judging by the depth, duration, and broadening sector contribution to the ‘distribution’ in leadership, we must conclude that Wall Street is currently in a bear market.”

He added that bear markets can create deceiving rallies like the recent one that could convince investors that a bottom is being made, but he thinks “we’re not close to that yet”.

Stocks rise, oil surges

Markets were mostly up on Wednesday.

The S&P 500 rose 1.7 percent, the STOXX Europe 600 surged 2.6 percent and the Shanghai Composite Index rose 1.1 percent.

Stocks were boosted by surging oil prices. West Texas Intermediate crude futures rose 5.6 percent on Wednesday while Brent jumped 7.2 percent.

With the S&P 500 having put in three consecutive days of gains of over 1.6 percent each, CNNMoney's Heather Long thinks that the current rally could be the "real deal", especially with oil prices also going up, the US economy holding firm and the Federal Reserve becoming more cautious with rate hikes.

Stocks rise in US and China as latter sees record credit amid rising bad loans

Stocks were mostly up on Tuesday.

The S&P 500 rose 1.6 percent while the MSCI Asia Pacific Index gained 0.9 percent, boosted by a 3.3 percent jump in the Shanghai Composite Index.

European stocks lagged though. The STOXX Europe 600 fell 0.4 percent.

Oil was also weaker on Tuesday. Brent crude sank 3.6 percent while West Texas Intermediate fell 1.4 percent.

The large jump in stocks in China was driven by news of strong credit growth. The People’s Bank of China reported on Tuesday that new credit surged to a record in January.

However, analysts were less enthusiastic about the credit growth. From Bloomberg:

The increase in China’s debt relative to gross domestic product could pressure the country’s credit rating, Standard & Poor’s said on Tuesday, less than a week after the cost to insure Chinese bonds against default rose to a four-year high. Credit growth is storing up “big problems” in the economy that will weigh on the yuan and stocks, said George Magnus, an economic adviser to UBS Group AG. Mizuho Bank Ltd. warned that the risk of bad loans is rising and Marketfield Asset Management said China’s central bank may be losing its regulatory grip on credit growth.

Indeed, another report from China showed that soured loans at Chinese commercial banks rose to the highest level since June 2006 at the end of last year.

Christopher Langner at Bloomberg wrote that the debt problem in China has already reached the proportions of the US subprime mortgage debacle.

"This is a game that can't continue forever, particularly if credit is being foisted on to an already over-leveraged and slowing economy," he wrote. "At some point, the music will stop and there will have to be a reckoning."

Stocks soar as strategists stay optimistic

Global markets soared on Monday.

The Stoxx Europe 600 jumped 3.0 percent while Japan’s Nikkei Stock Average surged 7.2 percent. The US market was closed for the President's Day.

The surge on Monday perhaps vindicates the bullish forecasts of analysts. From Daily News:

Investors may be yanking out money from European stocks at the fastest pace in months, but strategists are standing by their optimistic calls.

After a rout spanning all assets that last week dragged global equities into a bear market, the average forecast now sees the European benchmark closing the year with a 23 percent rally from Friday’s close. Take one of the biggest bulls on the region, UBS Group AG — which even after cutting its year-end target projects a 28 percent rally.

Higher interest rates could help bank stocks

Most investors look for interest rate cuts to boost stocks but for bank stocks, Bill Conerly thinks it is a rise in interest rates that would help.

For most of the past few decades, bank interest payments to depositors were about a percentage point less than treasury bill yields... When treasury bill rates fell to near zero percent, banks were unable to keep dropping the interest rates they pay depositors, as the traditional spread would have meant negative interest rates. So banks had less margin than normal...

... I am convinced that interest rates will eventually rise. Bank stocks will rebound whenever investors become convinced that interest rate hikes are near.

Japanese stocks hammered again but oil rebounds strongly

Financial markets opened on Friday with another hammering for Japanese stocks. The Nikkei 225 ended the day down 4.8 percent to finish the week with an 11 percent drop, its biggest weekly percentage drop since October 2008.

The rout in global markets ended when oil rebounded. West Texas Intermediate surged 12 percent on Friday.

US and European stocks duly rose. The S&P 500 jumped 2.0 percent, its biggest gain in two weeks, to end a five-day slide.

However, while the bounce in oil on Friday brought some respite for markets, it may not last. From WSJ's MoneyBeat:

Oil’s sharp rise of 12% so far today — the biggest one-day run in 7 years — isn’t a sign it is going back to $100 a barrel any time soon, or even $40. Nothing has really changed among the slate of factors that caused it to dive more than 70% since June 2014.

Global stocks in bear market amid rebound in bearish sentiment

Markets fell on Thursday, turning the global stock market rout into a bear market.

The S&P 500 fell 1.2 percent despite a late-session rally. The decline helped push the MSCI All-Country World Index into a bear market, the latter hitting a 20 percent loss from a record reached in May.

US 10-year Treasury yields fell for the sixth consecutive day to hit 1.66 percent.

US crude plunged 4.5 percent to its lowest level since 2003.

As global markets weakened, the Japanese currency strengthened. The yen rose for the fourth consecutive day on Thursday to hit its strongest level since November 2014.

Thursday's bearish trading action coincided with the release of a report from the American Association of Individual Investors showing that pessimism among individual US investors rebounded to nearly 50 percent in the latest AAII Sentiment Survey while optimism fell below 20 percent for the second time this year.

Markets mixed, China banks face loss over 4 times that of US subprime crisis

Markets had a mixed day on Wednesdy.

The S&P 500 finished flat but the STOXX Europe 600 jumped 1.9 percent while the Nikkei 225 plunged 2.3 percent.

In oil markets, Brent crude rose 1.7 percent but US crude fell 1.8 percent.

China's markets are closed this week for the Lunar New Year celebrations, so they did not fuel any global market turmoil recently.

However, the calm out of China may not last too long. From Bloomberg:

Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China’s banking system may see losses of more than four times those suffered by U.S. banks during the last crisis.

Should the Chinese banking system lose 10 percent of its assets because of nonperforming loans, the nation’s banks will see about $3.5 trillion in equity vanish...

Japanese stocks plunge, bond yields fall below zero

Japanese stocks plunged on Tuesday as the yen surged to the highest level against the dollar in more than a year.

The Topix index sank 5.5 percent while the Nikkei 225 lost 5.4 percent, its biggest decline since June 2013.

However, US stocks finished flat after a volatile session while the STOXX Europe 600 fell 1.6 percent, its seventh consecutive decline.

There were signs of stress in other markets.

US oil futures plunged 5.9 percent.

Japan’s 10-year bond yield fell as low as minus 0.035 percent, its lowest ever.

Indeed, about 29 percent of the debt in the Bloomberg Global Developed Sovereign Bond Index yields less than zero.

US and European stocks fall

China's stock market was closed on Monday as investors enjoyed a week-long break to celebrate the Lunar New Year.

However, for investors in the West, there was no respite from the market slide. The S&P 500 fell 1.4 percent and the STOXX Europe 600 plunged 3.5 percent.

Oil also fell on Monday, with WTI crude plunging 3.88 percent.

Earnings falling despite continuing monetary stimulus

Bloomberg reports that the formula for investing in Japanese stocks that had previously worked is starting to fail.

That formula involved central bank stimulus combined with a weakening yen to create rising profits and a stock market rally.

However, while that worked back in August, it is no longer working.

Earnings in the Japanese stock market are expected to retreat more than 20 percent this quarter, and the yen just staged its biggest weekly rally since 2009 even though the Bank of Japan has cut interest rates to below zero.

But Japan is not the only country with weakening corporate earnings. In the US, Standard & Poor’s 500 Index companies are about to report the third consecutive quarter of declining income. In Europe, bank stocks are near a 3 1/2 year low as measures of risk in credit markets reach the highest since 2013.

Indeed, John Hussman wrote in his latest article that he thinks that European banks are the “most likely crisis from left field”.

And Hussman is not among those surprised that central bank stimulus is no longer supportng stocks.

"When market internals are favorable, monetary easing reliably supports speculation," he wrote. "In contrast, once a steeply overvalued market is joined by unfavorable market internals, even persistent and aggressive Fed easing is associated with market losses, on average."

US tech stocks plunge, European financial stocks at "frightening" levels

US stocks fell on Friday, led by a rout in technology stocks.

The S&P 500 fell 1.8 percent while the Nasdaq Composite Index plunged 3.2 percent.

Elsewhere, the STOXX Europe 600 fell 0.9 percent, the Nikkei 225 fell 1.3 percent and the Shanghai Composite Index fell 0.6 percent.

While US tech stocks saw the worst declines on Friday, Jeffrey Gundlach is concerned about European financial stocks.

“We see the price of major financial stocks, particularly in Europe, which are truly frightening,” Gundlach said at a conference on Friday. He noted that both Credit Suisse and Deutsche Bank are priced lower than during the depths of the financial crisis in 2009.

Stocks rise in US but recovery in Japan may take time

Markets were relatively calm on Thursday.

The S&P 500 rose 0.2 percent even though US crude fell 1.7 percent.

However, the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 fell 0.9 percent.

The latter faces yet more declines, if history is anything to go by.

From Bloomberg:

Since the Nikkei 225 Stock Average tumbled more than 20 percent from a peak last month, Japanese equities have made several attempts at rallies, only to falter...

History supports the view that the recovery will take time. Wiping out a bear market takes seven and a half months on average, according to an analysis of the index’s 14 occurrences since 1989. Worse, shares tend to fall further after the initial 20 percent drop -- the Nikkei has slid an additional 18 percent on average, according to the data that include steep selloffs in the early 1990s, the Asian financial crisis, the dot-com bubble and the global financial crisis.

US dollar falls, US stocks and oil rise

A fall in the US dollar helped US stocks rebound on Wednesday after a global market selloff earlier in the session.

The US dollar fell 1.7 percent against the euro while the S&P 500 rose 0.5 percent.

Earlier, the STOXX Europe 600 had fallen 1.5 percent while the MSCI Asia Pacific Index had fallen 1.6 percent.

Also boosted by the fall in the US dollar was oil. WTI crude jumped 8 percent on Wednesday.

Oil drags down markets but expected to rebound by end of year

Markets mostly fell on Tuesday, led by another steep fall in oil prices.

US crude oil fell 5.5 percent to take its two-day loss to 11 percent.

The S&P 500 fell 1.9 percent, the STOXX Europe 600 fell 2.1 percent and the Nikkei 225 fell 0.6 percent.

The Shanghai Composite Index, however, escaped the carnage, rising 2.3 percent after China’s central bank injected more liquidity into the financial system ahead of the week-long Lunar New Year holiday.

While oil was again a source of concern on Tuesday, its decline may be setting it up for a rebound later in the year.

A survey by Bloomberg shows that analysts are projecting oil prices will climb more than 50 percent by the end of 2016.

Markets weak but US stocks flat

Markets were mostly weaker on Monday.

US crude oil plunged 5.9 percent, the Shanghai Composite Index tumbled 1.8 percent, the STOXX Europe 600 fell 0.2 percent and the S&P 500 finished flat.

“It’s impressive that despite the large rally on Friday, the market is hanging in there,” said Rob Bernstone, managing director in equity trading at Credit Suisse.

Economic data on Monday possibly provided some support for markets. JPMorgan's Global Manufacturing Purchasing Managers' Index edged up to 50.9 in January from 50.7 in December.

Stocks endure poor start to year

Stocks had a dismal January.

Despite a rebound in the last two weeks of the month, the Standard & Poor's 500 Index fell 5.1 percent for January as a whole, its worst start to a year in seven years.

The S&P 500 did jump 2.5 percent on the last trading day of the month for its biggest one-day rally since September. That came after the Bank of Japan annunced earlier that day that it was cutting its interest rate to -0.1 percent.

On 21January, the European Central Bank had also contributed to an improvement in investor sentiment. President Mario Draghi had said after the central bank's monetary policy meeting then that officials will “review and therefore possibly reconsider” the bank’s monetary policy at their next meeting in March, suggesting possible further monetary stimulus.

However, John Hussman reminded us in an article today that central bank stimulus when investors have turned risk-averse may not be able to sustainably boost markets.

Recall, as I noted in The Line Between Rational Speculation and Market Collapse, that the Fed did not tighten in 1929, but instead began cutting interest rates on February 11, 1930 - nearly two and a half years before the market bottomed. The Fed cut rates on January 3, 2001 just as a two-year bear market collapse was starting, and kept cutting all the way down. The Fed cut the federal funds rate on September 18, 2007 - several weeks before the top of the market, and kept cutting all the way down.

Hussman concluded: "When investors are risk-averse and internal support has dropped away, a small change in interest rates is simply not sufficient to encourage risk-seeking."