Thursday, 31 March 2016

Stocks rise as top-performing month approaches

Stock markets were mostly up on Wednesday.

The S&P 500 rose 0.4 percent, the STOXX Europe 600 jumped 1.3 percent and the Shanghai Composite Index surged 2.8 percent. However, the Nikkei 225 fell 1.3 percent.

The continuing rally sets the market up for a possibly good April. According to Sam Stovall, chief US equity strategist at S&P Global Market Intelligence, April is usually a positive month for stocks, and is the top performing month over the past ten years.

However, Stovall is concerned about possible "earnings erosion", and added that "investors are encouraged to stay the course but not load up the truck".

Wednesday, 30 March 2016

Yellen cautious, US stocks hit year's high

Federal Reserve Chairwoman Janet Yellen made it clear in a speech on Tuesday that the US central bank will move cautiously on interest-rates hikes.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy,” she said in a speech to the Economic Club of New York.

US stocks responded positively to the speech. The S&P 500 rose 0.9 percent to push the index to the highest close for 2016 and a year-to-date gain of 0.6 percent.

Still, many economists remain skeptical about whether the Fed or other central banks can push economic growth up. From Bloomberg:

Central bankers have managed to steer the world economy clear of a recession while leaving it stuck in the same rut that led to its troubles in the first place.

A torrent of monetary stimulus in recent weeks helped spark a turnaround in financial markets by assuaging investors’ fears of an impending global downturn. Yet it did little to lift hopes among economists of a stronger pickup that would put growth on a more solid footing...

The concern is that policy makers are mainly putting off the pain for now while adding to the difficulties they’ll face later. What’s more, the meager growth they’ve generated means a downside shock still threatens to sink the world into recession, with central bankers already pressing against the limits of their powers.

Tuesday, 29 March 2016

US stocks little changed as dividend yield beats 10-year Treasuries

US stocks were little-changed on Monday, with the S&P 500 rising less than 0.1 percent.

That could mean that stocks remain relatively cheap.

A CNBC report on Monday noted that the US 10-year Treasury yield was below 1.9 percent while the S&P 500 dividend yield was 2.1 percent.

This is the reverse of the pattern in the modern era, when the 10-year Treasury yield has generally been higher than the stock market's dividend yield.

To Convergex strategist Nicholas Colas, this means that "stocks still look attractive versus bonds".

However, Boris Schlossberg, strategist at BK Asset Management, pointed out last week that back in the 1920s, people considered stocks more risky and required higher dividend yields than bond yields.

Monday, 28 March 2016

US stocks looking overbought, facing margin squeeze

Despite the resilience of the stock market rally so far, there have been signs that it may have trouble continuing.

Last week, Bespoke reported that the net percentage of overbought stocks in the S&P 500 surged above 75 percent, the highest in over three years.

This comes at a time when corporate profit margins are getting squeezed. Corporate after-tax profits in the fourth quarter were 15 percent below year-earlier levels. After-tax profits as a share of gross domestic income was 7.5 percent, well below that in the second quarter of 2013, when the profit share peaked at 10 percent.

In contrast, employee compensation came to 53.6 percent of gross domestic income in the fourth quarter, up from 52.8 percent a year earlier.

Justin Lahart thinks that employers have more bargaining power, and that companies may have to pay up.

"So even if the punk global environment improves, the margin squeeze can still get worse," he wrote. "That doesn’t leave much hope for a profits revival."

Friday, 25 March 2016

Stocks fall, at risk of steep decline with global deflation

Stocks mostly fell on Thursday.

The Shanghai Composite Index tumbled 1.6 percent, the STOXX Europe 600 fell 1.5 percent but the S&P 500 recovered from early losses to finish little-changed.

The S&P 500 is down 0.7 percent for the week, its first weekly decline in six.

If David Stockman is right, however, stocks are in for a steep and treacherous decline.

"As soon as the markets realize that the Fed and the ECB are out of ammunition, it's over," Stockman told CNBC. "Global deflation is going to turn into a recession worldwide."

Indeed, in Japan, consumer prices were unchanged in February, the tenth consecutive month that inflation has been around zero despite the Bank of Japan’s adoption in January of a negative interest rate alongside its already unprecedented asset purchases.

Thursday, 24 March 2016

Stocks fall as oil tumbles

Stocks mostly fell on Wednesday.

The S&P 500 fell 0.6 percent to return to negative territory for 2016.

The STOXX Europe 600 fell 0.1 percent, giving up gains earlier in the day.

Asian stocks were mixed. The Shanghai Composite Index rose 0.4 percent but the Nikkei 225 fell 0.3 percent.

Stocks were dragged down by oil. West Texas Intermediate crude plunged 4 percent while Brent tumbled 3.2 percent.

“Investors are questioning this explosive near-term rally off February lows, which left stocks in an overbought condition,” said Channing Smith, portfolio manager at Capital Advisors. Smith added that “economic data seem hollow, nothing to suggest acceleration”.

Wednesday, 23 March 2016

Markets little affected by attack on Brussels but technical analysts see end for rally

A terrorist attack on Brussels on Tuesday shook markets, but only briefly.

The STOXX Europe 600 recovered from early morning losses to close down just 0.2 percent while the S&P 500 closed down just 0.1 percent.

While such resilience often augurs well for the market, some technical analysts think that the stock market rally will end soon.

Analysts at Bespoke Investment Group wrote in a note that while more than 93 percent of stocks in the S&P 500 have risen above their 50-day moving averages in the rally, they expect "this breadth measure to cool off a bit" and that investors hoping to buy should "wait for a pullback".

Technical analysts Michael Riesner and Marc Muller of UBS are even less optimistic. They think that "the S&P 500 has reached its most overbought position since 2009" and "see the market vulnerable for a significant reversal this week".

Tuesday, 22 March 2016

Stocks may drift but value stocks outperforming

Markets were mixed on Monday.

While the Shanghai Composite Index jumped 2.2 percent, markets elsewhere were relatively subdued.

The S&P 500 edged up 0.1 percent, with fewer shares changing hands than on any other day in 2016. The STOXX Europe fell 0.3 percent.

Jonathan Corpina, senior managing partner at Meridian Equity Partners, thinks that the market will just "drift around" this week, while Alex Dryden, global market strategist at JP Morgan Asset Management, thinks that "a lot of people still feel very nervous about the recovery".

However, CNBC reported that Jim Cramer thinks stocks are "incredibly undervalued".

In any case, it may at least be time to buy value stocks, with value stocks up for the year while growth stocks are down.

Monday, 21 March 2016

China's rising debt levels pose macroeconomic risk

China has temporarily ceased to be a focus of concern for most global investors but the problem with its debt-laden economy remains. From Bloomberg:

Not since 1999 have China’s companies had so much trouble getting customers to actually pay for what they’ve bought.

It now takes about 83 days for the typical Chinese firm to collect cash for completed sales, almost twice as long as emerging-market peers. As payment delays spread from the industrial sector to technology and consumer companies, accounts receivable at the nation’s public firms have swelled by 23 percent over the past two years to about $590 billion, exceeding the annual economic output of Taiwan.

At least some of China's policy-makers are aware of the risks. Again from Bloomberg:

People’s Bank of China Governor Zhou Xiaochuan sounded a warning over rising debt levels...

“Lending as a share of GDP, especially corporate lending as a share of GDP, is too high,” Zhou said. He said a high leverage ratio is more prone to macroeconomic risk.

Saturday, 19 March 2016

Emerging markets and US transports back in bull markets

Stocks rose on Friday.

The S&P 500 rose 0.4 percent to erase its loss for the year, the STOXX Europe 600 rose 0.3 percent and the MSCI Emerging Markets Index rose 1.2 percent to bring its rebound from a 6 1/2-year low in January to 20 percent and taking it back into a bull market.

Also confirming a return to a bull market recently is the Dow Jones Transportation Average, a positive sign for the market as a whole.

“They’re a very good canary in the coal mine, both on the way down and as things come back up,” said Eddie Perkin, chief equity investment officer at Eaton Vance Management. “Even when you strip out the noise, it looks like a good story.”

Friday, 18 March 2016

Dow Industrials bounce back into positive territory for 2016

US stocks rose on Thursday.

The Dow Jones Industrial Average rose 0.9 percent to leave it with a 0.3 percent gain for 2016.

The S&P 500 rose 0.7 percent on Thursday but remained down 0.2 percent this year.

US crude oil rose 4.5 percent on Thursday.

However, elsewhere, the STOXX Europe 600 fell 0.1 percent and the Nikkei 225 fell 0.2 percent.

Still, the rebound in US stocks is boosting confidence in the market as well as economy.

A recession is “just not in the cards for the moment”, said Tony DeSpirito, portfolio manager of the BlackRock Equity Dividend Fund.

“People can talk about it being low volume and low conviction,” said Rob Bernstone, managing director in equity trading at Credit Suisse. “But it counts the same.”

Still, doubts persist.

“We’re back to where we were, but still the dynamics are not bullish,” Rich Weiss, senior portfolio manager at American Century Investment said. “There is very little difference in economic indicators from the end of the year through today.”

Thursday, 17 March 2016

US stocks rise as Fed slows expected pace of rate rise

Markets rose on Wednesday.

The S&P 500 rose 0.6 percent after the Federal Reserve announced that it was leaving interest rates unchanged and that it expects the federal-funds rate to rise to 0.875 percent by year-end, implying just two interest-rate increases.

The US two-year Treasury yield fell to 0.873 percent from 0.968 percent on Tuesday.

Earlier, the STOXX Europe 600 rose less than 0.1 percent and the Shanghai Composite rose 0.2 percent.

US crude oil jumped 5.8 percent on Wednesday.

Some analysts are skeptical about the rally continuing.

“We’re concerned about the sustainability of the rally right now,” said Marcelle Daher, co-head of global asset allocation at John Hancock Asset Management. “We just need to see some firmer growth coming in, not just in the U.S. but from other parts of world, to get excited about equities.”

But confidence in other parts of the world may already be on the rise.

A Bank of America Merrill Lynch survey found that global fund managers have grown more bullish on eurozone equities over the past month while fund managers’ allocation to emerging market stocks reached a 10-month high in March.

Wednesday, 16 March 2016

Markets fall as investors await Fed decision

Markets fell on Tuesday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 fell 1.1 percent and the Nikkei 225 fell 0.7 percent.

US crude oil futures fell 2.3 percent while the yield on the US 10-year Treasury note fell to 1.961 percent from 1.963 percent on Monday.

The S&P 500 fell only slightly on Tuesday despite data showing that US retail sales declined 0.1 percent in February while retail sales for January were revised to a 0.4 percent drop compared with an initially-reported 0.2 percent rise.

US stock-trading volume remained low on Tuesday, coming in at the second-lowest this year after hitting a 2016 trough on Monday.

Some investors may be on the sidelines while waiting for the outcome of the Federal Reserve's monetary policy meeting on Tuesday and Wednesday.

Tuesday, 15 March 2016

Market volume hits low amid fund outflows and doubts on central bank effectiveness

Markets were mixed on Monday.

Early in the day, the Nikkei 225 jumped 1.7 percent and the Shanghai Composite Index surged 1.8 percent.

However, the STOXX Europe 600 rose just 0.7 percent while the S&P 500 slipped 0.1 percent.

The yield on the US 10-year Treasury note fell to 1.963 percent from 1.977 percent on Friday while US crude oil fell 3.4 percent.

US stock-trading volumes hit their lowest level of the year on Monday. The weak volume comes in a period where corporate share buybacks have been the main source of demand for stocks as mutual and exchange-traded funds have been hit with outflows at almost the fastest rate ever.

The pullback from the stock market could be part of a turn in the credit cycle.

"There has been a significant and, in our view, structural contraction in supply for all borrowers aside from U.S. high grade entities," wrote UBS strategist Matthew Mish.

Mish added in particular that lending conditions may have become "dangerously easy at non-banks".

A turn in the credit cycle would suggest that central bank easing is in the offing, which could encourage some investors to return to the stock market.

However, some analysts doubt that central banks can continue to prop up markets.

"Central banks hold a declining number of less effective policy tools," wrote Andrew Sheets, head of cross-asset strategy at Morgan Stanley. "Their latest foray, negative rates, may do more harm than good."

JP Morgan Chase chief market strategist Jan Loeys wrote: "Part of our equity bearishness is that we share investor concerns about the lack of 'ammo' in central bank arsenals that will be needed to battle adverse shocks."

Saturday, 12 March 2016

Stocks rise but recession risk could mean “much pain” for markets

Markets rose on Friday.

The S&P 500 jumped 1.6 percent, the STOXX Europe 600 surged 2.6 percent, the Nikkei 225 rose 0.5 percent and the Shanghai Composite Index gained 0.2 percent.

While US and European markets were among the biggest gainers on Friday, some think that these economies are actually at risk of recession. From the WSJ:

Prem Watsa, one of Canada’s most prominent investors, sees significant risk that North American and European economies may slip back into recession, as governments run out of ammunition to spur growth...

He has grown so concerned about signs of distress in commodities, housing and high-yield and emerging bond markets that he fears “much pain” is coming to the financial markets...

In a 20-page annual letter to Fairfax’s shareholders, released on Friday, Mr. Watsa said he was motivated to warn about market instability after he learned that a friend’s 90-year-old mother had been advised to invest 85% of her investment portfolio in stocks.

Friday, 11 March 2016

ECB launches fresh stimulus, markets shrug

The European Central Bank announced fresh stimulus measures after its monetary policy meeting on Thursday.

The latest measures included cuts to all three of the ECB’s main interest rates, €20 billion a month of additional bond purchases and an expansion of its quantitative easing programme to highly rated corporate bonds.

Investors seem unimpressed though.

The STOXX Europe 600 initially rose 2.5 percent on Thursday but closed down 1.7 percent. The S&P 500 rose less than 0.1 percent.

Earlier on Thursday, Asian markets had been mixed. The Nikkei 225 rose 1.3 percent but the Shanghai Composite Index fell 2 percent.

The market reaction to the ECB move on Thursday led many analysts to conclude that the power of central banks to influence markets and the economy may be on the wane.

“We are reaching the limits of monetary policy, and that is causing markets a headache,” said Mark Dowding, senior portfolio manager at BlueBay Asset Management.

However, other analysts remain confident of central banks' power.

Bill Street, head of investment for Europe Middle East and Africa at State Street Global Advisors, said that “this is all going to be positive momentum from where we were, for both economy and also risky assets”.

Thursday, 10 March 2016

Markets up but stocks possibly a "big losing proposition"

Markets were mostly up on Wednesday.

The S&P 500 and the STOXX Europe 600 rose 0.5 percent. However, the MSCI Asia Pacific Index fell 0.6 percent.

While many are calling Wednesday the "seventh anniversary of the bull market", Jeff Gundlach thinks that stocks are already in a bear market. From the Australian Financial Review:

The Standard & Poor's 500 Index has about 2 per cent upside and 20 per cent downside, making for a lousy risk-reward tradeoff, according to money manager Jeffrey Gundlach.

Betting on stocks is a "big losing proposition", Gundlach said Tuesday during a webcast. The recent rebound is a "bear market rally", he said.

Wednesday, 9 March 2016

Markets fall, Chinese exports plunge

Markets were mostly down on Tuesday.

The S&P 500 fell 1.1 percent, the STOXX Europe 600 fell 1 percent and the Nikkei 225 fell 0.8 percent.

The Shanghai Composite Index managed to eke out a 0.1 percent gain despite a report earlier showing that Chinese exports fell 25.4 percent in February from a year earlier, twice as much as markets had expected. Imports fell 13.8 per cent.

While the export drop was the biggest since May 2009, the Lunar New Year holidays may have exaggerated the weakness. "We'll probably see a significant reversal and a stronger number next month," said Julian Evans-Prichard, China Economist at Capital Economics.

Tuesday, 8 March 2016

No recession in 2016?

Markets were mixed on Monday.

The S&P 500 rose 0.1 percent and the Shanghai Composite Index rose 0.8 percent.

However, the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 0.6 percent.

While most markets remain significantly off their highs, the recent rally has turned some analysts more optimistic.

For example, Tim Mullaney wrote that February's US employment report has "just about dispensed with the idea of a 2016 recession".

"[T]he correction was based on a series of gloom-and-doom scenarios that weren’t true, or aren’t likely," he said. "The jobs report was a nail in that argument’s coffin, and you can dance profitably on the recession of 2016’s grave."

Then again, employment is not generally considered a leading economic indicator, so with ten months to go this year, Mullaney is almost certainly too early in celebrating the avoidance of a recession in 2016.

Monday, 7 March 2016

US stocks rise as confidence in economy returns

US stocks rose for a third consecutive week last week.

Bloomberg reports:

The Standard & Poor’s 500 Index jumped 2.7 percent over five days, bringing its run during the past three weeks to 7.3 percent. A surge in hiring delivered a vote of confidence in the world’s largest economy, while oil’s rebound from a 12-year low eased deflation concerns and recent actions in China added to optimism the nation can tamp down volatility that’s roiled global markets. Together, it added up to a third straight week of S&P 500 advances that topped 1.5 percent, the longest stretch with gains of that size since 2009.

Not everything is positive for stocks though. Bloomberg also noted that US factory orders contracted in February for a fifth straight month while wages unexpectedly declined last month.

Also, corporate earnings have been declining and may not start to recover until the third quarter of 2016, according to Mark Luschini of Janney Montgomery Scott.

Saturday, 5 March 2016

Markets rally as Jim Rogers sees recession

Markets continued to rally on Friday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.7 percent and the MSCI Emerging Markets Index rose 1.6 percent.

Copper jumped 3.6 percent while West Texas Intermediate crude oil surged 3.9 percent.

US ten-year Treasuries note yields rose four basis points to 1.88 percent as a report on Friday showed that nonfarm payrolls increased by 242,000 in February, exceeding most economists' forecasts.

However, the employment report also showed that average hourly wages fell by 0.1 percent.

Indeed, Jim Rogers thinks that there is a 100 percent probability that the US economy would be in a downturn within one year.

Friday, 4 March 2016

Markets mixed, odds of recession low

Markets were mixed on Thursday.

The S&P 500 rose 0.3 percent, the Nikkei 225 jumped 1.3 percent and the Shanghai Composite Index gained 0.4 percent.

However, the STOXX Europe 600 fell 0.5 percent.

US crude oil fell 0.3 percent.

Edward Farley, head of the European corporate-bond team at PGIM Fixed Income, said that the broad selloff has provided opportunities to buy beaten-down stocks, although he is treading carefully. “We are skeptical on global growth,” he said.

However, other analysts appear to be more sanguine about the economy.

“The evidence seems to be that the US economy is growing fine,” said Paul Quinsee, chief investment officer for US equities at JP Morgan Asset Management.

Indeed, Wall Street analysts generally think that the odds of a downturn in the US economy in 2016 are low.

Thursday, 3 March 2016

Stocks rally after becoming "extremely oversold" but another decline coming

Markets continued their rally on Wednesday.

The S&P 500 rose 0.4 percent and the STOXX Europe rose 0.7 percent.

Earlier on Wednesday, stocks in Japan and Shanghai surged by more than 4 percent following the overnight jump in US stocks.

The resilience of stocks lately has led even the usually-pessimistic Marc Faber to acknowledge that stocks have become "extremely oversold" and that a "relatively strong rally" is possible.

Still, Faber thinks that after the near-term rally, stocks are likely to decline again.

Wednesday, 2 March 2016

Stocks rise as Saut sees rally beginning this week

Markets started March trading on a positive note.

The S&P 500 jumped 2.4 percent on Tuesday, the STOXX Europe 600 rose 0.8 percent and the MSCI Asia Pacific Index rose 0.6 percent.

Yields on US 10-year Treasury notes rose nine basis points to 1.83 percent and West Texas Intermediate crude oil rose 1.9 percent.

The strong US stock market performance on Tuesday could vindicate Jeffrey Saut's call for a rally beginning this week.

Saut thinks that the market put in a double bottom at the 11 February low and it is "starting to take another stab on the upside".

Tuesday, 1 March 2016

Stocks plunge in China, mixed elsewhere as market enters good time for stocks

Markets were mixed on Monday.

Chinese stocks kicked off the trading day and week by plunging 4.6 percent. However, the Shanghai Composite Index recovered somewhat later in the trading session to finish down 2.9 percent.

After the market closed, China’s central bank cut lenders’ reserve-requirement ratios by 0.5 percentage points.

Elsewhere, the S&P 500 fell 0.8 percent to finish the month down 0.4 percent.

The STOXX Europe 600 rose 0.7 percent on Monday but also ended the month down, its third consecutive monthly loss.

Warren Buffett told CNBC on Monday that businesses have been "a bit softer" than they were four to five months ago but he continues to buy stocks.

And now may be a good time to buy anyway. CNBC also reported that, according to Bespoke, March is historcally a good time for stocks while April is the strongest month.