Saturday, 30 April 2016

Stocks fall, gold gains

Stocks fell on Friday.

The S&P 500 fell 0.5 percent but still finished the month up 0.3 percent.

The Stoxx Europe 600 fell 2.1 percent but was up 1.2 percent for the month.

Safe havens did better on Friday. Gold rose 1.9 percent while the yield on the US 10-year Treasury note fell to 1.821 percent from 1.838 percent on Thursday.

Friday, 29 April 2016

Stocks fall as US growth slows, BoJ holds monetary policy

Stocks slumped on Thursday.

The S&P 500 fell 0.9 percent after the US Commerce Department reported that the economy grew at an annualised 0.5 percent rate in the first quarter, the slowest rate in two years, while the Nikkei 225 plunged 3.6 percent after the Bank of Japan unexpectedly left monetary policy unchanged.

However, US crude oil rose 1.5 percent, its third consecutive day of gains.

Kate Warne, investment strategist at brokerage Edward Jones, said that the decline in stocks was “a reminder to investors that not everything’s going to go right”.

Thursday, 28 April 2016

US stocks rise as Fed shows no hurry to raise rates

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.2 percent and the STOXX Europe 600 rose 0.3 percent.

US crude oil rose 2.9 percent to hit a new high for the year.

However, earlier in Asia, the Nikkei 225 and the Shanghai Composite both fell 0.4 percent.

The Federal Reserve monetary policy meeting on Wednesday gave few reasons for investors to worry about rapid increases in interest rates.

“There is nothing in the statement suggesting that the Fed is in a hurry,’’ said Gary Pollack, head of fixed-income trading in New York at Deutsche Bank AG’s private-wealth-management unit.

According to data from CME Group, federal-funds futures indicated a 15 percent chance of a rate increase at the Fed’s June policy meeting compared to a 21 chance before the Fed’s rate statement.

Jack Ablin, chief investment officer at BMO Private Bank, said that it “appears the path of least resistance for stocks right now is higher”.

Wednesday, 27 April 2016

Markets rise, Brazilian stocks surge

Stocks rose on Tuesday.

While the S&P 500 rose just 0.2 percent, the Russell 2000 jumped 1.1 percent.

Emerging markets also did well. The MSCI Emerging Markets Index rose 0.4 percent, with Brazil's Ibovespa surging 2.3 percent.

US crude oil rose 3.3 percent to close at the highest level in more than five months.

Tuesday, 26 April 2016

Stocks fall after bullish sign

Markets fell on Monday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 fell 0.5 percent, the Nikkei 225 fell 0.8 percent and the Shanghai Composite Index 0.4 percent.

US crude oil fell 2.5 percent.

While stocks were weak on Monday, there have been bullish signs recently.

Last week, for the first time since September 2014, all 10 S&P 500 sectors were above their 200-day moving averages. According to Bespoke Investment Group, in three of the four instances since 1993 when each sector had cleared the 200-day average, it was a "profoundly bullish" market sign.

Monday, 25 April 2016

Technicals point to bull trend for US stocks but bears fear valuations

The S&P 500 rose 0.5 percent last week but John Tobey thinks that “the recent uptrend is not reason enough to be bullish”.

Rather, he thinks that the number of stocks making all-time highs is key.

“The proof is in the performance” is a good guiding principle in this market. A broad number of stocks are rising close to or above their all-time highs and (along with many other stocks) are exhibiting strong technical support signs. Following a year of on-again, off-again bullish/bearish attitudes, it looks like there is rising investor interest, meaning a bullish trend could be taking shape.

John Hussman is not as optimistic. In his latest weekly commentary, he wrote:

At present, Investors Intelligence reports that only 21.7% of investment advisors are bearish, and put/call ratios are severely skewed to the bullish side. The themes cited by bulls feature trend-following considerations and statements like “this chart is bullish.” The themes cited by bears feature value-conscious considerations and statements like “at 38.3%, the value of stocks as a percentage of household financial assets is at the second-highest level in history.” This is a setup that, like 2000 and 2007, cannot help but invite collapse over the completion of the market cycle.

Friday, 22 April 2016

Stocks fall in US and Europe, jump in Japan

Stocks were mostly down on Thursday.

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

However, the Nikkei 225 surged 2.7 percent.

US crude oil fell 2.3 percent.

Joe Tanious, strategist at Bessemer Trust, said “it’s very difficult to identify drivers that can move the market a heck of a lot higher from here”.

A move higher by US stocks is also made more difficult by the continued hesitancy of Americans to invest in the stock market.

A Gallup survey showed that only 52 percent say they currently have money invested in the stock market, matching the lowest ownership rate in the poll’s 19-year history.

Thursday, 21 April 2016

US stocks up with oil but China's credit growth a warning sign

US stocks closed at 2016 highs on Wednesday as oil continued to rally.

The S&P 500 rose 0.1 percent, its third consecutive day of gains, to hit its highest level since 1 December.

Oil futures also settled at a 2016 high on Wednesday, with West Texas Intermediate crude oil gaining 3.8 percent after US government data showed a fall in weekly domestic crude production for a sixth consecutive week.

“If the oil sector continues to rally and banks can hold most of their gains from the February lows, don’t discount the possibility of new highs on the S&P 500,” said Tim Anderson, managing director at MND Partners.

In contrast, the Shanghai Composite Index fell 2.3 percent on Wednesday. It is now down 16 percent since the beginning of the year.

China's debt-fueled growth worries many.

George Soros said at an Asia Society event in New York on Wednesday that China’s March credit-growth figures should be viewed as a warning sign, saying that it “eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth”.

Andrew Colquhoun, the head of Asia Pacific sovereigns at Fitch Ratings, is similarly concerned.

“From a credit perspective, we’d be more comfortable with China slowing more than it is,” he told Bloomberg. “We are getting less confident in the government’s commitment to structural reforms.”

Wednesday, 20 April 2016

Markets up amid continuing skepticism

Markets rose on Tuesday.

The S&P 500 rose 0.3 percent, the STOXX Europe jumped 1.5 percent and the Nikkei 225 surged 3.7 percent, reversing Monday's steep fall.

Stocks were boosted by oil. US crude oil jumped 3.3 percent on Tuesday.

Despite US stock indices approaching record highs, some remain unconvinced of the sustainability of the rally.

“You’ve got to temper short-term enthusiasm with a reality check,” said Bill Nichols, head of US equities at Cantor Fitzgerald.

“It’s hard to imagine this thing going much higher without positive earnings growth,” said Tom Carter, managing director at brokerage JonesTrading.

Indeed, Michael Pento, president of Pento Portfolio Strategies, thinks “a stock-market sell-off of 25 percent or more will happen if the Fed can't get the dollar into a bear market”.

Tuesday, 19 April 2016

Stocks rise on oil rebound but look expensive

After early falls, oil erased some of its losses on Monday to allow US and European stocks to finish higher.

The S&P 500 closed up 0.7 percent while the STOXX Europe 600 rose 0.4 percent.

US crude oil finished down 1.4 percent.

Earlier heavy falls in oil had dragged down Asian stocks, with earthquake-hit Japan in particular seeing a 3.4 percent fall in the Nikkei 225.

The resilience of stocks on Monday did not go unnoticed.

The turnaround “shows us the market is able to shrug off bad information more easily,” said Jonathan Corpina, senior managing director at Meridian Equity Partners.

“You can’t underestimate people’s fear of missing out” in the stock market, said Steve Sosnick, an options trader at Timber Hill.

Still, James Mackintosh at the WSJ reminded us that stocks -- and bonds -- are expensive.

“Wall Street’s favored valuation metric, price to estimated 12-month-ahead earnings, has been higher since 2004 only for a few months last year,” Mackintosh wrote. “This forward PE ratio stands at 16.7 times, higher than any time from 1985, when the data starts, until the dot-com boom really got going in 1997.”

However, Mackintosh said that investors have become “desperate” for return. “High-priced shares offer a low future return, but investors hope it will still be better than the miserable yields available from bonds.”

Mackintosh warned: “Shares were supposedly very cheap relative to bonds shortly before the financial crash, for example, before becoming very much cheaper indeed.”

Monday, 18 April 2016

Dow near record, emerging markets rebound, but oil talks failure threaten

The Dow Jones Industrial Average is flirting with its all-time high while emerging-markets have roared back to life.

However, the failure of the oil talks in Doha over the weekend threatens to derail the rallies in markets. From Bloomberg:

Oil tumbled by the most in two months after output talks Sunday between the world’s biggest producers ended without any agreement on limiting supplies, a diplomatic failure that threatens to renew the rout in prices.

Futures fell as much as 6.8 percent in New York, the biggest intraday drop since Feb. 1. The summit in the Qatari capital, which dragged on for more than ten hours beyond its initially scheduled conclusion, finished with no final accord. Discussions stumbled after Saudi Arabia and other Gulf nations wouldn’t agree to any deal unless all OPEC members joined including Iran, which wasn’t present at the meeting, Russian Energy Minister Alexander Novak told reporters.

Saturday, 16 April 2016

Stocks fall but may break out to new highs this year

Stocks fell on Friday but still finished the week with gains.

The S&P 500 dipped 0.1 percent on Friday, the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 0.4 percent following an earthquake in Kyushu.

However, for the week, the S&P 500 rose 1.6 percent, the STOXX Europe 600 jumped 3.3 percent and the Nikkei 225 surged 6.5 percent.

Quincy Krosby, market strategist at Prudential Financial, said: “Unless there’s a batch of very, very good news, the market is going to digest those gains, maybe pull back a bit, and wait for more catalysts to move higher.”

Ari Wald of Oppenheimer is more optimistic. “We think the S&P 500 is about to break out to new highs this year," he told CNBC recently.

Friday, 15 April 2016

Chinese economy stabilises in first quarter

Data on Friday showed that China's economy stabilised in the first quarter.

Gross domestic product rose 6.7 percent in the first quarter from a year earlier while new credit, industrial output, fixed-asset investment and retail sales all picked up in March.

A report on Wednesday had shown that Chinese exports grew in March from a year earlier, the first increase since June.

However, the "rapid expansion of credit continues to cause worries and show just how precarious the Chinese economy really is", according to Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen.

Wednesday, 13 April 2016

Stocks up, oil may have seen bottom

Stocks rose on Tuesday, helped by a rally in oil.

The S&P 500 rose 1.0 percent, the STOXX Europe 600 rose 0.5 percent and the Nikkei 225 rose 1.1 percent.

US crude-oil prices jumped 4.5 percent.

Indeed, some think that oil has seen a bottom.

“The down market is behind us,” Torbjorn Tornqvist, chief executive officer of Gunvor Group Ltd, said on Tuesday. “From here on the trend is up.”

Trafigura Group Pte CEO Jeremy Weir said: “I believe we’ve seen the bottom unless there is some sort of catastrophic situation, political or otherwise.”

Tuesday, 12 April 2016

Investors nervous as Goldman sees near-term downside risk

Stocks saw mixed performances on Monday.

In the US, the S&P 500 gave up early gains to finish down 0.3 percent.

Elsewhere, the STOXX Europe rose 0.3 percent, the Shanghai Composite jumped 1.6 percent but the Nikkei 225 fell 0.4 percent.

Investors in the US are “a little nervous”, according to Tom Carter, managing director at JonesTrading.

“The corporate earnings outlook is low to flat,” said Oliver Pursche, chief executive at Bruderman & Co.

Indeed, analysts at Goldman Sachs said recently: “Near-term risk is skewed to the downside."

Monday, 11 April 2016

Still a bear market?

Despite the stock market rally in recent weeks, Steve Reitmeister at Zacks thinks a bear market is still on the way.

This is currently the 3rd longest bull market of the last 25. Thus, long in the tooth. Plus it is showing the same topping formations discovered in the charts of the last 5 bear markets. Plus economic data is lower than when we last made new highs with near recession level GDP estimates for Q1-2016. And earnings growth has gone negative. All wrapped in a stock market that is above historical valuation norms giving little reason to rise more.

Saturday, 9 April 2016

Markets rebound, US corporations expected to beat earnings estimates

Stocks rebounded on Friday together with oil.

The S&P 500 rose 0.3 percent while the STOXX Europe 600 jumped 1.2 percent.

Emerging markets were also mostly higher, with the MSCI Emerging Markets Index rising 1 percent despite a 0.8 percent fall in the Shanghai Composite Index.

West Texas Intermediate crude jumped 6.6 percent, the biggest gain since 12 February.

The gain on Friday did not stop the S&P 500 from finishing the week down 1.2 percent.

US stocks could have some relief in coming weeks though. Analysts at Bank of America Merrill Lynch expect corporations to beat lowered estimates by solid margins this earnings season.

Upside for stocks could be limited though as the analysts also think that overall economic and revenue growth will remain sluggish.

Friday, 8 April 2016

Stocks fall even as Chinese monetary easing seen "hitting mark"

Markets were mostly down on Thursday.

The S&P 500 fell 1.2 percent and the STOXX Europe 600 fell 0.8 percent.

In Asia, the Shanghai Composite fell 1.4 percent but the Nikkei 225 rose 0.2 percent.

Thursday's sharp fall in Chinese stocks notwithstanding, a Bloomberg report suggests that there is "increasing evidence the People's Bank of China's year-and-a-half-long easing cycle is hitting the mark", with monetary conditions looking the loosest since late 2011, the seven-day repo rate confined to a narrow range since August, consumer price inflation forecast to quicken again in March, property prices rebounding and financial markets stabilising.

Thursday, 7 April 2016

Western markets rise as China faces debt issues

US and European stock markets rose on Wednesday.

The S&P 500 rose 1.1 percent while the STOXX Europe 600 rose 0.8 percent.

However, in Asia, both the Nikkei 225 and the Shanghai Composite slipped 0.1 percent.

“Concerns around China are subsiding a little bit, but that doesn’t mean we’re there yet,” said Lukas Daalder, chief investment officer at Robeco Investment Solutions.

A heavy debt burden is one of the concerns for China, and analysts are divided over how serious it is. From Bloomberg:

By some accounts, borrowing is out of control and has the country teetering on the edge of a crisis. Others point to the nation's long list of assets, which can more than offset any funding crunch...

Analysis by Jonathan Anderson published in Gavekal's China Economic Quarterly said it all in the headline: "China's Impending Minsky Moment." Mizuho Securities Asia Ltd. economists led by Shen Jianguang argue that sky-high savings rates, potential to develop its capital markets, low levels of foreign debt and record of solving past crises mean the nation can avoid a Minsky moment.

However, even Mizuho acknowledged the need for the Chinese government to take action.

But to escape a crunch, the government needs to push through painful structural reforms, improve financial market regulation and get a grip on contagion risk, according to Mizuho.

The specifics of government action obviously matter. Christopher Balding for one has not been too impressed with the Chinese government's measures so far, saying that there is "a serious risk of making its debt problems worse".

Meanwhile, Bloomberg reports that there is also a debt problem in nearby Southeast Asia.

Governments and companies in Indonesia, Malaysia and other countries in the region have continued to add to borrowing this year after selling the most amount of dollar bonds in three years in 2015, increasing risks if the U.S. Federal Reserve again lifts interest rates, the dollar rallies and local currencies tank.

Wednesday, 6 April 2016

Stocks fall but could make new highs in coming months

Stocks fell on Tuesday.

The MSCI All-Country World Index fell 1.4 percent, its biggest daily drop since 8 February. The S&P 500 fell 1.0 percent to see its biggest two-day decline since 9 February. The STOXX Europe fell 1.9 percent to its lowest level since 25 February.

Stocks fell despite oil rising. West Texas Intermediate rose 0.5 percent.

Despite the latest stumble, Thomas Lee, head of research at Fundstrat Global Advisors, is undaunted in his outlook for stocks.

In a note on Tuesday, Lee said that "equity markets are poised to make new highs in coming months", driven by a recovery in sales and earnings and oil supply and demand achieving equilibrium.

Tuesday, 5 April 2016

Stocks mixed, red flag amid all-time highs

Markets were mixed on Monday.

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

US crude oil fell 3 percent.

Although the S&P 500 as a whole fell on Monday, MarketWatch noted that 42 of the index's stocks hit all-time highs, mostly in consumer staples, consumer discretionary stocks and utilities. No stocks in the energy or telecom sectors recorded all-time highs on Monday.

In an earlier article, Michael Sincere wrote that the recent price pattern is one of the danger signs for stocks.

"Historically low P/E multiple stocks such as Campbell Soup and Paychex are acting like tech stocks, with three-month stock-price charts resembling hockey sticks, and floating sky-high P/E levels," he wrote. "It’s a red flag when stocks like this go parabolic."

Monday, 4 April 2016

Rallies in oil and Asian currencies may be over

After the strong rallies in various markets in recent weeks, doubts are beginning to surface about their sustainability.

Bloomberg reports the reversal in oil prices last week:

Money managers lost faith in oil’s recent rally as doubts grew over whether major producers will be able to agree on an output freeze.

Futures in West Texas Intermediate oil retreated last week for the first time since mid-February...

Short positions on West Texas Intermediate crude, or bets that prices will fall, rose the most since November in the week ended March 29, according to U.S. Commodity Futures Trading Commission. The liquidation of shorts during the prior seven weeks was the largest on record.

Asian currencies face similar skepticism, reports Bloomberg:

It’s time to sell Asian currencies after their best monthly rally in more than seven years, according to Goldman Sachs Group Inc.

The currencies will resume declines as further easing in China and Japan is likely to push the yuan and yen to their weakest levels since at least 2008, says Kamakshya Trivedi, a strategist at the bank who correctly predicted in November that emerging markets would recover in 2016.

Saturday, 2 April 2016

Stocks mixed, US data indicate no recession

Stocks were mixed on Friday.

The S&P 500 rose 0.6 percent and the Shanghai Composite Index rose 0.2 percent.

However, the STOXX Europe 600 fell 1.3 percent and the Nikkei 225 plunged 3.5 percent.

Also on Friday, the US Labor Department reported that nonfarm payrolls rose by 215,000 in March while the unemployment rate rose to 5 percent from 4.9 percent.

Darrell Cronk, president of the Wells Fargo Investment Institute, said: “All this talk about how 2016 is the year the U.S. enters a recession is over. The economic data continues to validate that we’re not, which has been what’s leading stocks higher since February.”

Friday, 1 April 2016

With world's longest bull market and worst stock market, emerging markets may be vulnerable

According to Bloomberg, Malaysia's stock market has the longest bull run.

Malaysia’s energy exports are tumbling, its prime minister is battling corruption allegations and corporate profits are weakening. With all that, the Southeast Asian nation is also home to the world’s most resilient bull market for stocks.

Overseas funds are piling in at the fastest pace in Southeast Asia. Kuala Lumpur’s benchmark equity gauge has more than doubled from its 2008 lows without succumbing to a 20 percent drop. Tan Ming Han says he knows its secret: the lowest volatility among the region’s markets. It’s an environment where a growing army of investors are willing to miss out on the highest highs if that means they also avoid the biggest crashes.

In contrast, Bloomberg calls China the "world's worst stock market", although it said that the rebound in March "may extend into April".

However, emerging markets in general pose risks for investors. From Bloomberg:

Behind the best gains for emerging markets since 2009, there are some ominous signs that the rally is about to hit a wall.

The 13 percent surge in stocks last month was accompanied by the lowest trading volume for five years in the markets with the biggest advances and the weakest company profits for six. In the foreign-exchange market, currencies are mirroring moves in oil prices by the most since 2012, suggesting vulnerability to any renewed weakness in commodities.