Tuesday, 31 October 2017

Markets mixed, Spanish stocks surge

Markets were mixed on Monday.

The S&P 500 fell 0.3 percent after a report showed that the House of Representatives is considering phasing in a cut to corporate taxes rather than enacting them immediately.

The STOXX Europe 600 rose 0.1 percent. Spain's IBEX 35 led the rise, jumping 2.4 percent after the Spanish government ousted leaders in Catalonia on Friday in reaction to separatist lawmakers declaring the region an independent republic.

In Asia, the Nikkei 225 was flat but the Shanghai Composite fell 0.8 percent.

Monday, 30 October 2017

Stocks to go “8-10 percent higher” by end next year with earnings growth

There is still life in the current bull run in the stock market, according to Brian Nick, chief investment strategist at Nuveen.

Nick told CNBC recently that the next couple of months could become bumpy for stocks as good news headlines go away and the markets deal with uncertainty over factors such as tax reform.

However, further ahead, he sees more gains for stocks.

“If you're looking forward into the end of next year, the light is still green for the U.S. economy and for corporate profits,” he said.

“Between now and then, we see the markets anywhere between 8 percent and 10 percent higher, and that's basically in-line with our expectations for earnings growth,” he added.

Saturday, 28 October 2017

Markets rise, no alternative to owning stocks seen

Markets mostly rose on Friday.

The S&P 500 rose 0.8 percent while the Nasdaq Composite surged 2.2 percent, both closing at record highs after better-than-expected quarterly results from Amazon, Microsoft, Alphabet and Intel.

The STOXX Europe 600 rose 0.6 percent but the IBEX 35 fell 1.5 percent amid tension over Catalonia's proposed independence.

The Nikkei 225 rose 1.2 percent to close at a two-decade high but the S&P/ASX 200 fell 0.2 percent after a court ruling that ousted five lawmakers left the Australian government without a majority.

Despite yet another record high on Wall Street, Brian Levitt, senior investment strategist at OppenheimerFunds, does not think that the US stock market is particularly overvalued.

“You look at the earnings yield of stocks compared to the Treasury yield, it's not clear that there's an alternative to owning the equity market,” he told Business Insider.

Friday, 27 October 2017

Markets rise as ECB to continue bond buying at reduced pace

Markets rose on Thursday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 jumped 1.1 percent and the Nikkei 225 rose 0.1 percent.

Stocks rose despite the ECB announcing a reduction in its monthly bond purchases.

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase programme in terms of size and/or duration,” the ECB said in a statement after its monetary policy meeting.

“It turns out the dove camp is the clear winner here in the sense that they got the flexible or open-end of the QE program. That is why the euro is falling and equity markets are reacting so positively,” said Manuel Ortiz-Olave, FX market analyst at Monex Europe.

Thursday, 26 October 2017

Markets fall as bonds face “moment of truth”

Markets mostly fell on Wednesday.

The S&P 500 fell 0.5 percent, the STOXX Europe 600 fell 0.6 percent and the Nikkei 225 fell 0.5 percent.

“It is clear that markets are reacting to some disappointing earnings, because the economic picture remains robust,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.

However, investors may also be getting nervous about interest rates. The yield on the 10-year Treasury note rose 3.8 basis points to 2.444 percent on Wednesday after DoubleLine Capital Chief Investment Officer Jeffrey Gundlach tweeted on Tuesday that the “moment of truth has arrived for secular bond bull market”.

“If inflation ticks up [and] central banks respond, then I think we have a much more volatile picture,” Bessemer Trust's chief investment officer Rebecca Patterson said on CNBC on Tuesday.

Indeed, Ravi Menon, managing director of the Monetary Authority of Singapore, told Bloomberg on Tuesday that risks “have been manifesting” and “those risks are being underestimated”.

Wednesday, 25 October 2017

Markets mixed but “no alternative to equities” despite risk of pullback

Markets were mixed on Tuesday.

The S&P 500 rose 0.2 percent and the Nikkei 225 rose 0.5 percent but the STOXX Europe 600 fell 0.4 percent.

“For the most part, earnings across sectors are coming in strong,” said John Brady, managing director at R.J. O’Brien & Associates. “I’m not concerned about valuations yet,” he added, pointing out that “there is just no compelling investment alternative to equities right now.”

However, Jeff Reaves at MarketWatch warned that there are troubling signs for the stock market.

“Those who aren’t prepared for a market crash — or at least a 10% to 20% correction — may be caught flat-footed and suffer serious portfolio declines as a result,” he said

And the market could be due for a pullback, according to Katie Stockton, chief technical strategist at BTIG.

“If we close lower sometime this week, then, the downside risk will increase,” Stockton said.

Nevertheless, Stockton thinks that the “long-term positive momentum is there” and “we think any pullback is an opportunity to add exposure to U.S. stocks”.

Tuesday, 24 October 2017

Markets mixed but earnings a “solid tailwind”

Markets were mixed on Monday.

The S&P 500 fell 0.4 percent to end a six-day winning streak.

However, elsewhere, the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 jumped 1.1 percent after Japanese Prime Minister Shinzo Abe's ruling coalition secured a two-thirds majority at Sunday's election.

The decline in US stocks on Monday did little to dampen optimisim.

“Earnings remain a solid tailwind for equity prices,” said Robert Doll, chief equity strategist at Nuveen Asset Management LLC, in a note.

Avi Gilburt, an Elliott Wave technical analyst and author of ElliottWaveTrader.net, does expect a pullback in the coming weeks but then expects the market to “rally into the end of the year”.

Monday, 23 October 2017

US stock market record-breaking run could keep going

The S&P 500 rose 0.9 percent last week to end at another record high, and many analysts think it can go even higher.

The S&P 500 rose 0.5 percent on Friday on hopes of tax cuts and Doug Gordon, senior portfolio manager at Russell Investments, thinks that tax reform in the US could keep the bull market going.

“I don't think we have it fully priced in as of yet,” Gordon told CNBC last week referring to the tax reform.

Gordon suggested that non-US developed equities “look modestly more attractive” than US equity markets.

However, sounding a cautionary note, Gordon said that the market has moved into the late stages of the bull run and that the market “could get those irrational exuberance kind of moments” but “I don't think we're quite there yet”.

Indeed, most analysts remain optimistic.

“We are getting more calls from our clients asking us whether they should sell their stocks rather than buy them, because they are scared. This is not what you normally see at market tops,” noted Maris Ogg, president at Tower Bridge Advisors, who thinks that the market could continue to climb for another couple of years.

Meanwhile, Bespoke Investment Group noted that “2017 is tied for the fifth most closing highs on record, dating back to 1929” and that “there’s the potential for more”.

Still Ogg did warn that there is risk of a sudden drop in profit margins. While net profit margin was 9.5 percent in the third quarter and close to a record high, Ogg sees wage pressure “building up”.

Indeed, John Hussman, President of Hussman Investment Trust, warned in a recent article that “the process of profit margin normalization is already underway”, driven by a low unemployment rate and the demographic constraint of a slow-growing labour force.

Without the boost from a rising profit margin and with valuation already “2.75 times their historical norms”, Hussman warned that “the S&P 500 is likely to post negative total returns over the coming 10-12 year horizon, with a likely interim loss in excess of -60%”.

Saturday, 21 October 2017

Markets rise as Trump trade reignited amid “synchronized expansion” in global economy

Markets rose on Friday.

The S&P 500 rose 0.5 percent to a record high after the US Senate passed a budget blueprint for the next fiscal year to pave the way for tax cuts.

The STOXX Europe 600 rose 0.3 percent despite continuing concerns over the issue of Catalonian independence from Spain.

The Nikkei 225 rose less than 0.1 percent ahead of an election on Sunday but that was still its 14th consecutive gain.

“The Trump trade has been reignited, so it seems. Tax reform is definitely back on—if it was ever off, thanks to the Senate approving of the Republican-backed budget Thursday night,” said Neil Wilson, senior market analyst at ETX Capital, in a note.

“The global economy has now entered a synchronized expansion for the first time in many years, and the usual macro fears are largely absent,” wrote Bill Miller, portfolio manager at Miller Opportunity Trust mutual fund on Wednesday. “This has underpinned a global bull market in stocks without (yet) triggering a significant rise in interest rates.”

“Low interest rates coupled with still solid earnings growth suggest valuations can remain high amid a tame business cycle, absent an exogenous shock,” said Third Point's Dan Loeb.

Friday, 20 October 2017

Markets mixed as US stocks rebound after losses elsewhere

Markets were mixed on Thursday.

Early in the day in Asia, the Nikkei 225 rose 0.4 percent but the Hang Seng Index tumbled 1.9 percent and the Shanghai Composite fell 0.3 percent after a report showed that China's economy grew 6.8 percent in the third quarter, down from 6.9 percent in the second quarter.

The STOXX Europe 600 fell 0.6 percent as the China data combined with an escalation of political tension in Spain and disappointing corporate results to drag stocks down.

However, the S&P 500 managed to rebound from early declines to finish flat.

“While there is no question that markets are overvalued and we could see some corrections, the path of least resistance for stocks is still to go higher,” said Jack Ablin, chief investment officer at BMO Private Bank.

Thursday, 19 October 2017

Stocks rise amid positive global earnings trends and flattening yield curve

Markets rose on Wednesday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Shanghai Composite rose 0.3 percent.

“Overall, earnings are coming in very nicely,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.

“Economic data globally is confirming positive earnings trends,” said Maris Ogg, president of Tower Bridge Advisors.

Luiz Sauerbronn, director of the investments group at Brandes Investment Partners, said that European corporate profitability is “starting to recover now” while valuations are “very attractive relative to the US”.

One risk, though, is a flattening yield curve.

CNBC reported that this week, the spread between 2-year note yields and 10-year yields in the US reached near the lowest it has been since before the financial crisis.

Wednesday, 18 October 2017

Markets mixed but US stocks edge up on positive earnings

Markets were mixed on Tuesday.

The S&P 500 edged up by less than 0.1 percent while the Nikkei 225 rose 0.4 percent but the STOXX Europe 600 fell 0.3 percent.

Positive earnings reports from major companies boosted sentiment in the US.

Karyn Cavanaugh, senior market strategist at Voya Financial, said that “the market is climbing thanks to global growth that’s been driving earnings”.

Bill McNabb, chairman of Vanguard, told the BBC that financial markets “keep reaching new highs” despite valuations being “very high” partly because they had ignored some of the political turbulence around US President Donald Trump's administration.

However, he added: “We expect there could be a decent-sized correction at some point.”

Tuesday, 17 October 2017

Stocks rise but calm markets could turn “really ugly”

Markets were mostly higher on Monday.

The S&P 500 rose 0.2 percent to another record high while the Nikkei 225 rose 0.5 percent to a 21-year high.

However, the STOXX Europe 600 was flat. The IBEX 35 weighed down the region, falling 0.8 percent after the Spanish government gave Catalonia’s separatist leaders until Thursday to drop their push for independence.

Joanne Masters, senior economist at ANZ, said in a note that while the Federal Reserve may raise interest rates in December, “if goods inflation fails to show up next year, there might not be too many more in a hurry”.

Certainly, investors do not seem too concerned with monetary policy tightening, with markets having “gotten even calmer” in the typically-volatile month of October so far, noted Frank Cappelleri, technical strategist at Instinet.

Still, some analysts are concerned, especially for the US stock market.

Goldman Sach's chief US equity strategist David Kostin said in a note on Friday that the S&P 500 is currently trading in the 88th percentile of historical valuations and expects a “modest contraction” in valuation multiples.

That would mean that for the S&P 500 to rise, fundamental factors such as earnings and book values have to improve, but “a substantial increase in profitability in 2018 will likely require policy tailwinds”.

Meanwhile, William Watts at MarketWatch ponders the possibility of another market crash.

“It’s been three decades since Black Monday, the most disastrous single day in U.S. stock market history,” he wrote on Monday. “Critics charge that fragmentation and liquidity concerns resulting from market structure changes make an eventual rerun a near certainty.”

Joseph Saluzzi, co-founder and co-head of trading at Themis Trading, warned that “when it happens, it’s going to be really, really ugly”.

Monday, 16 October 2017

China could grow influence on global markets but still at risk of financial instability

Emma O'Brien, Garfield Reynolds and Adrian Leung argue that China's influence on global markets will grow.

China makes up more than one-seventh of the global economy, yet its footprint in international portfolios is ludicrously small, with overseas investors owning less than 2 percent of its domestic stocks and bonds. But its insulated markets are slowly becoming more integrated, as President Xi Jinping loosens rules on foreign participation. That push could get further backing at the Communist Party's twice-a-decade congress this month, where the leadership will set policy priorities for the coming five years.

However, People's Bank of China Governor Zhou Xiaochuan warned recently that China is also at risk of financial instability.

“The main problem is that the corporate debt is too high,” Zhou said Sunday during a panel discussion at a Group of 30 seminar in Washington held in conjunction with the International Monetary Fund and World Bank annual meetings.

While debt servicing costs remain low, “we need to pay further effort to deleveraging and strengthen policy for financial stability,” Zhou said.

Saturday, 14 October 2017

Markets rise as analysts agree there's no reason to sell

Markets rose on Friday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose 0.9 percent.

“There’s no reason to sell,” said Randy Frederick, managing director at Schwab Center for Financial Research.

Jack Ablin, chief investment officer at BMO Private Bank, said that “reasonable economic growth with low inflation” indicated that “the path of least resistance is higher”.

Indeed, Doug Ramsey, chief investment officer of the Leuthold Group, noted a “remarkable level of bullish ‘agreement’ across the U.S. stock market”, which he said, “stacks the odds heavily against an imminent cyclical top”.

Friday, 13 October 2017

Markets mixed as good fundamentals may be “priced in”

Markets were mixed on Thursday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 was flat and the Nikkei 225 rose 0.4 percent.

Gary Droz, managing director at MainLine Private Wealth, said that the “fundamentals are good” but he does not see “a huge spike up” between now and the end of the year because a lot of the optimism “has been priced in”.

Thursday, 12 October 2017

US stocks rise to another record high but Europe flat despite secession reprieve in Spain

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.2 percent to close at a record high while the Nikkei 225 rose 0.3 percent to close at a two-decade high.

However, the STOXX Europe 600 was flat despite a 1.3 percent jump in the IBEX 35 after Catalan leader Carles Puigdemont told the Catalan parliament that he was suspending the secession process to negotiate with the Spanish government first.

In the US, investors may have been encouraged by the minutes of the Federal Reserve's last monetary policy meeting released on Wednesday. The minutes showed that several Fed officials thought that inflation may take longer than previously expected to get back to the central bank's target.

Indeed, Yardeni Research's Edward Yardeni thinks that there is now a 55 percent chance the market will continue climbing, up from his estimate of 50 percent about two months ago.

Wednesday, 11 October 2017

Market rally reaches “epic proportions”, “no brake” in front of it

Markets were mixed on Tuesday.

The S&P 500 rose 0.2 percent while the Nikkei 225 rose 0.6 percent.

However, the STOXX Europe 600 was flat as the threat of of a declaration of independence by Catalonia dragged Spanish stocks down.

“Should we see a repeat of the heavy-handed police tactics like we saw on the referendum day, it could send the Spanish market into a tailspin,” said David Madden, market analyst at CMC Markets UK, in a note.

Elsewhere, though, investors remain ebullient.

Morgan Stanley analysts wrote on Tuesday that the equity market rally “has reached epic proportions” and that while “investors have at times appeared reluctant to embrace the recent rally, there is evidence from last month that risk appetites are increasing”.

Indeed, Jim Paulsen, chief investment strategist at Leuthold Group, told CNBC: “We're just in such a sweet spot because growth keeps going, we're at full employment and yet we've got no aggravation to inflation or interest rates.”

“There's no brake in front of this stock market,” he added.

Tuesday, 10 October 2017

Stocks mixed but US market “not dislodged easily”

Markets were mixed on Monday.

The S&P 500 fell 0.2 percent but the STOXX Europe 600 rose 0.2 percent while the Shanghai Composite rose 0.8 percent on resumption of trading after being closed for a holiday last week.

Robert Pavlik, chief market strategist for Boston Private Wealth Management, noted that “there’s a bit of weakness in the overall market”.

However, Mohamed El-Erian, chief economic advisor at Allianz, told CNBC on Monday that it would take a big surprise to derail the US stock market rally.

“You need a major shock or a major series of shocks to dislodge this market. This market is not dislodged easily,” he said.

Monday, 9 October 2017

Are US stocks overvalued?

Investors remain divided over whether the US stock market is expensive, based on comments made over the past week.

Berkshire Hathaway chairman and CEO Warren Buffett told CNBC that “valuations make sense with interest rates where they are”.

GW&K Investment Management portfolio manager Aaron Clark said that “valuations are fine, given where we are in terms of inflation”.

Ameriprise Financial's chief market strategist David Joy said: “Valuations are elevated, but you can justify them.”

PNC Asset Management's global chief investment strategist Bill Stone said that “stocks are not wildly overvalued, certainly relative to interest rates”.

However, Gartman Letter editor and publisher Dennis Gartman told CNBC that the stock market is “egregiously overpriced”.

And today, John Hussman, president of Hussman Investment Trust, wrote in an article that “the U.S. equity market is now at the most offensive level of overvaluation in history” and that “it is utterly incorrect” to say that market valuations are justified by low interest rates.

Saturday, 7 October 2017

Markets mixed as US employment shrinks

Markets were mixed on Friday.

The S&P 500 fell 0.1 percent, ending an eight-day winning streak, after a report showed that nonfarm payrolls shrank by 33,000 in September, the first monthly decline since 2010.

The STOXX Europe 600 fell 0.4 percent as continued political uncertainty in Spain weighed down the market.

Earlier in Asia though, the Nikkei 225 rose 0.2 percent and the Hang Seng briefly topped 2015's high and touched levels not seen since 2007's record highs.

“Markets had been ludicrously overbought, with the S&P 500 rising for eight straight days by Thursday,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co.

The stock market is “egregiously overpriced,” Dennis Gartman told CNBC on Friday. “I don't care which valuation you put upon it — price to earnings, price to book value, margin usage — the market is extremely high.”

Friday, 6 October 2017

S&P 500 hits record again, “path of least resistance higher”

Markets rose on Thursday.

The S&P 500 rose 0.6 percent, rising for an eighth consecutive session and closing at a record close for the sixth consecutive session after the US Congress passed a budget resolution seen as setting the stage for an overhaul of the tax code.

The STOXX Europe 600 rose 0.2 percent, with Spain's IBEX 35 index surging 2.5 percent despite an ongoing stand-off between the central government and Catalonian secessionists.

In Asia, the Nikkei 225 was flat as markets in China and South Korea were closed for holidays.

“The path of least resistance for markets seems to be higher,” said Aaron Clark, portfolio manager at GW&K Investment Management. He added that “valuations are fine, given where we are in terms of inflation”.

Indeed, PNC Asset Management's global chief investment strategist Bill Stone said that there is scope for a 30 percent upside for US stocks in 2018 based on earnings and corporate bond yield forecasts.

While acknowledging that the odds of such a scenario materialising are very low, Stone said that his calculations “at least tells you that stocks are not wildly overvalued, certainly relative to interest rates”.

In the meantime, though, Bob Pisani at CNBC thinks that the US stocks “are very overbought”.

Thursday, 5 October 2017

S&P 500 hits another record, may be on verge of melt-up

Markets were mixed on Wednesday.

The S&P 500 rose 0.1 percent to another record high while the Nikkei 225 also rose 0.1 percent.

However, the STOXX Europe 600 fell 0.1 percent after officials in Catalonia announced their intention to declare independence from Spain.

The relentless record-breaking run of the US stock market has some analysts suggesting that it may be on the verge of a melt-up.

“We make the case that despite the Fed’s intent, we’re on the verge of being in a melt-up stage, fueled by excessive credit and a timid Fed,” wrote technical analyst Jeff deGraaf, chairman of Renaissance Macro Research, in a note on Wednesday.

Similarly, Jeffrey Saut, chief investment strategist at Raymond James, said on Tuesday that the S&P 500 “now appears to be involved in a melt-up”.

However, others note that the US stock market's rise has taken place against the backdrop of a weaker US dollar.

Robert Michaud, chief investment officer at New Frontier Advisors, wrote in a research report that “the dollar has fallen relative to other currencies” and that on a dollar-adjusted basis, the S&P 500 was “significantly below” the high hit in the first quarter of the year.

Wednesday, 4 October 2017

Markets rise despite elevated valuations and political uncertainty

Markets rose on Tuesday.

The S&P 500 rose 0.2 percent to a record high, the STOXX Europe 600 rose 0.2 percent for its ninth consecutive gain and the Nikkei 225 rose 1.0 percent.

“Data have been pretty strong over the past few days, and that’s giving a boost to markets around the globe. Valuations are elevated, but you can justify them,” said David Joy, chief market strategist at Ameriprise Financial.

European stocks rose despite uncertainty after a referendum in Catalonia, Spain on its independence was marred by violent clashes between voters and police.

“Politics has clearly overshadowed the economic improvement in the eurozone, and this will likely remain the case for the rest of the week,” said Hussein Sayed, chief market strategist at FXTM.

Still, some believe that stocks in Europe still have room to push higher.

“Core Europe remains one of the preferred markets for us and one we believe offers attractive opportunities for investors over a multi-year time period,” Jeff Donlon, managing director of global strategies at investment management firm Manning & Napier.

Tuesday, 3 October 2017

Markets rise after positive economic data

Markets rose on Monday.

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

Positive economic data helped boost markets.

In the US, the ISM manufacturing index rose to 60.8 in September, the highest reading since May 2004.

“The economy is doing well despite the storms,” noted Bruce Bittles, chief investment strategist at Baird.

In the euro area, the IHS Markit final manufacturing purchasing managers' index rose to 58.1 in September from 57.4 in August.

“The euro zone manufacturing sector is in fine form, and likely continued to provide firm support for GDP growth in the third quarter,” said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.

The Bank of Japan's Tankan survey on business confidence showed that its index for large manufacturers rose to plus 22 in September from plus 17 in June.

“Japanese growth, as we heard, is growing well above trend, so the growth story is not a bad one,” said Mitul Kotecha, head of Asia foreign-exchange and rates strategy at Barclays.

Monday, 2 October 2017

Bull market may have years left to run

Some analysts think that the current bull market has several more years left to run.

Brian Reynolds, asset class strategist at Canaccord Genuity, thinks that the stock market has been rallying because public pension funds keep flooding the credit markets with cash at a record pace and companies keep using that money to buy back their stock.

Reynolds wrote in a recent note that “it is more likely that the credit boom will intensify in the coming years, rather than come to a premature end”.

Jeff Saut, chief investment strategist at Raymond James, told CNBC that the bull market has “another six, seven, eight years left in it”.

In contrast, strategists at Bank of America Merrill Lynch said that investors should stay cautious.

“Best reason to be bearish in Q4 is there is no reason to be bearish,” BAML strategists wrote in the weekly note.