Friday, 28 September 2018

Stocks rebound in US, tumble in Japan

Markets were mixed on Thursday.

The S&P 500 rose 0.3 percent and the STOXX Europe 600 rose 0.4 percent but the Nikkei 225 fell 1.0 percent.

“Treasury yields have dropped off since the Fed meeting, taking some of the recent pressure off of stocks and enabling indices to rebound,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Further gains for stocks may be limited though, the approaching mid-term election notwithstanding.

Brian Belski, chief investment strategist at BMO Capital Markets, said that while some investors have pointed out that the market typically stages a strong rally following the election, “we believe that investors may have already ‘pulled forward’ any anticipated post-midterm election bump”.

Thursday, 27 September 2018

Markets mixed as Fed raises rate, escalation of trade war could “take a terrible toll”

Markets were mixed on Wednesday.

The STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose 0.4 percent.

However, the S&P 500 reversed early gains to end 0.3 percent lower.

The Federal Reserve announced a 25-basis point hike in its benchmark interest rate at its monetary policy meeting on Wednesday.

“The Fed is highly likely to raise interest rates 25 basis points per quarter until next summer, when the target rate will reach the committee’s estimate of neutral,” said Eric Winograd, senior economist at AllianceBernstein.

Trade continues to be a concern for markets.

UBS analysts said that if US tariffs on Chinese imports rise to 25 percent as threatened by US President Donald Trump, “the hit to the economy is substantial and comes quickly”, adding that the higher rates would “take a terrible toll on activity”.

In an alternative scenario analysed by ECB economists where the US raises tariffs on all of its imports by 10 percentage points and its trading partners retaliate with an equivalent tariff increase on their US imports, the US economy would shrink by around 2 percent in the first year compared with a situation in which nothing changes.

Wednesday, 26 September 2018

Markets mixed ahead of Fed decision

Markets were mixed on Tuesday.

The S&P 500 fell 0.1 percent but the STOXX Europe 600 rose 0.5 percent.

Earlier in Asia, the Nikkei 225 rose 0.3 percent but the Shanghai Composite fell 0.6 percent.

Most investors' eyes are on the Federal Reserve's monetary policy meeting, which is expected to announce an interest rate hike on Wednesday.

Justin Walters, strategist and co-founder of Bespoke, noted that the “S&P 500 has now fallen on four consecutive Fed Days dating back to March”.

However, he also noted that the biggest decline on the last four Fed Days was just 0.72 percent, “so at least the drops haven’t been extreme”.

Tuesday, 25 September 2018

Markets fall amid trade war fears and Fed rate hike expectations

Markets fell on Monday.

The S&P 500 fell 0.4 percent and the STOXX Europe 600 fell 0.5 percent.

In Asia, the Chinese and Japanese stock markets were closed but the Hang Seng plunged 1.6 percent following a report that China had cancelled planned trade talks with the US.

Bruce McCain, chief investment strategist at Key Private Bank, said that a pullback was expected after US stock markets hit records last week. There is also “a fear that tariffs could bring the economy down” and “a near-certainty that the Fed will raise rates this week”.

Meanwhile, oil prices rose on Monday after major oil producers at a producer meeting over the weekend declined to commit to an additional increase in crude output to address expected supply disruptions.

Monday, 24 September 2018

US stocks maintain bull run as Fed looks set for more rate hikes

US stocks hit record highs last week to confirm an intact bull market as well as a Dow Theory buy. The S&P ended the week up 0.8 percent.

This week, the Federal Reserve's monetary policy meeting will probably be the main focus of markets.

Joseph LaVorgna, chief economist of the Americas at Natixis, suggested that with the economy growing and inflation at or above target, “they're going to do more” rate hikes.

Albert Edwards, global strategist at Société Générale, thinks that the stock market may not be able to withstand further increases in interest rates though.

“The Citi Economic Surprise Index for the U.S. had slumped back towards zero. That convergence of expectations with the data normally means yields should have continued to paddle sideways around 2.8% — and yet we have seen this dramatic rise,” he said.

Friday, 21 September 2018

US stocks hit record high to signal Dow theory buy

Markets were mostly higher on Thursday.

In the US, both the S&P 500 and the Dow Jones Industrial Average hit record highs, gaining 0.8 percent and 1.0 percent respectively.

Elsewhere, the STOXX Europe 600 rose 0.7 percent but Asian markets were flat with both the Nikkei 225 and Shanghai Composite ending little-changed.

“Fundamentally and technically, the market is really strong right now,” said Paul Brigandi, managing director and head of trading for Direxion.

However, Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said that trade friction remains “an ever-growing threat to the world economy” and that “caution is warranted”.

Still, the new highs recorded by the US stock market on Thursday confirmed that the bull market remains intact.

Art Cashin, UBS director of floor operations at the New York Stock Exchange, said that the confirmation “should be a Dow theory buy signal” and “therefore you have six to nine months of a higher stock market”.

Thursday, 20 September 2018

Markets rise but US stocks face trade and other headwinds

Markets rose on Wednesday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 jumped 1.1 percent.

Despite escalating trade tensions between the US and China, Matt Forester, chief investment officer of BNY Mellon’s Lockwood Advisors, said that “without any visible effect on economic data, investors are just looking through the noise”.

In contrast, strategists at JP Morgan see the trade war as a headwind for US stocks. “As half of the trade with China now may be subject to tariffs, there is an increasing probability of corporate earnings being revised lower, dampening the sentiment toward U.S. stocks,” said the strategists led by Marko Kolanovic.

Jack Ablin, chief investment officer at Cresset Wealth Advisors, said that the trade war adds to inflationary pressure that is already building. “The bond market is beginning to get a little concerned about it. Stocks are not there yet,” he said.

And all this comes at a time when the US stock market is already expensive. According to Jim Paulsen, chief investment strategist at The Leuthold Group, the median US stock price-earnings ratio is almost 50 percent more than at the top of the internet stock bubble in 2000.

Wednesday, 19 September 2018

Markets shrug off US-China trade war escalation

Markets rose on Tuesday.

The S&P 500 rose 0.5 percent, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 surged 1.4 percent.

Stocks rose despite an escalation in the US-China trade war as China announced tariffs of 5 to 10 percent on US$60 billion worth of US products after the US announced new tariffs on about US$200 billion in Chinese goods on Monday.

Robert Pavlik, chief investment strategist at SlateStone Wealth, said that “the U.S. economy is strong, earnings are healthy and confidence among consumers and investors remains high”. He is also hopeful that the trade dispute will be settled “amicably”.

Tuesday, 18 September 2018

US raises tariffs on Chinese imports, China to retaliate

The trade war between the US and China looks set to escalate.

On Monday, the US government announced that it will impose 10 percent tariffs on US$200 billion worth of Chinese imports, and those duties will rise to 25 percent at the end of the year.

On Tuesday, the Chinese government announced that it has no choice but to retaliate against the latest round of US tariffs.

"An intensification of the U.S.-China trade spat is a near-term negative for risky assets, raising the specter of an economically damaging trade war in which high tariffs are imposed on most or all U.S.-China trade," wrote Mark Haefele, global chief investment officer at UBS Wealth Management, in a note on Tuesday.

Monday, 17 September 2018

Signs of irrational exuberance amid rising trade war risk

The S&P 500 rose 1.2 percent last week, advancing in all five days. It is now just 0.4 percent below its record close.

Mark Hulbert at MarketWatch thinks that investors are starting to show signs of irrational exuberance.

Hulbert wrote at the end of last week that his Hulbert Nasdaq Newsletter Sentiment Index (HNNSI), his most sensitive barometer of investor sentiment in the equity market, stood at 64.9 percent, having risen in recent sessions to as high as 70.1 percent. In early August, this index had stood at minus 2.7 percent.

“This represents a significant shift towards irrational exuberance,” he said.

Ironically, this comes at a time when the risk of a trade war between the US and some of its major trading partners is rising.

According to JP Morgan, an escalating trade war “could become a major drag on earnings in 2019”.

The Federal Reserve Beige Book released last week noted that trade war concerns “had prompted some businesses to scale back or postpone capital investment” while input costs for businesses have “generally been rising more rapidly than selling prices”.

Saturday, 15 September 2018

US stock market “highly priced but could get much more highly priced”

Markets were mostly higher on Friday.

The S&P 500 rose less than 0.1 percent while the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 jumped 1.2 percent.

Trade remained a concern. Richard Weeks, managing partner at VWG Wealth Management, said that “over the longer term a trade war could be very damaging”.

However, Weeks also said that “stocks still look better than bonds, and there are enough positives that you can’t be too negative”.

Nobel laureate Robert Shiller said that the stock market is “highly priced” but “could get much more highly priced”.

“It has something to do with our president, who is an exceptionally business-oriented president and who wants to deregulate and favors lower taxes,” he said.

Analysts at Société Générale are less enthused about US President Donald Trump's impact on the stock market going forward.

“The U.S. mid-term elections on 6 November might, in the end, prove to be the peak of this atypical U.S. market cycle, with fund managers starting to focus on the risk of a standstill for the U.S. government with no key reform agenda until the end of Trump’s mandate,” they wrote in a note.

Friday, 14 September 2018

US stocks gain on trade hopes but at risk of 5-20 percent decline

The S&P 500 rose 0.5 percent on Thursday, its fourth consecutive gain.

“U.S. officials reaching out to China saying they would be amenable to additional trade talks later this month—that’s all it took to get and keep the Dow up triple digits,” said Mark Esposito, chief executive of Esposito Securities.

However, John Thomas, chief investment officer of Global Wealth Management, is worried that markets may be “complacent” and underappreciate the impact of hte trade dispute.

Indeed, David Tepper, co-founder of Appaloosa Management, said that the current bull market is in the “late innings” and that stocks could drop 5 percent to 20 percent if trade tensions between the US and China increase.

“I don't think everything is discounted at this price right now,” he said.

Thursday, 13 September 2018

Low unemployment and high corporate debt may be red flags for US economy

The S&P 500 finished little-changed on Wednesday, continuing its stabilisation this week after falling 1 percent last week.

JJ Kinahan, chief market strategist at TD Ameritrade, said that the recent selling had followed “a remarkable year and a half” but “I don’t see a tone change in the market; the numbers continue to point to a strong economy”.

Still, other analysts think the US economy is at risk of a recession.

Clarity Financial analyst Jesse Colombo wrote in a Forbes column that the US unemployment rate has fallen below 4 percent. Colombo wrote that historically, “when the U.S. unemployment rate falls under 4%, recessions follow soon after”.

Meanwhile, Steve Blitz, chief US economist at TS Lombard, thinks that the high debt levels of US corporations is a red flag. It leaves them vulnerable “if the equity market comes down a lot”.

Wednesday, 12 September 2018

Markets mixed, “upside looks limited”

Markets were mixed on Tuesday.

The S&P 500 rose 0.4 percent but the STOXX Europe 600 fell 0.1 percent. Earlier in Asia, the Nikkei 225 jumped 1.3 percent but the Hang Seng fell 0.7 percent.

The US stock market was boosted by the energy sector as oil surged over 2 percent.

However, Ray Dalio, co-chairman and co-chief investment officer of Bridgewater Associates, suggested that investors be “more defensive”.

Dalio said that the current economic cycle has about two years left to run, so for the stock market, the “upside looks limited”.

Dalio also said that the US tariffs on China are not “that big of a deal”.

Indeed, Andrew Kenningham, chief global economist at Capital Economics, said that the macroeconomic implications of the US-China trade conflict is likely to be limited.

Kenningham explained that “while China and the U.S. account for a combined 22% of world exports, bilateral trade between them accounts for just 3.2%”.

Tuesday, 11 September 2018

Markets rise, trade war impact on China "not significant"

Markets were mostly higher on Monday.

The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 rose 0.3 percent.

The Greater China markets, however, suffered losses, with the Hang Seng down 1.6 percent and the Shanghai Composite down 1.2 percent.

However, while China is mostly seen to be adversely affected by the ongoing trade conflict with the US, former People's Bank of China governor Zhou Xiaochuan thinks the impact on China will not be very large.

"We used a mathematical model to calculate the negative impact of the trade war. It is not very large, it is not significant. It is less than half a percent (of an) impact to the Chinese economy," said Zhou.

Also, Eric Fishwick, head of economic research at CLSA, said the trade conflict could push China to shore up both its economy and its geopolitical positioning towards winning even more global clout.

Monday, 10 September 2018

Stocks in “danger zone” or “extended meltup”?

The S&P 500 declined 1 percent last week, falling on all four trading days.

MarketWatch reported that Barry Bannister, head of institutional equity strategy at Stifel, wrote in a note that stocks are in “the danger zone” and that a bear market “within 6-12 months seems assured”.

According to Bannister, rising interest rates would be the catalyst for the bear market.

However, other analysts remain bullish.

Ed Yardeni, president of Yardeni Research Inc, told MarketWatch that “the market is still in the midst of an extended meltup”.

According to Yardeni, strong corporate earnings should help the market overcome concerns over the trade war and emerging markets.

Blackstone's investment strategist Joseph Zidle thinks there is a high probability the S&P 500 will break through 3,000 within the next couple of months, noting that “the fundamentals here are strong”.

B. Riley FBR's Arthur Hogan also sees further gains for the S&P 500. “I think technology will significantly outperform and probably be the lead sector in the S&P 500,” he said.

Saturday, 8 September 2018

Markets mixed as US employment rises amid trade war with China

Markets were mixed on Friday.

The S&P 500 fell 0.2 percent but the STOXX Europe 600 rose 0.1 percent.

Earlier in Asia, the Nikkei 225 fell 0.8 percent but the Shanghai Composite rose 0.4 percent.

A report on Friday showed that the US economy added 201,000 jobs in August, better than the downwardly-revised 147,000 in July.

However, that report was offset by news that US President Donald Trump was ready to escalate the US-China trade war by extending tariffs to virtually all Chinese imports into the United States.

Friday, 7 September 2018

Markets fall, correction “will take a long time to work through”

Markets fell on Thursday.

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

A JP Morgan team led by Marko Kolanovic, global head of macro quantitative and derivatives strategy, blamed the weakness in global markets mostly on a “risk-off” mode amid concerns about contagion from emerging markets.

Peter Kenny, market strategist at Kenny & Co, said that the decline “is very much a tech-centric reversion” and “is long overdue”. He added that the correction “will take a long time to work through”.

Indeed, strategists at Goldman Sachs have reported that its bull-bear indicator is indicating that the likelihood of a bear market occurring is at its highest point since around the mid-1970s.

Meanwhile, Gillaume Touze, CEO of Quadra Capital Partners, even suggests shorting US stocks.

“We believe that the volatility is going to very much remain,” Touze told CNBC on Thursday. “That volatility combined with political turmoil is making us overall short on the key markets, particularly the U.S. one.”

Thursday, 6 September 2018

Markets fall as US trade deficit jumps

Markets fell on Wednesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 fell 1.1 percent and the Nikkei 225 fell 0.5 percent.

Technology stocks bore the brunt of the falls. The Nasdaq Composite tumbled 1.2 percent.

“I don’t see any specific catalyst pushing tech lower, and it’s pretty quiet from the perspective of news about these stocks, which makes me think this is a classic sector rotation,” said Douglas DePietro, managing director for trading at Evercore ISI.

Trade remained a concern as a report on Wednesday showed that the US trade deficit jumped almost 10 percent in July.

David Madden, market analyst at CMC Markets UK, said that “today’s trade figures add creditability to Trump’s protectionist policies”.

Matt Miskin, market strategist at John Hancock Financial Services, still sees “further upside in stocks” but acknowledged risk from emerging market contagion.

Indeed, some analysts see the risk of a 5 percent pullback in stocks.

However, Canaccord Genuity's chief market strategist Tony Dwyer remained optimistic. “Through the year-end, we're going to have somewhere between a 5 and 10 percent gain,” he told CNBC.

Wednesday, 5 September 2018

Markets fall as volatility spikes

Markets were mostly lower on Tuesday.

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

However, the Shanghai Composite jumped 1.1 percent even as the Caixin/Market manufacturing PMI fell to 50.6 in August, its lowest level since June 2017.

Meanwhile, Brian Sozzi at TheStreet is optimistic about the US stock market, at least for September.

"While we may certainly see some profit-taking, a meltdown is unlikely given the fundamental backdrop of Corporate America," he wrote. "Stocks are soaring because profits are doing the same," he quoted Yardeni Research founder Ed Yardeni as saying.

Other investors may not share the optimism. Volatility rose on Tuesday, with the VIX jumping 9.5 percent.

"A set of reports hinting at slower economic growth, an inflation spurt, or perhaps a little of both could quickly bring a new era of failing fundamentals," Jim Paulsen of the Leuthold Group wrote in a note on Tuesday.

Tuesday, 4 September 2018

Markets mixed as trade concerns remain

Markets were mixed on Monday.

The STOXX Europe 600 rose 0.1 percent but the Nikkei 225 fell 0.7 percent. The US stock market was closed for a holiday.

Trade remained a concern after US President Donald Trump tweeted over the weekend that there “is no political necessity to keep Canada in the new NAFTA deal”.

“As we head into a new week and month, it is these concerns that will remain front and center of investors’ minds, along with increasing concerns about stability in emerging markets,” said Michael Hewson, chief market analyst at CMC Markets UK.

Similarly, Vishnu Varathan, head of economics and strategy at Mizuho Bank, said that “if Trump tightens the screws on China, (emerging markets) risks could flare up again, with EM Asia currencies perhaps bearing the brunt of the burn”.

Monday, 3 September 2018

After stock market rally in August, US face "very real" risk of slowdown

The US stock market saw its best August performance since 2014 last month, with the Dow Jones Industrial Average gaining 2.1 percent and the S&P 500 gaining 3 percent.

However, Economic Cycle Research Institute co-founder Lakshman Achuthan that a looming slowdown could cause a stock market sell-off.

"The slowdown is, I think, very real and will become more apparent in the coming months," he said. He added that during such slowdowns, "the risk, more often than not, is that you're going to see some sort of correction in the order of 10 to 20 percent".

Meanwhile, Mark Eibel, director of client investment strategies at Russell Investments, thinks that it is time to look outside the US.

"We just think it gets harder and harder from here in the U.S.," he said. "We like Europe, we like Japan," he added.

Saturday, 1 September 2018

US stocks flat amid trade tensions and emerging market turmoil

Markets were mostly lower on Friday.

The S&P 500 was flat but the STOXX Europe 600 fell 0.8 percent while the Hang Seng led Asian markets down with a 1 percent decline.

While trade tensions continued on Friday, renewed turmoil in emerging markets also caused concern.

While the US stock market may have benefitted from its safe haven status, Mark DeCambre at MarketWatch noted that US stocks and volatility have been moving in lockstep lately, and that could be an ominous sign.