Markets mixed as Fed could still “create quite a significant liquidity squeeze”

Markets were mixed on Thursday.

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

Regarding the fall in US stocks, Ryan Nauman, market strategist with Informa Financial Intelligence, said that investors could have re-evaluated just how dovish Federal Reserve chairman Jerome Powell is, noting that the “Fed could raise rates three times next year and still be within” its estimated range of a neutral rate.

David Rosenberg, Gluskin Sheff chief economist, is even more wary of the Fed, noting that its balance sheet reduction alone could have drastic implications for stocks.

“The Fed doesn't really have to do anything on rates,” he said. “Just the balance sheet alone is going to create quite a significant liquidity squeeze next year.”

US stocks surge on hopes of dovish Fed

Markets mostly rose on Wednesday.

The S&P 500 surged 2.3 percent and the Nikkei 225 rose 1.0 percent but the STOXX Europe 600 was flat.

US investors were encouraged by Federal Reserve Chairman Jerome Powell’s comment during a speech at the Economic Club of New York that interest rates are “just below the broad range of estimates of the level that would be neutral for the economy”.

Investors have been concerned that rising interest rates will put pressure on stock valuations. A MarketWatch report suggested that even after the recent declines, stocks are not cheap.

“The best we would say is that it’s less expensive than it used to be,” said Willie Delwiche, investment strategist with RW Baird. “But we still consider valuations to be a headwind for stocks.”

“In the long run, changes to multiples are almost always related to interest rates,” said Keith Wibel, president of Foothills Asset Management.

Still, Wells Fargo Securities' Christopher Harvey believes stocks are on the cusp of a sharp turnaround.

“A fair amount of value has been uncovered in the sell-off,” he said. “We think we can work higher from these levels.”

US stocks at risk of bear market and "lower returns in the next several years"

Markets were mixed on Tuesday.

The S&P 500 rose 0.3 percent and the Nikkei 225 rose 0.6 percent but the STOXX Europe 600 fell 0.3 percent.

BTIG chief equity and derivatives strategist Julisan Emanuel told CNBC on Tuesday that a full-blown economic cold war between the US and China could send stocks into a bear market.

Also on Tuesday, Vanguard Group CEO Tim Buckley told CNBC that the return of volatility is normal while Vanguard portfolio manager Gerry O'Reilly said to expect more of it.

Over the longer term, Vanguard chief investment officer Greg Davis said to "expect lower returns in the next several years" for the US stock market and expects international stocks to outperform.

Markets rise as post-Thanksgiving rally seen

Markets rose on Monday.

The S&P 500 surged 1.6 percent, the STOXXX Europe 600 jumped 1.2 percent and the Nikkei 225 rose 0.7 percent.

“All indications are that the holiday shopping sales are robust, and consumer discretionary is catching a little bit of a break today,” said Art Hogan, chief market strategist at B Riley FBR.

Seasonality could also be helping. A CNBC report said that the US stock market usually rises from Thanksgiving to Christmas.

However, non-US stocks could be even better bets.

Morgan Stanley said that it has upgraded emerging market stocks from "underweight" to "overweight" while downgrading US stocks to "underweight".

Meanwhile, Michael Brush writing at MarketWatch suggested that European bank stocks are looking attractive after having been heavily beaten down. “I think it’s a great buying opportunity,” he quoted Ian Lapey, who manages the Gabelli Global Financial Services Fund, as saying.

Are declines in stocks and oil indicating imminent recession?

Last week, the S&P 500 fell 3.8 percent, its second consecutive weekly decline. It is now in negative territory for the year-to-date.

Oil also fell. West Texas Intermediate crude fell 10.6 percent, its seventh consecutive weekly decline.

With both stocks and oil in a downtrend, is a US recession imminent? Derek Thompson at The Atlantic suggested not.

If you’re going to worry, you should worry about three things: exports, China, and maybe the looming shadow of corporate debt. But nothing in the economy seems to predict an imminent recession.

Thompson quoted Larry Kudlow, the director of the National Economic Council, on the possibility of an imminent recession.

“I’m reading some of the weirdest stuff [about] how a recession is right around the corner. Nonsense,” he said. “Recession is so far in the distance, I can’t see it.”

Not that Kudlow's remark is likely to be very useful.

In December 2007, Larry Kudlow, then a talking head for the business network CNBC, proclaimed, “There’s no recession coming. It’s not going to happen.” That same month, the economy plunged into the worst economic downturn since the Great Depression.

Stocks mixed, oil plunges

Markets were mixed on Friday.

The S&P 500 fell 0.7 percent while the Shanghai Composite plunged 2.5 percent but the STOXX Europe 600 rose 0.4 percent.

Chinese stocks fell as US-China trade tensions were fuelled by a report that the US has been trying to persuade its foreign allies to avoid using China’s Huawei Technologies Co.’s telecoms equipment because of security concerns just ahead of next week's trade talks between the two countries.

“The trade tension story has moved past the point of a quick resolution,” said Jasper Lawler, head of research at London Capital Group. “We expect this risk to continue to be a theme in 2019 which will continue to weigh on appetite for riskier assets.”

Oil fell sharply. West Texas Intermediate crude plunged 7.7 percent and Brent tumbled 6.1 percent.

“The market continues to be worried about slowing global growth,” said Karyn Cavanaugh, senior market strategist at Voya.

However, Cavanaugh thinks the US economy remains healthy and that consumers are “out there spending money”.

Markets mixed amid waning impact of US stimulus and "serious issues" in Europe

Markets were mixed on Thursday.

The STOXX Europe 600 fell 0.7 percent but the Nikkei 225 rose 0.6 percent. The US stock market was closed for a holiday.

Daniel Gradwell from ANZ Research noted that "sentiment remains fragile".

"There seems a greater appreciation that with the impact of US fiscal stimulus waning, the US economy could slow like other major economies have," he wrote in a note. "That leaves the market less forgiving of poor news."

Indeed, some analysts suggested that the US stock market's failure to sustain its rally through Wednesday could signal another wave of selling.

"I think it's a fake out, rather than a break out," said Samuel Stovall, chief investment strategist at CFRA.

Meanwhile, Naeem Aslam writing at Forbes said that in Europe, there are some serious issues that suggest that the stock market downtrend "may continue its downtrend till the end of the year and this can spill into Q1 of next year".

Markets rebound amid “promising signs” of bottom

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.3 percent and the STOXX Europe 600 rose 1 percent. However, the Nikkei 225 fell 0.4 percent.

A report on Wednesday showed that orders for US durable goods fell 4.4 percent in October.

Neverthless, Kevin Divney, senior portfolio manager at Russell Investments, said “we don’t see a broad, systemic reason why the market has been selling off” and “we expect to continue to see stock-specific buyers out there, taking advantage of compressed valuations”.

Tom Essaye, president of the Sevens Report, wrote in a note that “yesterday had some of what we look for when trying to identify selling capitulation”.

Similarly, Andrew Adams, analyst at Raymond James, pointed to a host of other observations that he said offer “promising signs that have prevented us from losing all hope” that the market has bottomed.

In contrast, Jeffrey Gundlach, founder of DoubleLine Capital, said: “We don’t have anything resembling a panic low ... which means stocks have further to go.”

Morgan Stanley: Bear market sign irrefutable

Markets fell sharply on Tuesday.

The S&P 500 plunged 1.8 percent, the STOXX Europe 600 fell 1.1 percent and the Nikkei 225 fell 1.1 percent.

Oil fell. West Texas Intermediate crude plunged 6.6 percent while Brent fell 6.4 percent.

“The broader financial market complex was roiled by weakness in tech stocks and the seemingly hard-to-bridge rift between the U.S. and China, at least as far as trade is concerned,” said consulting firm JBC Energy.

Morgan Stanley thinks that the US stock market is now in a bear market.

“The technical damage is irrefutable,” wrote the bank’s analysts.

US stocks plunge with homebuilder confidence

Markets mostly fell on Monday.

The S&P 500 plunged 1.7 percent while the STOXX Europe 600 fell 0.7 percent.

Earlier on Monday, the Nikkei 225 had risen 0.7 percent.

“Trade war concerns with China weigh on the global supply chain for large technology companies while global growth fears worry many that future earnings will be lower,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, in a research note.

“Today’s housing data was pretty bad,” said Jim Smigiel, chief investment officer of non-traditional strategies at SEI Investments, referring to a report that showed that the National Association of Home Builders’ monthly confidence index plunged eight points to 60 in November.

Jefferies economists are sanguine though, writing after the NAHB release that housing “appears to be settling into a plateau”, with “no signs of threatening excesses such as inventory overhangs and a surge in delinquencies”.

US investors ignoring strong earnings

The S&P 500 fell 1.6 percent last week.

The US stock market has been falling despite strong earnings growth. According to a MarketWatch report, earnings for S&P 500 companies grew by 25.8 percent in the third quarter, the strongest performance since the third quarter of 2010.

However, from the start of earnings season to the close of trade last Friday, the S&P 500 has fallen 2.7 percent.

“Wall Street doesn’t care what you’ve done in the past. It’s all about what you’re going to do next quarter,” said Michael Arone, chief investment strategist at State Street Global Advisors.

“The market knows that earnings growth has peaked, and so earnings growth can’t be a reason any longer to ignore the macro picture,” said Tom Essaye, president of the Sevens Report.

Indeed, Bert Dohmen, president of Dohmen Capital Research, suggested in a Forbes article that central bank tightening and stock market overvaluation could push stocks down as much as 35-40 percent just to “normalize”.

Markets mixed, oil steady as “negative news priced in”

Markets were mixed on Friday.

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

Earlier in Asia, the Nikkei 225 fell 0.6 percent but the Shanghai Composite rose 0.4 percent.

Oil was steady, with West Texas Intermediate crude unchanged and Brent gaining 0.2 percent.

The Energy Information Administration had reported on Thursday that US crude supplies rose by 10.3 million barrels for the week ended 9 November, an eighth consecutive increase.

“Price reaction to the U.S. inventory data shows that negative news is now largely priced in,” said Carsten Fritsch and the commodities team at Commerzbank in a note.

Markets mixed amid concerns over trade tension and Brexit

Markets were mixed on Thursday.

The S&P 500 jumped 1.1 percent to end a five-day losing streak but the STOXX Europe 600 tumbled 1.1 percent. Earlier in Asia, the Nikkei 225 fell 0.2 percent but the Shanghai Composite jumped 1.4 percent.

Despite the rebound in US stocks, some analysts see continued headwinds for the market.

Lindsay Bell, investment strategist at CFRA, said that concerns over US-China trade tensions “will continue to intensify as we grow closer to January, when tariffs will jump from 10% to 25%”.

Mark Esposito, president of Esposito Securities, said that the UK's exit from the European Union is having second-order effects on the US economy. “Brexit doesn’t help the European economy, and it’s helping to drive up the dollar, which weighs on earnings and means fewer people will come here to buy our goods,” he said.

Stocks fall but oil rises as “macro demand concerns likely overdone”

Markets fell on Wednesday.

The S&P 500 fell 0.8 percent and the STOXX Europe 600 plunged 2.2 percent. Earlier in Asia, the Nikkei 225 rose 0.2 percent but the Shanghai Composite fell 0.9 percent.

Oil prices stabilised though, with West Texas Intermediate crude rising 1 percent to end a 12-session losing streak.

Jeffrey Currie and the commodities team at Goldman Sachs wrote in a note that “the macro demand concerns from October were likely overdone”.

Nevertheless, Jameel Ahmad, global head of currency strategy & market research at FXTM, said that “traders are waking up to the significant threat that slowing global growth in 2019 will weaken demand for commodities like oil”.

While oil's gain provided some relief for stocks on Wednesday, the stock market is still experiencing “a continuation of the selling pressure that began in early October”, according to Robert Pavlik, chief investment strategist at SlateStone Wealth.

“We're still working through this corrective phase a little bit and I think that could take some time,” said Jeffrey Mills, co-chief investment strategist at PNC Financial Services Group.

Oil plunges, Goldman bear market indicator flashes red

Markets were mixed on Tuesday.

The S&P 500 fell 0.2 percent while the STOXX Europe 600 rose 0.7 percent. Earlier in Asia, the Nikkei 225 plunged 2.1 percent but the Shanghai Composite rose 0.9 percent.

Oil fell, with West Texas Intermediate crude plunging 7.1 percent.

“The topside optimism the markets experienced after getting through the US midterms relatively unscathed has quickly reverted back to concern over trade issues between the US and China and the affect that tariffs and protectionist policies have had on overall global growth,” said Rakuten Securities Australia in a note.

“The real struggle for equity prices now are the highly visible potential for policy errors,” said Eric Wiegand, senior portfolio manager at US Bank.

Bob Doll, Nuveen Asset Management's chief equity strategist and senior portfolio manager, noted that stocks have yet to successfully retest the October lows.

“I don't think we're going to see a new high this year,” he said. “We're going to bounce around with a lot of side-wise volatility.”

Meanwhile, Goldman Sach's bear market indicator is "flashing red". Goldman chief global equity strategist Peter Oppenheimer said that the indicator is at a level where historically, “a correction followed by a rally is more likely to be followed by a bear market than when these indicators are low”.

“We remain bearish, as investor positioning does not yet signal 'The Big Low' in asset markets,” said Michael Hartnett, BofAML's chief investment strategist, in a statement.

However, the November BofAML fund manager survey indicated some optimism, with cash balances falling from 5.1 percent of portfolios to 4.7 percent.

Markets fall, oil in record losing streak

Markets mostly fell on Monday.

The S&P 500 plunged 2.0 percent while the STOXX Europe 600 fell 1.0 percent. Asian markets had risen earlier in the day.

Oil fell on Monday even after Saudi Arabia said over the weekend that it would cut its oil production. West Texas Intermediate crude fell for the 11th consecutive session, its longest losing run on record.

Michael Schoonover, portfolio manager at Catalyst Funds, said that “we are seeing the inevitable repricing of stocks that were artificially boosted by flows into passive, low-fee products”.

Craig Callahan, president and founder of Icon Advisors, said oil’s bear market has weighed heavily on the market in general, but that has created buying opportunities for value investors. “I’m considering adding to my holdings in the energy sector,” he said.

“Inevitable” China recession to hit rest of world

Kenneth Rogoff, professor of economics and public policy at Harvard University and former chief economist of the International Monetary Fund, wrote last week that a growth recession in China is inevitable and that it is likely to have a major global impact.

“A recession in China, amplified by a financial crisis, would constitute the third leg of the debt supercycle that began in the US in 2008 and moved to Europe in 2010,” he wrote.

Rogoff added that “a Chinese slowdown that spreads across Asia could paradoxically lead to higher interest rates elsewhere”.

In the US, this could “cause debt service to crowd out needed expenditures in other areas”.

Dick Bove, chief financial strategist at Rafferty Capital Markets, also said last week that higher interest rates could cause a recession in the US, but suggested that it would be mainly due to the Federal Reserve's interest rate hikes.

However, Sri Kumar, president of Sri-Kumar Global Strategies, said that it is too late for the Fed to change course. “It is already baked in in terms of the future outlook of the economy,” he said.

“The Chinese developments with respect to debt, with respect to the trade war, are going to have a much bigger impact on 2019 than the Fed anticipates,“ he said.

Stocks fall, oil in bear market

Markets fell on Friday.

The S&P 500 fell 0.9 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 1.1 percent.

“Though the mid-term elections are over, worries that the U.S.-China trade war will drag on for the long term are lingering,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Oil fell. West Texas Intermediate crude fell 1.7 percent, its ninth consecutive decline, leaving it 20.6 percent below its recent peak and in bear market territory.

“Oil being down could be a sign that the global economy is in a tough spot,” said Willie Delwiche, investment strategist at RW Baird.

And it is not just oil. Gasoline, copper and platinum have also been declining.

“When you get these signals, it's hard to see equities continue to move up on their own,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies.

Markets mixed as Fed leaves rates unchanged

Markets were mixed on Thursday.

The S&P 500 fell 0.3 percent while the STOXX Europe 600 rose 0.2 percent. Earlier in Asia, the NIkkei 225 surged 1.8 percent but the Shanghai Composite fell 0.2 percent.

The Federal Reserve left interest rates unchanged at its monetary policy meeting on Thursday.

Charlie Ripley, senior investment strategist at Allianz Investment Management, called the Fed meeting a “non-event”.

Meanwhile, Michael O’Rourke, chief market strategist at JonesTrading, said that the Wednesday rally “has the hallmarks of bear-market rally­­­ — a strong move on light volume thanks to a hollow catalyst”. “Other market headwinds will be reasserting themselves soon enough,” he said.

William Watts at MarketWatch suggested that the “smart money” is not buying into the rally in November.

Watts cited analyst Brian Reynolds of Canaccord Genuity as saying that the so-called smart index, which compares stock-market flows in the first half-hour of trade versus flows in the last half-hour, remains weak and indicates “a retest of the recent lows before stock prices fully regain their uptrend”.

Markets rise after US elections leave Congress divided

Markets were mostly higher on Wednesday.

The S&P 500 surged 2.1 percent and the STOXX Europe 600 rose 1.1 percent but the Nikkei 225 fell 0.3 percent.

US stocks rose after midterm election results showed the Democratic party gaining control of the House of Representatives even as the Republican party strengthened its grip on the Senate, leaving a divided Congress.

Mark Decambre at MarketWatch looked at the ways that the election results may affect markets.

Markets mixed but “to head higher into early next year”

Markets were mixed on Tuesday.

The S&P 500 rose 0.6 percent but the STOXX Europe 600 fell 0.3 percent.

Earlier in Asia, the Nikkei 225 jumped 1.1 percent but the Shanghai Composite fell 0.4 percent.

Some analysts see optimistic signals in the charts.

John Kosar, the chief market strategist at Asbury Research, said an increase of put option volume compared with call option volume is reversing from a level that indicates maximum bearishness to one that represents a more upbeat outlook for US stocks.

According to Kosar, this is one of the clearest signals that a bottom in the market has been achieved.

Jonas Elmerraji said that negative Octobers tend to be followed by big rallies in the months that followed, so last month's selloff “could actually set the stage for a path to new highs in the months ahead”.

Similarly, JP Morgan's head of global fixed income and U.S. equity technical strategy Jason Hunter said “this is a late-cycle correction and not a bear market” and is “confident that the market is going to head higher into early next year”.

Global stocks face bear market risk as Fed drains balance sheet

Markets were mixed on Monday.

The S&P 500 rose 0.6 percent but the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 plunged 1.5 percent.

“Investors face a wall of worry,” said Peter Bye, portfolio manager at UBS Asset Management, who noted “increasing evidence of pressure on tech leaders”.

Meanwhile, Richard Suttmeier wrote that the stock market will not rally for long with the Federal Reserve cutting its blance sheet.

“Between October 26 and November 2, the yield on the 10-year note rose from 3.06% to 3.224% as the Federal Reserve drained a massive $33 billion off its balance sheet,” he said. “Another $50 billion is scheduled to be the reduction each month through the year 2020. This risks a bear market for stocks around the globe.”

Hussman: October decline a mild warning shot

Last week, the S&P 500 rose 2.4 percent, rebounding after recent declines and sending it back into positive territory for 2018.

However, John Hussman does not think the worst is over. In his latest article, he wrote: “Let’s be clear. October’s market decline was a rather mild warning shot.”

“The advance of recent years has produced a toxic combination of extreme valuations in every conventional asset class, coupled with a breathtaking mountain of low-grade debt issued by Wall Street...to satisfy the yield-seeking speculative demand of investors,” he said.

For US stocks in particular, Hussman said that valuations based on “our Margin-Adjusted CAPE, which is substantially better correlated with actual subsequent market returns than Robert Shiller’s raw cyclically-adjusted P/E...have retreated only to the level they reached in November 2017, matched in history only by the 3 weeks surrounding the 1929 market peak”.

While valuations are informative about long-term returns but less so about short term trends, Hussman also noted that market internals, a measure of investor inclination towards speculation or risk-aversion, “shifted to a negative condition on February 2, and have remained unfavorable since then”.

“Presently, neither valuations nor internals are favorable, and that is what opens up a trap door under the market,” he said.

“Over the completion of the current market cycle, I fully expect the S&P 500 to lose close to two-thirds of its value from the recent peak,” he warned.

US stocks fall as trade concerns return

Markets were mixed on Friday.

The Nikkei 225 soared 2.6 percent and the STOXX Europe 600 rose 0.3 percent but the S&P 500 fell 0.6 percent.

US stocks fell after President Donald Trump's top economic adviser, Larry Kudlow, said the US and China were a long way from reaching a trade deal.

“If the two largest economies in the world can’t agree on trade policy, that’s not great for markets,” said Thomas Hainlin, global investment strategist with US Bank.

A report on Friday showed that the US economy added 250,000 new jobs in October.

“This is a great jobs report,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.

The jobs report also showed that year-over-year wage gains rose to 3.1 percent from 2.8 percent, which could fuel inflation concerns.

The US 10-year Treasury yield rose to 3.22 percent after the report.

US stocks jump as manufacturing index falls

Markets were mostly higher on Thursday.

The S&P 500 jumped 1.1 percent and the STOXX Europe 600 rose 0.4 percent. However, the Nikkei 225 fell 1.1 percent.

Jeff Carbone, co-founder of Cornerstone Wealth Group, said that “we’re seeing a bottoming process”.

“White House economic adviser Kudlow said that more tariffs on China are not ‘set in stone’, which may have boosted somewhat further market sentiment,” wrote Charalambos Pissouros, senior market analyst at brokerage and investment firm JFD Brokers, in a note.

A report in the US on Thursday showed that the ISM manufacturing index fell to a six-month low of 57.7 in October from 59.8 in September.

CNBC's Jim Cramer thinks that a slowdown in manufacturing growth could lead the Federal Reserve to pause its interest rate hikes.

“I've been saying that we need to see the Fed or the president blink in their respective battles against inflation and China. Neither one blinked today, but ... we got a glimpse of how things could go right and it sent stocks flying,” said Cramer.

“Massively oversold” stocks rebound but trend seen “terrible”

Markets rose sharply on Wednesday.

The S&P 500 rose 1.1 percent, the STOXX Europe 600 jumped 1.7 percent and the Nikkei 225 surged 2.2 percent.

Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company, said that “we’re back to looking at the fundamentals, which are very attractive”.

Tom Essaye, president of the Sevens Report, said that the “shock of last week’s earnings disappointment is behind us”.

Tom Lee, managing partner at Fundstrat Global Advisors, said that “we are massively oversold” and that “we would be aggressive buyers”.

Martin Fridson, chief investment officer of Lehmann Livian Fridson Advisors, noted that the high-yield bond market is not showing signs of cracking.

“Perhaps the high-yield market did not pick up recessionary vibes sooner than the stock market did because there were no such vibes,” said Fridson.

However, Jeff deGraaf, chairman of research firm Renaissance Macro Research, called the stock market rebound “uninspiring”.

“These are bounces in terrible trends, and are high probability failures in the near-term, but whether days or weeks is hard to say,” he said.