Saturday, 30 March 2019

Markets rise after “constructive” US-China talks but no-deal Brexit now “likely”

Markets rose on Friday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 rose 0.6 percent, the Nikkei 225 rose 0.8 percent and the Shanghai Composite surged 3.2 percent.

Stocks received a boost from apparent progress in US-China trade talks after a Friday tweet by US Treasury Secretary Steven Mnuchin mentioned discussions as being “constructive”.

However, a chaotic withdrawal from the EU by the UK remained a concern after British Prime Minister Theresa May lost another crucial Brexit vote in Parliament on Friday.

A statement from the European Commission said that a no-deal Brexit on 12 April was now “likely”.

Friday, 29 March 2019

Markets mixed as hope of US-China trade deal offset by lowered US GDP growth

Markets were mixed on Thursday.

The S&P 500 rose 0.4 percent but the STOXX Europe 600 slipped 0.1 percent and the Nikkei 225 tumbled 1.6 percent.

Reports of unprecedented proposals by China to resolve its trade dispute with the US were offset by the final reading of US fourth quarter GDP growth, which was lowered to a 2.2 percent rate from a previously-estimated 2.6 percent.

Meanwhile, Ryan Nauman, market strategist with Informa Financial Intelligence, said that “a trade deal is mostly baked into the prices, which is a bit scary because the longer this drags on without a concrete deal, it will create growing angst”.

Regarding the GDP number, Mike Loewengart, vice president of investment strategy at E-Trade Financial Corp., said that while it may be seen as confirming that the economy is headed to the end of the business cycle, “there are a fair amount of positive indicators out pump some confidence back into the market”.

Thursday, 28 March 2019

Stocks “increasingly range bound and volatile”

Markets were mostly lower on Wednesday.

The S&P 500 fell 0.5 percent and the Nikkei 225 fell 0.2 percent. The STOXX Europe 600 closed little changed.

“We think there is very strong support somewhere in the 2,700 range for the S&P 500, but we think the upside is somewhat capped until uncertainties like the China trade situation and Brexit are resolved,” said Carlos Dominguez, chief investment officer at Element Pointe Advisors.

Similarly, Alec Young, managing director of global markets research at FTSE Russell, said that stocks are “increasingly range bound and volatile”.

Esty Dwek, senior investment strategist at Natixis Investment Managers, said in a Tuesday note that the risk of a US recession “has increased” but “we still do not expect a US or global recession in 2019” and “continue to expect risk assets to grind higher in the coming months, though not at the January pace”.

Wednesday, 27 March 2019

Markets rise but may be “due a correction”

Markets rose on Tuesday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 rose 0.8 percent and the Nikkei 225 surged 2.2 percent.

Despite the gains on Tuesday, some analysts remain cautious.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, wrote that stocks “are due a correction or pullback after rallying strongly since their December lows and worries about inverted yields curves and the growth outlook could provide the trigger”.

Jeffrey Saut, chief investment strategist at Raymond James, wrote that “the short-term work suggests a continuation of a stall for the equity markets with no big downside move provided there is not a ‘black swan’ news event”.

Both Oliver and Saut think that longer-term prospects are good though.

Oliver said that "we continue to see this being a reasonably good year for shares" while Saut said that there is “plenty of internal energy for the stock market on a monthly, or intermediate-term basis”.

Tuesday, 26 March 2019

Markets fall, "Fed's tightening cycle finished"

Markets fell on Monday.

The S&P 500 fell 0.1 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 plunged 3.0 percent.

A special counsel investigation into possible Russian collusion in US President Donald Trump's 2016 campaign has failed to find enough evidence of it.

"This cloud has now dissipated and this should allow markets to breathe a sigh of relief," said Jeff Kilburg, CEO of KKM Financial.

However, markets are not out of the woods.

"The positive effect on the market will be obscured, however, by the recent ugly economic news that made the Fed cave and inverted the yield curve," said John Rutledge, chief investment officer at Safanad.

The US 10-year Treasury yield fell on Monday to its lowest level since December 2017.

Strategists at the Commonwealth Bank of Australia said that "the inversion of the tens‑bills curve is an ominous sign" and while they did not predict a US recession, they concluded that "the Fed's tightening cycle is finished".

Monday, 25 March 2019

US yield curve inverts but maybe not yet time to panic

The US yield curve has inverted and some analysts think that is a signal for a recession.

“Yield curves are responding to what they see, to what I believe is a global economic slowdown,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “You don't see this kind of move in curves, not just here but everywhere, unless you get one.”

David Rosenberg, chief economist and strategist at Gluskin Sheff, said that “it would be foolish to disregard this bond curve move entirely”. He also noted that the real yield on a 10-year note has collapsed to a 14-month low of 0.56 percent, lower than during the 2008/09 Great Recession.

Nevertheless, Ed Yardeni of Yardeni Research thinks that it is likely that “the yield curve is signaling weak global economic growth and low inflation without necessarily implying a recession in the US”.

Also, history suggests that it is not time for stock investors to panic.

According to a Credit Suisse analysis last year, stocks rose about 15 percent on average in the 18 months following inversions and tends to turn only about 24 months after the yield curve inverts.

Saturday, 23 March 2019

Markets fall as purchasing managers indices show further slowdown

Markets were mostly lower on Friday.

The S&P 500 plunged 1.9 percent while the STOXX Europe 600 tumbled 1.2 percent.

Earlier in Asia, markets were marginally higher.

Sentiment was dented by flash readings on purchasing managers indices showing further slowdown in the US and Europe.

IHS Markit’s US manufacturing index fell to 52.5 in March from 53.0 in February while the services PMI fell to 54.8 from 56.0.

In Europe, Markit’s composite PMI for the eurozone fell to 51.3 from 51.9. In particular, Germany’s manufacturing PMI fell to 44.7 while France’s composite PMI fell to 48.7

The 10-year US Treasury yield fell nearly ten basis points, causing the spread between it and the 3-month Treasury bill yield to turn negative for the first time since 2007.

Kevin Giddis, head of fixed income capital markets at Raymond James, noted that the Fed Funds Futures Probability Index is pointing to increasing odds of a rate cut as the year progresses.

Friday, 22 March 2019

Markets rise as analysts see Fed's dovish turn as “here to stay”

Markets mostly rose on Thursday.

The S&P 500 rose 1.1 percent and the Nikkei 225 rose 0.2 percent but the STOXX Europe 600 was flat.

The Federal Reserve's decision to leave interest rates unchanged and indication that they will likely remain unchanged for the rest of the year continued to be a focus of attention.

“U.S. data this morning was strong and will like [sic] fuel the fire that is questioning the Fed’s dovish commitment,” said Edward Moya, market analyst with Oanda.

In the meantime, though, that dovish turn appears to be fuelling the rally in markets.

“After this week's Fed meeting, it is clear that the dovish turn is here to stay, and this should be a sustained tailwind for risky assets,” said Marko Kolanovic, global head of quantitative and derivatives strategy at JP Morgan.

Thursday, 21 March 2019

Fed signals no further rate hikes in 2019 as others fear recession and credit bubble

Most markets fell on Wednesday.

The S&P 500 fell 0.3 percent and the STOXX Europe 600 fell 0.9 percent.

In Asia, the Nikkei 225 rose 0.2 percent but the MSCI Asia ex-Japan index fell 0.1 percent.

The Federal Reserve ended its monetary policy by leaving interest rates unchanged and indicated no further rate hikes this year.

Indeed, US business leaders are turning downbeat on prospects.

Last week, research firm Gartner suggested that top US business leaders are “bracing for a recession” based on its study of all the recent fourth-quarter corporate results announcements.

On Wednesday, top US CEOs in the Business Roundtable reported that their economic outlook weakened in the first three months of the year.

John Mauldin warned that if the US falls into a recession, a credit bubble will explode.

Still, despite a sharp decline, the Business Roundtable's economic outlook index for the January-March quarter remained far above its historical average.

And Oxford Economics suggested in a Wednesday note that “2018's bad news...have reversed in the Q1 2019” and that “the worst is behind us”.

Wednesday, 20 March 2019

Markets little changed as US-China trade progress and stable Fed rates “priced in”

Markets were mostly relatively little-changed on Tuesday.

The S&P 500 was flat and the Nikkei 225 dipped 0.1 percent but the STOXX Europe 600 rose 0.6 percent.

Market sentiment may have been affected by a report that China is pushing back against US demands for concessions in bilateral trade talks.

The Federal Reserve also began a two-day policy meeting which will conclude on Wednesday.

Cliff Hodge, director of investments for Cornerstone Wealth, thinks that “positive developments on trade, and a Fed on hold...are priced in”.

“If something were to change on either front, it would open up the markets to increased volatility in the days and weeks ahead,” he said.

“It’s been a fairly stable trading environment, as the market has largely built in expectations that we’ll get some kind of deal with China and it isn’t anticipating any changes to interest-rate policy from the Fed,” said Patrick Healey, president of Caliber Financial Partners.

Still, concerns over global economic growth will linger, especially after FedEx reported declining international revenue after the closing bell on Tuesday.

Tuesday, 19 March 2019

Markets rise as Fed seen on pause

Markets rose on Monday.

The S&P 500 rose 0.4 percent and the STOXX Europe 600 rose 0.3 percent.

Earlier in Asia, the Nikkei 225 rose 0.6 percent while the Shanghai Composite surged 2.5 percent.

Many analysts attribute the continuing rally in stocks to reluctance by central banks to unwind easy-money monetary policies.

“The Fed is on pause,” said Ryan Detrick, senior market strategist for LPL Financial.

Jamie Cox, a managing partner at Harris Financial Group, said recent data “is indicative of a slowdown — a large reason why the Fed has backed off its tightening stance”. He added that that could set “2019 to be quite bullish”.

In contrast, Mike Wilson, equity strategist at Morgan Stanley, sees headwinds for the stock market.

Wilson noted that “the higher level of rates is already having an effect on the more interest rate sensitive sectors of the economy”, which he thinks is running at or beyond its capacity.

Monday, 18 March 2019

The Debt Shift Theory and the housing bubble

While many investors are celebrating the tenth anniversary of the bull market in stocks, real estate agent John Wake suggested last week that a shift in the kind of loans that banks made was the cause of the housing bubble.

The Debt Shift Theory says that the removal of central bank credit guidance policies in the 1980s and 1990s led to a large shift in lending toward pre-existing assets which lead to a large shift in debt toward real estate and financial asset purchases. The shift in debt had impacts on real estate and financial asset prices, price instability, expenditures on goods and services, labor productivity, wage growth, income inequality and was the root cause of the Great Financial Crisis.

Saturday, 16 March 2019

S&P 500 hits five-month high, economic data turning positive

Markets rose on Friday.

The S&P 500 rose 0.5 percent to close at a five-month high.

Elsewhere, the STOXX Europe 600 rose 0.7 percent and the Nikkei 225 rose 0.8 percent.

“You’re seeing smaller cap companies do well, which indicates a risk-on mood on Wall Street,” said Brent Schutte, chief investment strategist at Northwestern Mutual Asset Management.

Investors may also have noted comments from Chinese Premier Li Keqiang expressing optimism that a trade deal between China and the US can be achieved that suits both parties.

Meanwhile, Adam Cole, chief currency strategist at RBC Capital Markets, noted that after a long stretch of ugly readings from Europe and lackluster figures elsewhere, economic surprises over a four-week window have turned slightly positive for the first time since October.

Friday, 15 March 2019

Markets mixed as UK seeks Brexit delay

Markets were mixed on Thursday.

The S&P 500 fell 0.1 percent, the STOXX Europe 600 rose 0.8 percent and the Nikkei 225 was flat.

In the UK, Parliament voted to request an extension of the 29 March Brexit deadline to 30 June if lawmakers can agree to a withdrawal deal by 20 March.

Health Secretary Matthew Hancock said it would be "extremely difficult" but "still possible to deliver Brexit on 29 March with a deal".

He said there were now two options: "To vote for the deal and leave in orderly way or a long delay and I think that would be a disaster."

In the US, sales of new homes dropped almost 7 percent in January but Sal Guatieri, senior economist at BMO Capital Markets, said that “housing demand should pick up in coming months in response to the recent decline in mortgage rates”.

Thursday, 14 March 2019

Markets mixed as UK Parliament rejects no-deal Brexit

Markets were mixed on Wednesday.

The S&P 500 rose 0.7 percent and the STOXX Europe 600 rose 0.6 percent. However, the Nikkei 225 fell 1.0 percent.

As expected, the UK Parliament on Wednesday voted against a no-deal, hard Brexit. It will vote today on whether to request an extension to the March 29 deadline to reach a trade agreement with the European Union.

In the US, durable goods orders showed an increase in January, leading Michael Pearce, senior US economist at Capital Economics, to suggest that the “slowdown won’t be as sharp as signaled by some of the incoming survey evidence”.

Wednesday, 13 March 2019

Markets mixed, Brexit in focus

Markets were mostly higher on Tuesday.

The S&P 500 rose 0.3 percent and the Nikkei 225 surged 1.8 percent. However, the STOXX Europe 600 finished marginally lower.

The UK's impending exit from the European Union was a focus of attention. While investors were initially encouraged by UK Prime Minister Theresa May and EU leaders reaching a deal on Brexit on Monday, the deal was subsequently rejected by the UK Parliament on Tuesday.

In the US, Boeing sank 6.2 percent after several aviation regulators decided to ground its 737 Max aircraft but gains in healthcare and utility stocks kept the overall market up.

Tuesday, 12 March 2019

Markets rise but downward earnings revisions pose risk

Markets rose on Monday.

The S&P 500 snapped a five-day losing streak, jumping 1.5 percent. Earlier in the day, the Shanghai Composite surged 1.9 percent and the STOXX Europe 600 rose 0.8 percent.

Federal Reserve Chairman Jerome Powell said in an interview on Sunday that “there is no reason why this economy cannot continue to expand”. Indeed, a report on Monday showed that US retail sales rose 0.2 percent in January.

Still, Morgan Stanley's chief US equity strategist, Michael Wilson, said in a note that there is more downside risk ahead for investors.

“Earnings revision breadth has been some of the worst we have ever witnessed with both sales and margin guidance coming down across all sectors,” he said. “We think it is likely this gets worse before it gets better given the downward adjustment to earnings forecasts we expect.”

Monday, 11 March 2019

Market declines largely “sentiment-driven” but fear could turn self-fulfilling

The S&P 500 fell 2.2 percent last week after a five-day losing streak.

Some analysts think that slowing global growth will weigh on markets.

Hubert de Barochez, economist at Capital Economics, noted that the weak employment report on Friday “provides further evidence that the U.S. economy is starting to falter”.

He added that “with growth elsewhere also likely to remain weak, we think that equities in the U.S. will fall this year, dragging down most stock markets across the globe”.

However, other analysts remain sanguine.

Candice Bangsund, portfolio manager at Montreal-based Fiera Capital, suggested that the deterioration in economic momentum seen in early 2019 has been largely “sentiment-driven”.

“Our expectation is that global growth is going to find a bottom here in the first half of 2019 and reaccelerate,” she said.

Putri Pascualy, managing director at Paamco, said that the global economy is still growing and suggested that “this is more of an issue that there’s nothing to fear but fear itself”.

Still, Yale University economics professor and Nobel laureate Robert Shiller suggested that that fear could be self-fulfilling.

“A lot of people have that on their mind, and they think it's got to turn soon. I'm kind of with that. You know, if people think that, they're going to make it happen,” he said on CNBC last week.

Saturday, 9 March 2019

Markets fall amid weak economic data

Markets fell on Friday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 fell 0.9 percent.

The biggest declines, however, were in Asia. The Nikkei 225 tumbled 2.0 percent and the Shanghai Composite plunged 4.4 percent after customs data on Friday showed that dollar-denominated exports for China fell 20.7 percent for the month of February from a year ago.

To add to global growth concerns, the US Labor Department reported that the economy gained just 20,000 new jobs in February while Germany reported that manufacturing orders fell 2.6 percent in January just a day after the European Central Bank cut its growth forecast and launched new measures to stimulate the eurozone economy.

“Job growth is slowing, no doubt about that,” said JJ Kinahan, chief market strategist at TD Ameritrade.

Kinahan also noted that markets experienced a greater decline following news of weak Chinese exports. “This reaffirms that the central story for markets is tariffs and slowing global growth.”

Thursday, 7 March 2019

US stocks fall, “no longer in a bull market”

Markets were mostly lower on Wednesday.

The S&P 500 fell 0.7 percent and the Nikkei 225 fell 0.6 percent. The STOXX Europe 600 was flat while the Shanghai Composite jumped 1.6 percent.

“Investors are recognizing that the market has risen dramatically since Christmas Eve, and they are using this opportunity to rebalance their portfolios,” said Michael Reynolds, an investment strategy analyst at Glenmede.

Some investors celebrated the bull market's tenth anniversary on Wednesday, noting that the S&P 500 dropped to 666 in intraday trading ten years ago, from which the current bull market started.

However, Steven Jon Kaplan of True Contrarian said this is a “fake” anniversary. “We are no longer in a bull market, we peaked last summer,” he said.

Wednesday, 6 March 2019

Markets mixed amid “obscene valuations”

Markets were mixed on Tuesday.

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

Earlier in Asia, the Nikkei 225 fell 0.4 percent but the Shanghai Composite rose 0.9 percent.

“With the market up as much as it is, I don’t think investors are in a rush to commit a lot of new capital unless they see events that would cause them to think we have another leg up ahead,” said Rick Meckler, partner at Cherry Lane Investments.

Indeed, John Hussman remains relatively pessimistic.

Hussman wrote that “our near-term market outlook is fairly neutral” as “our measures of market internals are now close to a threshold that could encourage speculators to take the bit in their teeth again, at least briefly”.

However, “with obscene valuations, deterioration in our leading economic measures, a clear and widely overlooked spike in inflationary expectations reflected in inflation-protected securities and commodities, still-muted participation in the broad market, and other factors, we aren’t inclined toward a constructive outlook either”.

Tuesday, 5 March 2019

High stocks prices “a headwind” but “current bounce is far from done”

Markets were mixed on Monday.

The S&P 500 fell 0.4 percent but the STOXX Europe 600 rose 0.2 percent and the Shanghai Composite jumped 1.1 percent.

“I think the market was and is significantly overbought,” said Larry Benedict, CEO of the Opportunistic Trader.

John Vail, chief global strategist at Nikko Asset Management, said that while markets “have firmed on news that the U.S.-China deal is really close”, the gains over the past two months has made high stock prices “a headwind” going forward.

Still, many analysts remain optimistic.

Strategist at JPMorgan Chase & Co wrote in a report released on Monday that “the current market backdrop has similarities to ’15-’16 mid cycle correction episode, and not to the end of the cycle”.

They concluded that “the current bounce is far from done and we believe equities could potentially make new highs for the cycle before the next recession starts”.

Analysts at Deutsche Bank noted that besides the Federal Reserve's dovish turn and hopes of a trade deal between the US and China, there are three other reasons to be bullish on stocks.

“Rising yields should prompt a rotation away from bond funds and into equities,” they said.

“The pace of buyback announcements has picked up again over the last 3 months,” they said.

“The latest global manufacturing PMI suggests that growth in the rest of the world, which had been declining persistently since early 2018 may be bottoming,” the analysts said.

Monday, 4 March 2019

Stocks in historically “second strongest month” but “no longer cheap”

The S&P 500 rose 0.4 percent last week, in the process finishing above 2,800 for the first time in nearly four months.

Some analysts see more gains for stocks for the month.

“History would say that we won’t get a massive pullback; over the past 20 years, March has been the second strongest month for stocks,” said Ryan Detrick, senior market strategist at LPL Financial.

However, Erik Ristuben, chief investment strategist at Russell Investments, said: “I’m not sure there is a catalyst to push stocks higher in March.”

Tom Martin, senior portfolio manager with Globalt Investments, said: “Stocks are no longer cheap.”

Shawn Tully at Fortune wrote: “The combination of the decline in projected profits and the S&P’s two-month sprint has lifted the forward P/E from that 15.1 at the start of the year to 17.7, a rise of 17%.”

Tully added that the 17.7 multiple is based on operating earnings. Adjusted to GAAP earnings, the P/E multiple becomes a “lofty” 21.

Saturday, 2 March 2019

Markets rise, bearish sentiment falls to lowest level in over a year

Markets rose on Friday. The S&P 500 rose 0.7 percent and the STOXX Europe 600 rose 0.4 percent.

Earlier in Asia, the Nikkei 225 rose 1.0 percent and the Shanghai Composite jumped 1.8 percent.

Manufacturing data in the US came in below expectations, denting market sentiment somewhat. The Institute for Supply Management’s manufacturing index fell to 54.2 in February from 56.6 in January while Markit’s manufacturing PMI fell to 53.0 in February from 53.7 in January.

Still, market sentiment has been improving lately. Willie Delwiche noted that bearish sentiment based on the AAII survey "this week moved to their lowest level since January of last year", the "10-day CBOE put/call ratio has moved to its lowest level since September and the Investors Intelligence bull-bear spread has risen to 32%".

While optimism might "suggest that risks have risen", Delwiche also noted that longer-term breadth trends "remain mixed".

Friday, 1 March 2019

Markets mostly lower as growth slows in US and China

Markets were mostly lower on Thursday.

The S&P 500 fell 0.3 percent and the Nikkei 225 fell 0.8 percent. However, the STOXX Europe 600 eked out a 0.1 percent gain.

A report on Thursday showed that US economic growth slowed to a 2.6 percent rate in the fourth quarter of 2018 from 3.4 percent in the third quarter.

Marvin Loh, global macro strategist at State Street, noted that the “GDP numbers were better than expected”.

However, Pierre Veyret, technical analyst at ActivTrades, said that geopolitical tensions “continue to weigh on market sentiment”, with the rising tensions between India and Pakistan the previous day now being reinforced with the failure of denuclearisation talks between US President Donald Trump and North Korean leader Kim Jong Un in Hanoi.

Meanwhile, China's factory activity index fell to 49.2 in February, the lowest level in three years, from 49.5 in January. The index has been in contraction territory of less than 50 for three consecutive months.