Prepare for the end of the bull market

Last week, Lakshman Achuthan and Anirvan Banerji, co-founders of the Economic Cycle Research Institute, wrote in a CNN article that a recession in the US is still on the table.

“Growth in the Economic Cycle Research Institute's U.S. Leading Employment Index (USLEI)...has plummeted to its worst reading since the Great Recession,” they wrote.

They concluded that “the message is clear that the economy will keep slowing and the risk of a recession is still growing”.

In the meantime, Mark Hulbert at MarketWatch suggested that investors prepare for the end of the bull market.

“You might start reducing your exposure to stocks now, even if you think the bull market has room to run. That’s because stock returns in the last months of a bull market tend to be mediocre at best. So don’t try to hang on for that last penny of profit,” he wrote.

Hulbert said that recession risks are relatively high now. He cited an econometric model based on the yield curve which showed that the probability of a recession in the next 12 months is between 30 and 40 percent.

Hulbert acknowledged that there is no certainty that the bull market is coming to an end though and suggested that investors reduce their equity exposure gradually or shift stock holdings from more speculative to more conservative positions.

Markets, US economic data mixed

Markets were mixed on Friday.

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

Earlier in Asia, the Nikkei 225 fell 0.8 percent but the Shanghai Composite rose 0.1 percent.

News that the US is considering curbs on portfolio investments into China weighed on markets.

US economic data were mixed.

Consumer spending and income rose 0.1 percent and 0.4 percent respectively but were below expectations.

Durable goods orders rose 0.2 percent, better than expected, but excluding defense orders, they fell 0.6 percent.

“The economic data today was skewed toward the positive side and it helped,” said Paul Zemsky, chief investment officer at Multi Asset Strategies.

“Income growth was solid, but spending was disappointing, that tells me that people and companies are getting defensive and preparing for uncertain times,” said Mike Loewengart, vice president of investment strategy at E-Trade.

Markets mixed with economic data “skewed to the negative”

Markets were mixed on Thursday.

The S&P 500 fell 0.2 percent but the STOXX Europe 600 rose 0.6 percent.

In Asia, the Shanghai Composite fell 0.9 percent but the Nikkei 225 rose 0.1 percent.

Sahak Manuelian, managing director of equity trading at Wedbush Securities, noted that economic data this week, “by and large, has been skewed to the negative”.

Paul Kitney, chief equity strategist of Asia Pacific research at Daiwa Capital Markets, noted that global trade volumes have declined for three consecutive months year-on-year, “the first time since the global financial crisis”.

Markets mixed as Trump hints at end to trade war

Markets were mixed on Wednesday.

The S&P 500 rose 0.6 percent but the STOXX Europe 600 fell 0.6 percent and the Nikkei 225 fell 0.4 percent.

While concerns over a possible impeachment inquiry against US President Donald Trump persisted, the latter provided investors with a positive distraction on Wednesday by saying that a deal to end the protracted US trade war with China could happen “sooner than you think”.

John Carey, Amundi Pioneer’s director of equity income, said that while there is some “political risk” in the market, in the near term, “people are looking at corporate earnings and the economy and feeling reasonably secure that the bottom isn’t falling out just yet”.

Markets mixed amid political concerns in the US and Europe

Markets were mixed on Tuesday.

The S&P 500 fell 0.8 percent, the STOXX Europe 600 was flat and the Shanghai Composite rose 0.3 percent.

US stocks fell amid worries that President Donald Trump will face an impeachment inquiry over his alleged political pressure on Ukraine's leader Volodymyr Zelensky to investigate Democratic presidential hopeful Joe Biden’s family.

US stocks were also weighed down by disappointing consumer confidence data. The Conference Board's consumer confidence index fell to 125.1 in September from 135.1 in August.

In Europe, uncertainty over Brexit lingered as the UK Supreme Court ruled that the British prime minister’s suspension of parliament was unlawful.

Eurozone economy “close to stalling” but US economy picks up pace

Markets were mostly lower on Monday.

The S&P 500 was flat but the STOXX Europe 600 fell 0.8 percent and the Shanghai Composite fell 1.0 percent.

Weighing down markets was a report that showed that the flash eurozone manufacturing purchasing managers index fell to an 83-month low of 45.6 in September from 47.0 in August. The flash eurozone services PMI fell to an 8-month low of 52.0 from 53.5 in August

“The eurozone economy is close to stalling as a deepening manufacturing downturn shows further signs of spreading to the services sector,” said Chris Williamson, chief business economist at IHS Markit.

However, the flash US manufacturing PMI rose to a five-month high of 51.0 in September from 50.3 in August while the flash services index edged up to 50.9 from 50.7.

Also, the Chicago Fed national activity index rose to 0.1 in August from -0.41 in the previous month.

With S&P 500 close to record high, money markets may be signalling troubles ahead

The S&P 500 fell 0.5 percent last week.

Despite the decline, the S&P 500 remains just 1.2 percent below its record high set in late July.

“It’s good that we’re challenging the records, but I don’t know if we have enough momentum to stay around these levels,” said JJ Kinahan, chief market strategist at TD Ameritrade.

Somewhat more confident is Edward Yardeni, president of Yardeni Research.

“I’ve got 3,500 as my target for next year,” he told CNBC on Friday. “We’ll get there on higher earnings with maybe somewhat higher valuation as the perception continues to be that interest rates aren’t going up much, if at all.”

However, John Tobey at Forbes warned that developments in money markets last week signalled possible troubles ahead.

“… something just went bump in the other room, where bond and money managers play,” he wrote. “In this case, that undesirable bump was the repo market being unable to function within the Fed’s desired interest rate range.”

Tobey said the real concern is the unexpected declines in Fed deposits, which required the Fed to “throw large amounts of money into the system” from Tuesday onward.

Tobey suggested that it may not be a good scenario “when the Fed begins throwing money into the system in the hopes of solving whatever the problem is and keeping those guys in the other room from running for the exits”.

Markets mixed along with news on trade war

Markets were mixed on Friday.

The S&P 500 fell 0.5 percent but the STOXX Europe 600 rose 0.3 percent and the Shanghai Composite rose 0.2 percent.

Kate Warne, principal investment strategist with Edward Jones, said she expects stocks to move higher, “but not on a smooth path”.

“There are lots of signs the economy is slowing, but very few signs it’s slowing quickly,” she said.

Warne also said that a lot will depend on how trade negotiations play out in October.

On Friday, a report said that the US Trade Representative’s office had exempted several big-ticket items produced in China from tariffs but this was followed by the cancellation of a scheduled visit to US farm states next week by Chinese trade officials.

“Even if we see a deal on tariffs, we think the tariffs probably will remain higher than where they were before 2017 and all of the other restrictions are going to remain in place as well,” said Shaun Roache, chief economist of Asia Pacific at S&P Global Ratings.

Markets higher, Fed policy may be “too tight”

Market were mostly higher on Thursday.

The S&P 500 was flat but the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.4 percent.

The Bank of Japan and the Bank of England both left interest rates unchanged on Thursday.

Meanwhile, National Securities chief market strategist Art Hogan predicts that the Federal Reserve will not be cutting rates again this year.

“They may well be at neutral right now,” he said. “The market is going to be OK with it,” he added, as he sees further economic growth ahead for the US.

In contrast, Barry Bannister, chief equity strategist at Stifel, thinks that “the policy setting remains too tight” and that there is now a risk of recession.

“Our view is either to expect more flight to safety because a recession looms, or await more weakness that coerces policy makers to go further,” he said.

Markets mixed as Fed fails to signal “extensive sequence of rate cuts”

Markets were mixed on Wednesday.

The S&P 500 closed flat, as did the STOXX Europe 600. In Asia, the Shanghai Composite rose 0.3 percent while the Nikkei 225 fell 0.2 percent.

At its monetary policy meeting that concluded on Wednesday, the Federal Reserve cut the fed funds rate by 25 basis points to a range of 1.75 percent to 2 percent.

During the press conference following the meeting, Fed Chairman Jerome Powell said further interest rate moves would depend on economic conditions.

“If the economy does turn down, then a more extensive sequence of rate cuts will be appropriate,” he said. “We don’t see that. It’s not what we expect.”

Joseph Zidle, Blackstone's chief investment strategist, warned that failure by the Fed to follow through with more interest rate cuts could rattle markets.

“The markets are set up for a disappointment. They’re going to have to re-rate their expectations,” he said.

Markets mixed but “Fed coming to the rescue again”

Markets were mixed on Tuesday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 fell less than 0.1 percent and the Shanghai Composite plunged 1.7 percent.

Oil fell after surging on Monday. West Texas Intermediate crude fell 5.7 percent and Brent fell 6.5 percent.

Ahead of the Federal Reserve's monetary policy decision on Wednesday, the yield on the US 10-year Treasury note fell to 1.81 percent from 1.843 percent on Monday.

US economic data on Tuesday were positive, with industrial production showing a 0.6 percent rise in August and the National Association of Home Builders’ monthly confidence index rising one point to 68 in September.

Nela Richardson, investment strategist at Edward Jones, said that the Federal Reserve is likely to help keep the economic expansion going and therefore allow stocks to rise further.

“This bull market could tread on even though we are in the latter stages of it,” Richardson said. “Remember that it is rising interest rates that haunt markets not lower rates.”

“The Fed is coming to the rescue again,” said Troy Gayeski, co-chief investment officer at SkyBridge Capital.

As oil surges, stocks fall but “resilient” market “could rip up”

Markets mostly fell on Monday after a weekend attack on Saudi Arabia’s oil-production facilities.

The S&P 500 fell 0.3 percent and the STOXX Europe 600 fell 0.6 percent while the Shanghai Composite was little-changed.

Oil prices surged. West Texas Intermediate and Brent crude jumped 14.7 and 14.6 percent respectively.

“While U.S.-China trade and U.S. oil supply growth have been the primary price drivers we see a return of the political risk premium as the market has been arguably complacent about risk events,” said Jon Rigby, an analyst at UBS.

Other analysts remain sanguine though.

“It will take a lot to disrupt the bull case for U.S. stocks and today’s selloff that stemmed from the Saudi oil field attacks could see buyers eventually re-emerge,” wrote Edward Moya, senior market analyst at brokerage Oanda.

Doug Cote, chief market strategist at Voya Investment Management, suggested that the small decline in stocks showed how resilient the market is. “Any good news, and this market could rip up,” he said.

Oil prices surge after attack on Saudi oil facilities

Crude oil prices are rising after attacks against Saudi Arabian oil facilities over the weekend.

Yemen’s Iran-aligned Houthi group said it attacked two oil plants in Saudi Arabia on Saturday, knocking out more than half the latter’s oil output.

Brent crude surged as much as 18 percent at one point on Sunday, while crude-oil strategist Phil Flynn at Price Futures Group saying that the attack was a “big deal”.

“We could be dealing with a significant game-changer for oil markets over the short to medium term as security levels continue to flash red,” said Stephen Innes, Asia-Pacific market strategist for AxiTrader.

Markets mixed as US retail sales rise

Markets were mixed on Friday.

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

A report on Friday showed that US retail sales rose 0.4 percent in August.

“This morning’s number was above expectations but more importantly it’s the sixth straight month of positive growth for retail sales which is a really encouraging,” wrote Mike Loewengart, vice president of investment strategy at E-Trade Financial.

Also supporting markets on Friday was a report that China is adding US agricultural products like soybeans and pork to the list of imports exempted from tariffs.

This move follows reports on Thursday that the US could consider an interim agreement on the trade dispute with China, raising hopes for an eventual resolution.

Markets rise as Trump delays China tariffs, ECB increases monetary stimulus

Markets rose on Thursday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 rose 0.7 percent.

Markets rose after US President Trump announced on Wednesday that, “as a gesture of goodwill”, he would delay the implementation of a tariff hike from 25 percent to 30 percent from 1 October to 15 October.

However, Tom Essaye, president of the Sevens Report, said that “just a delay won’t be a positive catalyst—the market already expects more” while James McCormack, global head of sovereign ratings at Fitch Ratings, said that “we’re some distance from real resolution”.

Markets were further buoyed on Thursday by news that the European Central Bank will cut its deposit rate from -0.4 percent to -0.5 percent and restart open-ended purchasing of long-term government bonds at a pace of €20 billion a month.

In a press conference following the decision, ECB President Mario Draghi urged governments to take fiscal measures to supplement the central bank’s monetary stimulus.

Indeed, ING Chief Economist Carsten Brzeski suggested that “without fiscal stimulus, Draghi’s final stunt will not necessarily lead to a happy end”.

Also, Artur Baluszynski, head of research at Henderson Rowe, said the ECB pushing rates further into negative territory is “essentially a tax on euro zone banks, and for the already weakened bank-financed economy like the euro zone, this move could spell more trouble”.

Markets little changed as US investors rotate into cyclicals

Markets were mostly little changed on Tuesday.

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

“The big story is the continuing rotation that we saw begin a couple days ago,” said Willie Delwiche, market strategist with RW Baird. “If we can actually move away from narrow, defensive leadership into cyclical and small-cap leadership, that would be a healthy development for the market.”

MarketWatch reported that over the weekend, Andrew Sheets, chief cross-asset strategist at Morgan Stanley, had written in a note that the global economy may be poised for an upside surprise.

“In this scenario, yields and inflation expectations would rise meaningfully, as markets assume less easing is needed and better days lie ahead,” he said.

Sheets added that “the market isn’t positioned” for a reacceleration in growth and that the resultant market movements “could be large”.

Markets “vulnerable to a pullback”, US economy entering “debt hole”

Markets were mixed on Monday.

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

The US 10-year Treasury yield rose 8 basis points to 1.632 percent, its highest since 13 August.

Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research, noted that “the fact that we’re this close to an all time high puts us in a dangerous situation and makes the market vulnerable to a pullback”.

Federal Reserve data released on Monday showed consumer borrowing in the US rose at the fastest rate in almost two years in July.

However, this comes at a time when total potential debt for the US is already running at 1,832 percent of GDP, based on calculations by AB Bernstein.

The debt measure included not only traditional levels of public debt like bonds but also financial debt as well as future obligations for so-called entitlement programs, some of which are not set in stone.

“While the picture is dire, such numbers don’t prove we are doomed or that a debt crisis is inevitable,” said Philipp Carlsson-Szlezak, chief US economist at AB Bernstein, in his report.

Still, many are worried about today's debt levels.

“We are quickly approaching a situation where we have dug ourselves a debt hole which is doing to have profoundly negative effects on the economy for probably decades going forward,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

“In the next credit cycle downturn, then, the generally lower credit quality of today’s speculative-grade population means that the default count could exceed the Great Recession peak of 14% of all rated issuers,” said Christina Padgett, a Moody’s senior vice president.

China exports shrink, US recession chance climbs amid trade war

China’s exports unexpectedly fell in August, according to a report on Sunday.

Chinese customs data showed that August exports fell 1 percent from a year earlier after having risen 3.3 percent in July.

Exports to the US fell 16 percent year-on-year, worse than the 6.5 percent decline in July.

China's imports fell 5.6 percent in August from the previous year, its fourth consecutive decline.

Steven Zhang, chief economist and head of research at Morgan Stanley Huaxin Securities, attributed the sharp decline in exports to the US to the China-US trade war.

“The global economy is approaching the turning point of a recession, and external demand will for sure become worse and worse,” he said.

Indeed, the chance of a recession in the US over the next 12 months climbed to 38 percent in August, according to a New York Federal Reserve model based on the US Treasury yield curve.

“Anything over 30% is very bad,” said Nicholas Colas, co-founder of DataTrek Research.

“Trade policy represents the No. 1 risk. If things continue to escalate, that poses a real threat to the business cycle,” said James McCann, senior global economist at Aberdeen Standard Investments.

Markets rise despite weak US employment report as China cuts reserve requirement

Markets rose on Friday, with the S&P 500 edging up 0.1 percent.

A report from the Labor Department showed that the US economy added 130,000 jobs in August, down from 159,000 in July.

Despite the slower job growth, Michael Arone, chief investment strategist for State Street Global Advisors, said that “there is underlying strength to this report, including average weekly hours worked picking up, the labor-force participation rate rising and strong wage growth”.

Arone also said that the jobs report will “strengthen the case that the Fed should cut rates at the next meeting”.

In the meantime, markets were buoyed by an announcement by the People's Bank of China on Friday that its reserve requirement ratio for banks would be cut by 50 basis points and it would further reduce that ratio by 100 basis points for some qualified banks.

Markets rise, “will rally into the end of the year”

Markets rose on Thursday.

The S&P 500 jumped 1.3 percent, the STOXX Europe 600 rose 0.7 percent and the Nikkei 225 surged 2.1 percent.

China’s Commerce Ministry issued a statement on Thursday morning saying that the two sides agreed to resume trade negotiations early next month.

US economic data on Thursday were mostly positive. The private sector added 195,000 jobs in August while the ISM nonmanufacturing index rose to 56.4 in August from 53.7 in July.

However, Markit's services PMI fell from 53.0 in July to 50.7 in August, below the “flash” estimate issued two weeks ago.

Still, Mislav Matejka, JP Morgan’s chief global equity strategist, thinks that the US economy “is not headed for a recession” and that “the market will rally into the end of the year”.

Markets rise, S&P 500 expected to advance further by year end

Markets rose on Wednesday. The S&P 500 rose 1.1 percent and the STOXX Europe 600 rose 0.9 percent.

Earlier in Asia, the Nikkei 225 rose 0.1 percent and the Hang Seng jumped 3.9 percent after Hong Kong Chief Executive Carrie Lam said she would scrap an extradition bill that sparked months of protests in the city.

Oil rose. West Texas Intermediate crude surged 4.3 percent and Brent jumped 4.2 percent.

The Federal Reserve's beige book released on Wednesday showed that, overall, the US economy expanded at the same “modest pace” seen in earlier reports this year as a majority of business owners “remain optimistic about the near-term outlook”.

Wall Street also remains relatively optimistic, with the 17 top stock prognosticators tracked by CNBC’s Market Strategist Survey expecting the S&P 500 to rise 2.2 percent from current levels on average by the end of the year.

Markets mixed as US manufacturing data add to fears of more weakness ahead

Markets were mostly lower on Tuesday.

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

US economic data on Tuesday were mixed.

The ISM manufacturing index fell to 49.1 in August from 51.2 in July but Markit's manufacturing PMI for August came in at 50.3, above an initial estimate of 49.9.

Jim O’Sullivan chief US economist with High Frequency Economics, wrote that while the ISM data does not yet signal a recession, it was “weaker than expected” and “will undoubtedly add to fears that more weakness is ahead”.

US construction spending rose 0.1 percent in July, below expectations but rebounding partially from a 1.3 percent fall in June.

Stocks mixed, risk assets may be driven “a lot higher” by year’s end

Markets were mixed on Monday.

The STOXX Europe 600 rose 0.3 percent and the Shanghai Composite jumped 1.3 percent but the Nikkei 225 fell 0.4 percent.

US markets were closed for a holiday.

Economic data were relatively positive.

The Caixin/Markit China manufacturing PMI for August was 50.4, better than expected and indicating an expansion, in contrast to the government PMI released over the weekend.

While the eurozone manufacturing PMI showed a contraction in August, it rose to 47.0 from 46.5 in July.

Leuthold Group’s chief investment strategist Jim Paulsen told CNBC last week that he expects a breakout for stocks by year’s end as the economy improves.

He said that with “all of the policy stimulus we’ve introduced...I think it’s going to start to improve economic reports”.

“If we find out it turns out better than feared, many, many portfolios are under allocated to risk assets and will have to re-adjust themselves trying to get more risk which could drive risk assets a lot higher,” he said.

US and China raise tariffs, China plans more support for economy as manufacturing weakens

A new round of tariffs were imposed on Sunday by the US and China on each other's goods.

The US began imposing 15 percent tariffs on a variety of Chinese goods including footwear, smart watches and flat-panel televisions while China began imposing new duties on US crude oil.

Meanwhile, the trade war between the two countries may already be impacting the Chinese economy.

A report on Saturday by China’s National Bureau of Statistics showed that its manufacturing purchasing managers' index fell to 49.5 in August from 49.7 in July.

The report was followed by an announcement by the State Council on Sunday that the government plans to provide more support for its economy, including investing in infrastructure projects and regional development.