Markets fall but stocks “can still defy elevated multiples”

Markets fell on Friday.

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

Oil fell. West Texas Intermediate crude plunged 4.4 percent while Brent fell 2.5 percent.

Markets were weighed down by concerns that a US-China trade deal may be in jeopardy after US President Donald Trump signed legislation supporting Hong Kong protesters on Wednesday.

Still, BCA Research concluded in a recent analysis: “Stocks can still defy elevated multiples.”

BCA believes that a recession will happen “in the next 24 months or so” but that still leaves time for the bull market to make one last lurch upward.

Stocks fall in Europe and Asia as Trump signs bills backing HK protests

While the US stock market was closed on Thursday, markets elsewhere fell.

The STOXX Europe fell 0.1 percent, the Shanghai Composite fell 0.5 percent and the Nikkei 225 fell 0.1 percent.

Markets were weighed down by concerns that US-China relations will deteriorate further after bills backing protesters in Hong Kong were signed into law by US President Donald Trump on Wednesday.

However, analysts remain hopeful that an anticipated “phase one” trade deal between the US and China will still be concluded.

“I think at the moment, right now, the markets are still giving the benefit of the doubt,” said Ken Wong, Asia equity portfolio specialist at Eastspring Investments. “The markets are anticipating, hopefully in the next couple of months, we do get an agreement in place.”

US stocks hit record highs but investors looking elsewhere

Markets rose on Wednesday.

The S&P 500 rose 0.4 percent to another record high while the STOXX Europe 600 and the Nikkei 225 rose 0.3 percent.

US economic data on Wednesday were positive, with the Federal Reserve's latest Beige Book in particular noting that the economy “expanded modestly”.

“We can be thankful that the economy is still in a good place with economic growth a little better, a rebound in business durable equipment expenditures, and a sharp decline in joblessness which together tell the story that recession is nowhere to be seen and should not be on anyone’s radar in 2020,” MUFG chief economist Chris Rupkey said.

However, some investors think that stocks outside the US will perform better in 2020.

According to Investment Company Institute data, world stock funds brought in US$8.2 billion in investor inflows over the last two weeks while US equity funds lost more than US$10 billion in outflows.

Thomas Banks, a portfolio manager for the Federated International Small-Mid Company fund, suggested that the higher valuations for US stocks that were supported by faster growth rates could weigh on their performances as “the divergent growth rates could converge again”.

Markets rise as investors become extremely bullish but economic data “not encouraging”

Markets rose on Tuesday.

The S&P 500 0.2 percent to close at another all-time high, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.4 percent.

“With global central banks pumping liquidity into the system and investors sensing that a trade deal is coming, that could create more upside,” said Yousef Abbasi, director of US institutional equities at INTL FCStone.

Indeed, an analysis by Qontigo subsidiary Axioma suggests that market sentiment has become extremely bullish.

“With sentiment this strong, Wednesday’s data releases on third-quarter GDP and personal spending would have to come in well below consensus to shake investors confidence,” said Olivier d’Assier, head of applied research at Axioma. “On the other hand, even a slight beat on forecasts is likely to be met with an over-reaction on the upside.”

However, some analysts think that investors may be underestimating the chances of a recession in 2020.

Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, noted that even as the S&P 500 has been rallying, the economic data “have not been encouraging”.

Tom Essaye, president of the Sevens Report, said that it is “notable” that first-time claims for jobless benefits are rising while the yield curve “has begun to compress, relatively rapidly”.

Jeffrey Schulze, an investment strategist at ClearBridge Investments, puts the chances of a recession in 2020 at 50 percent, based in large part on the inversion of the yield curve earlier this year and the sharp slowdown in manufacturing.

Markets rise but US 2020 elections bring risk

Markets rose on Monday.

The S&P 500 rose 0.8 percent to a new record, the STOXX Europe 600 rose 1.0 percent and the Nikkei 225 rose 0.8 percent.

Despite the US stock market already sitting at record highs, JP Morgan said 2020 could be another strong year for stocks.

JP Morgan analyst Nikolaos Panigirtzoglou said that after a strong performance by stock markets this year, retail investors are likely to respond by turning into big buyers of equity funds in 2020.

“This suggests 2020 could be another strong year for equities driven by retail rather than institutional investors,” said Panigirtzoglou.

However, the US elections could have a significant impact on the stock market.

“In the United States, equity returns during periods of divided federal government have typically exceeded returns achieved when one political party controls the White House, Senate, and House of Representatives,” wrote analysts at Goldman Sachs in a Monday note.

Tim Moe, Goldman’s chief Asia-Pacific equity analyst, said that a unified Democratic government in particular could result in a rollback of the 2017 corporate tax cut and spark “possibly even up to a 20% correction on the S&P”.

Julian Emanuel, chief equity and derivatives strategist at BTIG, noted that fear of a unified government outcome in the 2020 elections “is substantial at the same time that confidence, so very important to markets and economies, remains fragile albeit stabilizing”.

US stocks became “overbought” with Fed “juicing the stock market”

The S&P 500 fell 0.3 percent last week, ending a run that saw it gain for six consecutive weeks.

Michael Santoli at CNBC suggested that short-term trader sentiment had become “a bit too bullish” and as a result, the stock market had become overbought.

Nevertheless, Santoli added: “The basis of the rally since August remains plausible: that economic and corporate profits growth is troughing, the Fed has eased deftly off the brake with three rate cuts, credit conditions are fine, the Treasury yield curve is back to a normal slope, seasonal forces are favorable and big investors underinvested and prone to chase stocks higher.”

The Federal Reserve in particular may be “juicing the stock market”.

After a spike in overnight lending rates in September, the Fed pumped in lots of cash into the financial system, causing its balance sheet to swell by US$286 billion since early September to US$4.05 trillion.

“It's patently obvious that the Fed's interventions into the market is having a huge effect on the stock market,” said Danielle DiMartino Booth, a former Fed official who is now CEO of Quill Intelligence.

“Markets view any increase in the size of the Fed's balance sheet as QE and the $250B increase in just two months is no doubt helping to lift stock prices,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Markets rise, stocks “only game in town”

Markets rose on Friday.

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 rally is intact and with this will go into 2020,” predicted Nick Giacoumakis, president and founder of New England Investment & Retirement Group.

“We think stocks are really rallying because they are the only game in town now that Fed messaging and rate cuts have crushed Treasury bond yields,” said MUFG economist Chris Rupkey.

Economic data on Friday were mixed.

IHS Market reported that its flash US manufacturing purchasing managers index rose to 52.2 in November from 51.3 in October while its US services purchasing managers index rose to 51.6 from 50.6.

However, IHS Markit's eurozone composite purchasing managers index fell to 50.3 in November from 50.6 in October.

Markets fall as US Congress passes Hong Kong bill

Markets fell on Thursday.

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

Hopes for a US-China trade deal were bolstered by reports that China’s chief trade negotiator Liu He has invited his US counterparts for more talks.

However, the passage of a Hong Kong human rights bill by the US Congress could yet threaten the talks, with Chinese Foreign Ministry spokesman Geng Shuang saying Beijing “condemns and firmly opposes” the move.

Height Securities analyst Clayton Allen said in a note that “it seems entirely possible that any Chinese retaliation would be enough to upend negotiations as Trump tries desperately to maintain the upper hand in leverage”.

Markets fall with hopes on US-China trade deal

Markets fell on Wednesday.

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

Market sentiment was dampened by a report that completion of a “phase one” US-China trade deal could be delayed until next year.

“What we’re seeing in the market today is another reminder that tariffs reign supreme,” said TD Ameritrade chief market strategist JJ Kinahan.

Meanwhile, economic news on Wednesday was negative, with Japan reporting that exports fell 9.2 percent year-on-year in October, the worst decline in three years.

Markets mixed amid few signs of US-China trade deal or economic rebound

Markets were mixed on Monday.

The S&P 500 rose less than 0.1 percent, the Nikkei 225 rose 0.5 percent and the STOXX Europe 600 was flat.

Renewed doubts over a trade deal between the US and China kept market gains down.

“We had been up in the premarket overnight, and the market turning lower goes to show that investors should take trade optimism with a grain of salt,” said Lindsey Bell, chief investment strategist with Ally Invest.

Meanwhile, a report from the National Association of Home Builders on Monday showed that its housing market index fell 1 point to 70 after hitting its highest level of the year last month.

However, some analysts are concerned that with few signs of an economic rebound, the market may have gotten ahead of itself.

“We quickly went from the consensus thinking we were on the cusp of recession and investors being very, very cautious, buying up the quintessential safe havens, to a much more risk-on, bullish economic view,” said Douglas Cohen, portfolio manager at Athena Capital Advisors, in an interview. “In the short term, that’s gone a bit too far and sets us up for at least a pause, and my guess is in 2020 sentiment will start to become more fragile and volatile.”

S&P 500 sits at all-time high as investors show “extreme greed”

The S&P 500 rose 0.9 percent last week for its sixth consecutive weekly gain.

Year-to-date, the S&P 500 is up 24.5 percent and sits at an all-time high.

Julia Horowitz at CNN Business sees a case for more stock market records.

“Sentiment is improving — allowing markets to continue pushing higher and higher,” she wrote.

Horowitz said that one month ago, CNN Business' Fear and Greed Index had a “neutral” reading. Now it is showing “extreme greed”.

At the same time, economists are becoming more optimistic about the economy.

“We see no economic reason for a recession in the advanced world in the next two years,” Berenberg economists said in a note to clients on Friday.

Similarly, Bob Pisani at CNBC noted that as the S&P 500 set record highs, euphoria has been growing.

Some technicians “have been positively giddy recently” while strategists and retail investors “are gaga with enthusiasm”.

However, he also sounded a note of caution.

“All this euphoria would be great if we were coming off of a big sell-off — but we’re not,” he wrote. “The major indexes are at new highs as is the advance/decline line. Put it all together, and the market is clearly overbought.”

Indeed, Oxford Economics thinks that US stocks are overvalued by around 35 percent.

“The twin pressures of weak pricing power and low productivity imply a bleak outlook for margins – warning signs of a market that seems to have got ahead of itself,” an Oxford Economics team wrote.

Markets rise on trade hopes but US manufacturing recession deepens

Markets mostly rose on Friday.

The S&P 500 rose 0.8 percent to a fresh record high while the STOXX Europe 600 rose 0.4 percent. Earlier in Asia, the Nikkei 225 rose 0.7 percent but the Shanghai Composite fell 0.6 percent.

Stocks rose as White House economic adviser Larry Kudlow suggested that a “phase one” trade deal between the US and China was close, with negotiations making “very good progress”.

US economic data released on Friday were mixed though.

US retail sales rebounded in October, rising 0.3 percent after a 0.3 percent decline in September.

However, US industrial output fell 0.8 percent in October, the worst in 17 months.

MUFG chief economist Chris Rupkey remarked that “the economy looks rockier with the manufacturing recession deepening and consumers spending less this quarter than they did earlier in the year”.

Markets mixed as US-China trade deal looks “on shaky grounds”

Markets were mostly lower on Thursday, with MSCI’S All-Country World index fallingt 0.11 percent.

However, the S&P 500 managed to gain 0.1 percent to record another new high.

According to Kristina Hooper, chief global market strategist at Invesco, investors are becoming concerned that the “phase one” trade agreement between the US and China, which had appeared to be imminent, is now instead looking to be “on shaky grounds”.

A report on Thursday showed that Chinese industrial production growth slowed sharply in October, with the 4.7 percent year-on-year rise well below forecasts for 5.4 percent.

Another report showed that the German economy grew just 0.1 percent in the third quarter.

Meanwhile though, technical strategists see potential for much higher US stock prices.

“We believe a continued unwind of crowded defensive positioning that reached its zenith in August can carry the rally through the fourth quarter,” said JP Morgan technical strategist Jason Hunter.

Markets mixed, Fed policy seen as “appropriate”

Markets were mixed on Wednesday.

The S&P 500 rose 0.1 percent to a record high but the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 fell 0.9 percent.

Marios Hadjikyriacos, investment analyst at XM, said that “with markets having gone on a euphoria rally lately, it might not take much bad news to trigger a notable correction”.

In a testimony before the US Congress, Federal Reserve chairman Jerome Powell said that the central bank sees “the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective”.

However, a report on Wednesday showed that US inflation was slightly higher than expected in October, as the consumer price index rose 0.4 percent.

Markets rise amid “fear of missing out”

Markets rose on Tuesday.

The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 rose 0.8 percent.

Results of a survey by Bank of America Merrill Lynch released on Tuesday showed that fund managers have made a huge switch from cash into stocks.

“Investors are experiencing Fomo—the fear of missing out—which has prompted a wave of optimism and jump in exposure to equities and cyclicals,” said Michael Hartnett, chief investment strategist at BAML.

Technical research strategists at Bank of America Merrill Lynch support the optimism.

“Last week’s push above SPX 3,063 is an uncomfortable breakout for many who viewed the SPX pattern as bearish,” the strategists, Stephen Suttmeier and Jordan Young, wrote.

“History suggests that breakouts from these ranges should be powerful,” they added.

Markets fall after Trump deflates trade optimism

Markets were mostly lower on Monday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 was flat and the Shanghai Composite plunged 1.8 percent.

Investor sentiment was dampened by comments by US President Donald Trump over the weekend that recent reports about an agreement to roll back tariffs were not accurate.

“There was a lot of incorrect reporting,” he said. “The level of tariff lift is incorrect.”

Amid high levels of optimism in the markets, the persistent uncertainties over a trade deal could lead to a correction, according to a CNBC report.

“With a full-blown trade agreement still likely many months out into the future if at all, it’s a little hard for me to take there’s this much optimism,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.

“The short-term risk is elevated for a pullback in equities and a material advance in volatility,” said Andrew Thrasher, founder of Thrasher Analytics.

Still, DataTrek co-founder Nicholas Colas thinks that stocks still have lots of room to advance.

“2019’s no-growth earnings will make for easy [comparables] in 2020 if the U.S.-China trade war abates,” he wrote on Monday. “Unless U.S.-China trade talks hit a large pothole in coming weeks, that’s the narrative that should continue to drive US equity prices higher through the end of the year.”

After record-breaking run, S&P 500 could rally even higher

The S&P 500 rose 0.8 percent last week, its fifth consecutive weekly gain, and ending on a record high.

Many analysts see further gains for the S&P 500.

Barry Bannister, head of institutional equity strategy at Stifel, sees the rally in stocks lasting until next year.

“The Federal Reserve, by shrinking its balance sheet, and the White House, by pursuing a trade war, skated very close to the edge of the ice and risked a recession. Both are backing off and that’s positive for global sentiment,” said Bannister.

Michael Santoli at CNBC said that the “weight of the evidence points in the more positive direction, based on the global scope of the rally, the cyclical sectors leading the way and the rapid repricing of bonds that have yields emerging from historic depths toward more normal but still unthreatening levels”.

Bill Stone, chief investment officer and managing director at Avalon Investment & Advisory, told CNBC that the major stock indices are likely to rally to even higher highs.

“[R]otation has kicked in. We’ve gotten much more of the cyclical names, the value names, acting better. I think that can help take us to new highs,” he said.

Markets mixed amid renewed concerns over US-China trade war

Markets were mixed on Friday.

The S&P 500 rose 0.3 percent to a new high but the STOXX Europe 600 fell 0.3 percent.

In Asia, the Nikkei 225 rose 0.3 percent but the Shanghai Composite fell 0.5 percent.

Investor sentiment was dented somewhat by US President Donald Trump's comment on Friday that he has not agreed to roll back US tariffs on imports from China, renewing concerns that the "phase one" trade pact could still fall apart.

Still, some analysts remain optimistic about the stock market.

“We maintain a significant and incrementally larger tilt in our model portfolio towards risky assets, based on signs of a cyclical recovery, easing geopolitical tensions, synchronized monetary easing, and defensive investor positioning across asset classes,” wrote JP Morgan's strategy team led by Marko Kolanovic.

Meanwhile, Tom Lee of Fundstrat Global Advisors raised his year-end S&P 500 target to 3,185, an increase of 60 points.

Markets rise on hopes China and US to cancel tariffs

Markets rose on Thursday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 rose 0.1 percent.

Markets were boosted by a report that China and the US will cancel planned tariffs on each other’s products in stages.

The US 10-year Treasury yield rose to a three-month high of 1.924 percent on Thursday.

“Bond yields are up enormously,” he told MarketWatch. “I think that’s bullish and I think that suggests that the U.S. economy is doing better.”

Markets rise but sentiment may reverse as US-China trade deal delayed

Markets were mostly higher on Wednesday.

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

A report that said an interim trade deal between the US and China could be delayed until December deflated market sentiment somewhat.

“The market may take a breather from here,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Stephen Innes, market strategist at AxiTrader, said that “with delay comes chance that risk-on sentiment has too long to ferment, stalls and then maybe reverses as the waiting game weighs”.

Indeed, Samantha LaDuc, founder of LaDucTrading and chief investment officer of LaDuc Capital LLC, wrote on MarketWatch that “there is very little reason to expect a breakout with follow-through but more likely a breakdown”.

“I suspect bonds are about to roll over, structurally force yields to pop, then oil spikes with reflation trades, while momentum stocks are sold off because they’re overvalued relative to value plays …and the result is the stock markets correct,” she wrote.

Markets mixed, US stocks exhibiting “euphoric positioning and peak valuations”

Markets were mixed on Tuesday.

The S&P 500 fell 0.1 percent but the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 jumped 1.8 percent.

The yield on the US 10-year Treasury note rose 6.5 basis points to 1.853 percent.

Economic data on Tuesday were mixed.

The Institute of Supply Management’s US service sector activity index rose to 54.7 in October from 52.6 in September but IHS Markit’s US service sector purchasing managers index fell to 50.6 from 50.9.

The Caixin/Markit China services purchasing managers’ index for October came in at 51.1, the lowest in eight months.

“The stabilization of the fundamentals, both economic and corporate, should provide a cushion to any volatility,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “Overall, the prospect for November is less worrisome than where we started October.”

Less sanguine is Lori Calvasina, RBC Capital Markets’ head of US equity strategy.

“The new thought we offer this week is that we haven’t learned anything in the current reporting season that justifies euphoric positioning and peak valuations,” Calvasina wrote in a note.

US stocks hit another record high

Markets rose on Monday.

The S&P 500 rose 0.4 percent to another record high, the STOXX Europe 600 rose 1.0 percent to its highest level since 15 April 2015, and the Shanghai Composite rose 0.6 percent.

The US 10-year Treasury yield rose 5 basis points to 1.782 percent while West Texas Intermediate crude jumped 3.7 percent.

Keith Buchanan, senior portfolio manager at Globalt Investments, said: “The angst over trade is subsiding and, from an earnings standpoint, corporations are beating a lowered hurdle, while guidance for next year has been better than feared.”

In Europe, analysts at Goldman Sachs attributed the better market performance partly to “monetary support” but Nikol Hearn, macro strategist at TS Lombard, said that “we can’t ignore that the earnings factor is still deeply in contractionary territory, particularly for Germany”.

At record highs, “overvalued” US stocks at risk of “nasty correction”

The S&P 500 rose 1.5 percent last week to end at a record high.

Despite the latest run, Mark Hulbert at MarketWatch noted that the US stock market appears to have become slightly less overvalued since September 2018.

Hulbert said that while the price/earnings ratio for the market is slightly higher than in September 2018, “the majority of the other valuation indicators I monitor are slightly lower today”.

Still, Hulbert said that US stocks “remain more overvalued today than at almost every other bull market top of the past century”.

Even long-time bull and Edward Yardeni, president of Yardeni Research, seems to think that the market is getting too expensive.

In an interview with CNBC, Yardeni said that the S&P 500 forward earnings multiple is now 17. The historic norm is 15 to 16.

If the multiple reaches 19 or 20, Yardeni said that the market could experience a “nasty correction”.

Still, Yardeni remains bullish for the longer term and has a target of 3,500 for 2020.

S&P 500 hits record high as US economy appear in “good place”

Markets were mostly higher on Friday, with the S&P 500 rising 1.0 percent to another record high.

Elsewhere, the STOXX Europe 600 rose 0.7 percent but the Nikkei 225 fell 0.3 percent.

US stocks were boosted by the employment report for October, which showed a better-than-expected gain of 128,000 new jobs and upward revisions for the numbers in August and September.

JJ Kinahan, chief market strategist at TD Ameritrade, said that the employment data showed “tons of positives” while Steve Blitz, chief US economist for TS Lombard, said they “underscore the Fed’s perception that the economy is in a ‘good place’”.

The Institute for Supply Management’s October manufacturing activity index came in at 48.3 in October, up from 47.8 in September.

“The manufacturing sector weakness appears to be stabilizing after falling below the 50 level and into recession in August,” MUFG chief economist Chris Rupkey, said.

Markets fall after “breakout” by S&P 500, economic data “still weakening”

Markets were mostly lower on Thursday.

The S&P 500 fell 0.3 percent and the STOXX Europe 600 fell 0.5 percent but the Nikkei 225 rose 0.4 percent.

US economic data on Thursday were mixed. The Chicago purchasing managers index fell to 43.2 in October from 47.1 in September but consumer spending rose 0.2 percent in September, its seventh consecutive increase.

Bank of America Merrill Lynch economist Ethan Harris said it is too early to call a turn in the economy.

“While there have been a few hopeful signs in recent releases, overall the data are still weakening,” he said.

Meanwhile, China reported that its official purchasing managers index for the manufacturing sector fell to 49.3 in October from 49.8 in September.

However, Lawrence G McMillan is president of McMillan Analysis, is optimistic about the stock market.

“The S&P 500 index broke out to new all-time highs on Monday and confirmed the breakout by continuing to close above the previous all-time highs (3028) for the next two days,” he wrote at MarketWatch. “This brings the S&P chart into a “bullish” status and puts it in line with our other indicators, which have been bullish for some time now.”