Monday, 31 August 2020

Market at record high “invites disappointment and disillusionment”

The S&P 500 rose 3.3 percent last week to close at another record high.

“By any metric, valuations are in nosebleed territory, but there is this entrenched view that the Fed has your back, that the polls are wrong and there will be a Trump sweep, and that a vaccine is coming this fall,” said David Rosenberg, founder and president of Rosenberg Research.

“This was the summer investors fell hard for risk — at first reluctantly, having just been dumped over the winter, and now avidly,” wrote Michael Santoli at CNBC.

Still, Santoli suggested that “the level of infatuation on display among traders toward at least some parts of the market now invites possible disappointment and disillusionment before too long”, noting that the S&P 500 is extended further above its 200-day average than at any time but one in the past decade.

“We’re overbought in the S&P 500 as an index in the short run,” National Securities chief market strategist Art Hogan told CNBC on Friday.

Hogan said that the index could fall 5 to 10 percent in the September and October time frame.

Friday, 28 August 2020

Fed “cementing ‘Powell put’” with new policy framework

Markets were mixed on Thursday.

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

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

US stocks were boosted by the announcement of a new Federal Reserve policy framework that would allow inflation to run above 2 percent for some period of time.

“Fed Chair Powell put investors on roller-coaster ride after unveiling a new policy framework of average inflation targeting, cementing the ‘Powell put’ of keeping interest rates anchored for years,” wrote Edward Moya, senior market analyst at Oanda in a note.

In economic news, China reported that profits in the industrial sector grew 19.6 percent in July from the previous year, an increase from the 11.5 percent gain in June.

Thursday, 27 August 2020

S&P 500 at new record amid “biggest tailwinds in history”

Markets were mostly higher on Wednesday.

The S&P 500 rose 1.0 percent to another record high while the STOXX Europe 600 rose 0.9 percent. However, the Shanghai Composite fell 1.3 percent.

“We have one of the biggest tailwinds in the history which is the massive, massive monetary stimulus globally,” said Carlos Diez, founder and CEO of MarketGrader. “It’s hard to argue against risk assets when there’s so much liquidity sloshing around. Over the next six to nine months I don’t expect a major downturn.”

US stocks were also probably boosted by a report that durable goods orders rose 11.2 percent in July.

In Europe, news of additional stimulus in Germany and anticipated economic recovery measures in France helped boost market sentiment.

Wednesday, 26 August 2020

S&P 500 hits another record high amid “some speculative fervor in markets”

Markets were mixed on Tuesday.

The S&P 500 rose 0.4 percent to another record high while the Nikkei 225 jumped 1.4 percent.

However, the STOXX Europe 600 fell 0.3 percent and the Shanghai Composite fell 0.4 percent.

The Conference Board reported that its index of US consumer confidence fell to 84.8 this month from 91.7 in July.

Kathy Bostjancic, chief US financial economist at Oxford Economics, wrote that increasing caution among households “could slow consumer spending relative to the rather strong rebound over the past few months”.

For the eura area, Goldman Sachs analysts wrote that “the scale of the output decline raises the risk of long-lasting ‘scars’ to the economy’s productive capacity”.

Meanwhile, Invesco’s Arnab Das warned that there is “no reason really to bank” on a coronavirus vaccine as there “hasn’t been — ever — a human coronavirus vaccine”.

Invesco’s chief global market strategist Kristina Hooper told CNBC that there is “some speculative fervor in markets” and recommended that investors stay “well diversified”.

Monday, 24 August 2020

While S&P 500 hits record high, many stocks hitting lows

The S&P 500 rose 0.7 percent last week to finish at a record high. The Nasdaq Composite rose 2.7 percent to also finish at a record high.

The record highs notwithstanding, some analysts are wondering whether the stock market rally lacks breadth.

Brett Steenbarger wrote in Forbes that this has been “a narrow rally”.

Steenbarger said that with the six “FAANMG” stocks accounting for over 27 percent of the total capitalisation of the S&P 500, this “is the most concentrated market since the 1960s”.

Steenbarger also noted that the proportion of stocks hitting new highs have been unusually low while the proportion of stocks hitting new lows have been unusually high.

Steenbarger said that a similar pattern had occurred in March 2000 and late 2007 prior to bear markets.

Saturday, 22 August 2020

S&P 500 hits another record high, “little margin of safety”

Markets were mixed on Friday.

The S&P 500 rose 0.3 percent to a record high and the Nikkei 225 rose 0.2 percent. However, the STOXX Europe 600 fell 0.2 percent.

US stocks were boosted by positive economic data. The IHS Markit flash manufacturing PMI rose to 53.6, a 19-month high, while the flash services PMI rose to 54.8, a 17-month high.

However, Steve Goldstein at MarketWatch observed that the US market rally has been dominated by the bigger companies.

Goldstein cited Michael Batnick, the director of research at Ritholtz Wealth Management, who noted that the largest decile of companies by market capitalisation is 4.3 percent from their 52-week high while the smallest decile is 46.8 percent away.

Goldstein also cited Christopher Pavese, chief investment officer at Broyhill Asset Management, who noted a similar divergence in performance between the MSCI All-Country ex-US index and the S&P 500.

“The consensus is eager to look past today’s earnings, through to next year’s V-shaped rebound in profits,” said Pavese. “But we are a long way from anything that resembles normal, as profit margins are likely to remain depressed by revenue shortfalls and incremental costs for years. As a result, today’s stock prices, still levitating near all-time highs, leaves little margin of safety and even less to get excited about.”

Friday, 21 August 2020

Markets mixed, US stocks have “no place to go but up”

Markets were mixed on Thursday.

The S&P 500 rose 0.3 percent but the STOXX Europe 600 fell 1.1 percent and the Nikkei 225 fell 1.0 percent.

A report in the US on Thursday showed that new applications for unemployment benefits rose to 1.11 million last week from 971,000 in the prior week.

“Without additional fiscal and monetary policy support, and income replacement in particular, it will be harder for this market to accelerate because the labor market isn’t recovering as fast as we hoped,” said Michael Arone, chief investment strategist for State Street Global Advisors.

Still, Kenneth Rapoza at Forbes wrote that “the market has no place to go but up”.

“There is no obstacle to further gains,” Mark Haefele, the chief investment officer for UBS Global Wealth Management, was quoted by Rapoza as saying.

Thursday, 20 August 2020

Indonesia: “We should just dig many, many graves”

Reuters reports that Indonesia is struggling to contain the COVID-19 pandemic. Excerpt:

Only last week Luhut Pandjaitan, Indonesia’s maritime minister and close confidant of the country’s president, touted herbal mangosteen juice as a coronavirus remedy.

His suggestion was the latest in a string of unorthodox treatments put forward by the president’s cabinet over the past six months, ranging from prayer to rice wrapped in banana-leaf to eucalyptus necklaces.

The remedies reflect the unscientific approach to battling the coronavirus in the world’s fourth-most populous country, where the rate of testing is among the world’s lowest, contact tracing is minimal, and authorities have resisted lockdowns even as infections spiked.

Indonesia's total confirmed cases of COVID-19 is 144,945, while the death toll is 6,346. These figures are well below the likes of the US, Brazil and India where the numbers of confirmed cases run in the millions.

And yet, these figures may be misleading. According to Reuters, the true scale of Indonesia’s outbreak may still be hidden because of its low test rate, with the country ranking 83rd out of 86 countries surveyed for overall tests per capita.

“This virus has already spread all over Indonesia. What we are doing is basically herd immunity,” said Prijo Sidipratomo, dean of the Faculty of Medicine at the National Veterans Development University in Jakarta. “So, we should just dig many, many graves.”

Wednesday, 19 August 2020

US stocks at record highs, “easy lifting is behind us”

US stocks rose on Tuesday, with the S&P 500 rising 0.2 percent to a record high.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, pointed to the “massive amounts of liquidity that the Federal Reserve has injected into the system” as a catalyst for “the stunning recovery that we have just witnessed”.

Indeed, fund managers are the most bullish they have been since the pandemic, according to the latest survey from Bank of America released on Tuesday, which showed a net 12 percent were overweight equities, an increase of seven percentage points since July.

In the meantime, short-term market timers have become extremely bullish, with the average recommended equity exposure among nearly 100 such timers tracked by Mark Hulbert at 65.9 percent, higher than 95 percent of all daily readings since 2000.

However, some analysts have doubts about the sustainability of the rally.

“Our feeling is that a good deal of the easy lifting is behind us,” said Michael Hans, chief investment officer at Clarfeld Citizens Private Wealth.

Tuesday, 18 August 2020

Investors expect large gains in US stocks even as insiders sell

Markets were mixed on Monday.

In the US, the Dow Jones Industrial Average fell 0.3 percent but the S&P 500 rose 0.3 percent and the Nasdaq Composite rose 1.0 percent to a record high.

Elsewhere, the STOXX Europe 600 rose 0.3 percent and the Shanghai Composite surged 2.3 percent but the Nikkei 225 fell 0.8 percent.

Chinese stocks were buoyed by the People's Bank of China's addition of 700 billion yuan of one-year funding through its medium-term lending facility.

However, in the US, talks on a fresh fiscal stimulus failed to progress.

Still, some analysts remain optimistic on a US recovery.

“There’s enough fiscal stimulus in the pipeline that we think the economy continues to heal in the third and fourth quarters,” said Joe Quinlan, head of chief investment office market strategy at Merrill and Bank of America Private Bank.

Indeed, a Schroders survey showed that its sample of US investors expected the stock market to generate returns of 15.4 percent a year over the next five years.

This is as CEO are selling stock.

“So-called insiders have dumped more than $50 billion worth of shares since the start of May, according to TrimTabs Investment Research,” wrote Matt Egan at CNN. “Insider selling is at a pace unseen since 2006.”

Monday, 17 August 2020

US stocks near record highs despite “overwhelming uncertainty”

The US stock market rose last week, with the Dow Jones Industrial Average gaining 1.8 percent and the S&P 500 gaining 0.6 percent.

Over the course of the week, the S&P 500 briefly traded above its February closing high of 3,386.15 on Wednesday and Thursday, but was unable to hang on for a record.

Some analysts are concerned that the market rally may be unsustainable.

Rob Isbitts at Forbes noted that “despite the record run up in the S&P 500 and the DJIA from March’s panic low levels, most Dow stocks are still down this year”.

While Isbitts sees the possibility that some of the lagging stocks may start to catch up with the leaders, there is also a possibility that the “market moves from a fingers-crossed, Fed-liquidity-induced rally to a gradual erosion of the complacency and confidence that exists in some corners today”.

Paul La Monica at CNN suggested that the stock market rally could be turning into a bubble.

La Monica cited as evidence the S&P 500 and Nasdaq being near record highs, the plunge in VIX in the past month and “a crazy run this summer in speculative stocks”.

Meanwhile, James Montier, behavioral economist and member of GMO’s asset allocation team, wrote it in a recent research paper: “Never before have I seen a market so highly valued in the face of overwhelming uncertainty.”

Friday, 14 August 2020

Markets slip despite fall in US jobless claims

Markets were mostly lower on Thursday.

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

Earlier in Asia, the Nikkei 225 jumped 1.8 percent but the Shanghai Composite was flat.

Initial US jobless claims fell to 963,000 last week from 1.19 million the previous week, the second consecutive decline.

“The equity market, in the U.S. and elsewhere is taking comfort from the fact that economic data show resilience to spikes in virus infections. This has been true for the U.S. economy for a while, and we can see it in Asia too,” said Kit Juckes, global macro strategist at Société Générale.

UBS economists, though, think that the economic recovery has slowed. The economy faces a “prolonged dislocation in the labor market”, with the unemployment rate probably still around 10 percent at the end of this year.

Thursday, 13 August 2020

S&P 500 closing in on record amid negative real yields

Markets were mostly higher on Wednesday.

The S&P 500 rose 1.4 percent, the STOXX Europe 600 rose 1.1 percent and the Nikkei 225 rose 0.4 percent.

The rise on Wednesday put the S&P 500 within 0.2 percent of its record high of 3,386.15.

“With the second wave of the virus coming under control, and jobs and spending continuing to recover faster than expected, corporate earnings have come in above expectations and appear on track to get back to pre-pandemic levels ahead of schedule,” wrote Brad McMillan, chief investment officer for Commonwealth Financial Network.

However, it is not just the stock market that has been rallying. A MarketWatch report noted that deeply negative real yields “are driving gains in all corners of financial markets”.

While the report suggested that this is leading to crowded positioning in assets and raising risks in the event of a rise in interest rates, at least some analysts remain sanguine.

“There is a view in the market that if rates were to rise and if there were any issues while the economy would continue to struggle the Fed would step in to do whatever is required,” said John Canavan, an analyst at Oxford Economics.

Wednesday, 12 August 2020

Markets mixed as S&P 500 ends winning streak

Markets were mixed on Tuesday.

The STOXX Europe 600 rose 1.7 percent but the S&P 500 gave up early gains to finish 0.8 percent lower.

Ealier in Asia, the Nikkei 225 rose 1.9 percent but the Shanghai Composite fell 1.2 percent.

The decline in the S&P 500 ended a seven-day winning steak that, according to Bruce Bittles, chief investment strategist at Baird, left the market technically “overbought”.

Still, some analysts remain optimistic.

Mark Haefele, chief investment officer for global wealth management at UBS, sees a rebound in economic activity to pre-pandemic levels by 2022 and the S&P 500 reaching 3,500 by the end of June 2021.

In contrast, Michelle Connell, founder and president of Portia Capital Management, wrote in a MarketWatch article that “it will take years to get the U.S. back to the economic levels of January 2020”.

“Be ready for pullbacks in the stock market and dislocations in private markets,” she suggested.

Tuesday, 11 August 2020

Markets rise as amid signs of rotation to cyclicals

Markets rose on Monday.

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

However, the Nasdaq Composite fell 0.4 percent amid signs of a rotation towards more economically sensitive cyclical stocks.

“As the summer COVID-19 spike wanes, investors are more inclined to view the economic recovery as real. That could mean the recent move toward cyclical stocks is real and sustainable for the first time since the pandemic began,” said James Meyer, chief investment officer at Tower Bridge Advisors.

JPMorgan Cazenove was more skeptical on the move to cyclicals.

“For Cyclicals and Value to work from here, one needs to see a continued acceleration in the PMIs. We think this is unlikely,” JPMorgan’s Mislav Matejka wrote.

Monday, 10 August 2020

Peak in COVID-19 could bring “monstrous rally”

The S&P 500 rose 2.5 percent last week.

Markets rose even as COVID-19 cases continued to mount last week. By the weekend, confirmed cases in the US had passed 5 million.

The silver lining in the US COVID-19 situation is that the rate of increase in cases may have peaked after the seven-day average hit 67,902 on 19 July.

A Fundstrat report last week noted that “when cases peaked in late April, it took 20 days before the epicenter stocks started their massive 3,000bp [or 30%] outperformance rally”.

“So if history is an analog, next week is the week we could see a monstrous rally in epicenter stocks,” the report suggested.

However, in his latest commentary, John Hussman, president of Hussman Investment Trust, said that “the pool of infected cases has expanded again, and it remains large enough to keep us teetering right at the edge of a second exponential outbreak”.

He warned that “there’s a growing likelihood that the remainder of the year – if we’re not careful – could bring far larger disruptions than most people seem to envision, and far greater risks than the pain-killing opiates of the Federal Reserve have allowed investors to perceive”.

Saturday, 8 August 2020

Markets mostly higher amid positive economic data

Markets were mostly higher on Friday.

The S&P 500 rose 0.1 percent while the STOXX Europe 600 rose 0.3 percent.

Asian stocks fell though. The Nikkei 225 fell 0.4 percent and the Shanghai Composite fell 1.0 percent.

Economic data on Friday were mostly positive.

The US economy added 1.76 million jobs in July, with the unemployment rate falling to 10.2 percent from 11.1 percent in June.

China’s dollar-denominated exports rose 7.2 percent in July from a year ago while imports fell 1.4 percent.

In Europe, German industrial production rose 8.9 percent in June while French industrial production rose 12.7 percent.

However, hopes for additional US fiscal stimulus were dashed as talks between Democratic congressional leaders and White House negotiators ended without an agreement.

Friday, 7 August 2020

Markets mixed, US jobless claims fall to 3-week low

Markets were mixed on Thursday.

The S&P 500 rose 0.6 percent but the STOXX Europe 600 fell 0.7 percent.

In Asia, the Shanghai Composite rose 0.3 percent but the Nikkei 225 fell 0.4 percent.

Market sentiment was helped by a report showing that US claims for jobless benefits for the week ended 1 August fell to a three-week low of 1.186 million.

“The pressure is coming off just slightly in the labor markets with unemployment claims coming down from recent highs,” said Chris Rupkey, chief financial economist at MUFG.

Still, the COVID-19 pandemic could continue to weigh on the US economy, with University of Washington health experts saying on Thursday that nearly 300,000 Americans could be dead from COVID-19 by 1 December.

Thursday, 6 August 2020

Markets rise but resurgence in COVID-19 threatens recovery

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.6 percent, the STOXX Europe 600 rose 0.5 percent and the Shanghai Composite rose 0.2 percent.

The Institute for Supply Management reported that its index of US nonmanufacturing activity rose to 58.1 in July from 57.1 in June.

However, several Federal Reserve policymakers said on Wednesday that a resurgence in COVID-19 cases is slowing the economic recovery and the pandemic will continue to weigh on the US economy.

“The issue with the resurgence in the virus is it slowed down or somewhat muted the recovery we’ve been expecting,” said Robert Kaplan, the Dallas Federal Reserve Bank president.

Wednesday, 5 August 2020

Nasdaq, gold hit record highs

Markets were mostly higher on Tuesday.

In the US, the S&P 500 rose 0.4 percent while the Nasdaq Composite also rose 0.4 percent to a record high.

Elsewhere, the Nikkei 225 jumped 1.7 percent but the STOXX Europe 600 slipped 0.1 percent.

Gold prices rose 1.7 percent to finish above US$2,000 for the first time ever.

“The stock market is living off the Federal Reserve largesse,” said Paul Nolte, portfolio manager at Kingsview Asset Management. “Gold is doing well because interest rates have been suppressed and it doesn’t cost anything to hold gold.”

However, Jim Cramer at CNBC has a different take on the stock market's rise.

He noted on CNBC on Monday that the stocks that had risen “do better with the pandemic than without it”, so “when the virus seems unstoppable, you go back to the well and buy, regardless of valuation”.

He added that “these companies are absolutely big enough to drag the averages with them and, amazingly, go much higher.”

“They’re enterprises that have huge demand because the virus has fundamentally changed the way we do business in this country.”

Tuesday, 4 August 2020

Markets rise as global manufacturing improves

Markets rose on Monday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 jumped 2.1 percent and the Nikkei 225 surged 2.2 percent.

Markets were boosted by positive manufacturing data on Monday.

The Institute for Supply Management reported that its manufacturing index for the US rose to 54.2 in July from 52.6 in June while new orders jumped to 61.5 from 56.4.

IHS Markit’s eurozone manufacturing PMI rose to 51.8 in July from 47.4 in June.

China’s Caixin/Markit manufacturing PMI rose to 52.8 in July from 51.2 in June.

Some analysts are bullish even as they see a possible near-term correction.

“We think the most likely outcome remains a 10% correction in the broader index led by the beneficiaries before the recovery and bull market continues,” wrote Morgan Stanley chief US equity strategist Michael Wilson and his colleagues.

“Some misgivings are justified given a macro backdrop that is becoming muddied, but not muddied enough to justify bearish targets or a defensive investment strategy,” wrote JP Morgan strategists led by John Normand.

Monday, 3 August 2020

Funds cut equity holdings with COVID-19 “extraordinarily widespread”

The World Health Organization reported on Sunday that the global number of confirmed cases stood at 17,660,523, with the death tally at 680,894.

By region, the Americas had the most number of cases at 9,476,763, led by the US at 4,523,888 followed by Brazil at 2,662,485.

Dr Deborah Birx, the White House COVID-19 task force coordinator, said that the US is “in a new phase”, with the virus “extraordinarily widespread” in rural as well as urban areas.

The US death toll exceeds 154,000 and is projected to reach 173,000 by 22 August, according to a new composite forecast from the US Centers for Disease Control and Prevention.

Amid the continuing surge in COVID-19 cases worldwide, global funds in July recommended cutting equity holdings to the lowest in four years and suggested keeping bond allocations unchanged from June.

“Clearly we are now in the eye of the storm with respect to COVID-19 damage - the global economy is very weak and fatality rates are still rising, which makes it difficult,” said Peter Lowman, chief investment officer at Investment Quorum.

Saturday, 1 August 2020

Markets mixed amid mostly negative economic data

Markets were mixed on Friday.

The S&P 500 rose 0.8 percent but the STOXX Europe 600 fell 0.9 percent.

Earlier in Asia, the Shanghai Composite rose 0.7 percent but the Nikkei 225 plunged 2.8 percent.

The National Bureau of Statistics reported that its China manufacturing PMI came in at 51.1 in July, beating expectations.

Elsewhere, though, economic data were mostly negative, with the eurozone economy contracting by 12.1 percent in the second quarter and the University of Michigan’s US consumer sentiment index falling to 72.5 in July from 73.2 in June.