Category Archives: The Markets

The Markets This Week

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Stocks racked up another set of gains last week, as both the Dow Jones Industrial Average and Standard & Poor’s 500 index notched new all-time highs on Friday. In contrast to the response to the Ukrainian political and military crisis, investors have so far paid little attention to the fighting in Iraq and resulting higher oil prices. Small-caps outperformed large-caps, suggesting the risk-on trade was in full swing.

With relatively few economic news reports released, most of the action took place on Wednesday, when the Federal Open Market Committee meeting was held. In the press conference afterward, Federal Reserve Chair Janet Yellen tamped down inflation worries, and her comments suggested the rise in interest rates that nearly all investors are expecting will take place later rather than sooner.

Last week, the Dow rose 171 points, or 1%, to 16,947.08. That’s a new high, and the 11th this year. The S&P 500 rose 27 points, to 1962.87, also an all-time high, and its 22nd such close this year. The Nasdaq Composite index rose 57 points, or 1.3%, to 4368.04. The Russell 2000 index jumped 26 points, or 2.2%, to 1188.40.

The FOMC meeting reassured investors on a number of issues, in particular that the Fed’s rate outlook hasn’t changed much. The $10 billion per month tapering of its bond-buying program continues, interest-rate tightening is not imminent, and when it does come, it will be gradual. Yellen said that economic activity was rebounding, even as the Fed cut its U.S. 2014 gross-domestic-product projection to 2.1% to 2.3% from 2.8% to 3%, on Wednesday

She also downplayed inflation fears, calling the recent figures showing rising consumer prices “noisy.”

HIGHER INFLATION MIGHT force the Fed to hike rates earlier than was anticipated, but the market chose to focus on the “noise” comment, says Ryan Larson, head of equity trading at RBC Global Asset Management. That effectively pushed the ongoing debate about the beginning of interest-rate hikes toward a second half of 2015 event, he adds.

Nevertheless, with market complacency seemingly so high, both investors and the Fed should pay more attention to inflation, argues Liz Ann Sonders, chief investment strategist at Charles Schwab. Inflation data, such as the consumer price index, has ticked up steadily for three months, she notes, so the Fed’s low level of concern and the market’s quick acceptance of Yellen’s comment “surprised me a little.”

Sonders remains bullish and believes inflation isn’t a problem, but the potential for a market scare exists. With near-term sentiment optimistic, an inflation surprise could be a trigger for a pullback, she says.

The same could be said for the deteriorating situation in Iraq, though investors are doing their best to ignore it. The more time goes by without the U.S. dropping bombs or getting further involved, the better it is for the market, says Larson.

However, that can change in a hurry, says Kenneth Polcari, director of New York Stock Exchange floor operations for O’Neil Securities. It looks like a difficult situation to resolve, and “the market isn’t paying attention because it hasn’t imploded yet. When it gets worse, it will pay attention.”

(Source: Barrons Online)

The Markets This Week

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News of violence and political upheaval dominated headlines last week, causing stocks to tumble after a three-week winning streak.

Sunni militants inspired by al Qaeda captured two cities in Iraq, as the Iraqi government scrambled to defend Baghdad with help from Iran. The sudden strife caused oil prices to spike, with Nymex crude futures rising 4.1% to $106.91 per barrel, their highest level since September.

There was stateside news spooking some investors as well. Virginia primary voters chose a little-known college professor over Rep. Eric Cantor, the second-most powerful member of the House. The Tea Party victory signals that partisan gridlock is likely here to stay, and could spill over into a nasty debt-ceiling battle next year.

For the week, the Dow fell 148.54 points, or 0.9%, to 16,775.74. The Standard & Poor’s 500 fell 13.28 points to close at 1936.16, and the Nasdaq Composite dropped 10.75 points, or 0.2%, to close at 4310.65.

There was no frenzied selling—trading volume remains just above the lows for the year, and there’s little indication that it’ll be ramping higher.

“You’re in the beginning of the summer doldrums,” says John Canally, an investment strategist. The World Cup, which began last week, may have added another distraction. Multiple strategists we spoke to admitted they had one eye on the games during what technically should be considered working hours.

The traders who weren’t engaged in the Beautiful Game were mostly in a selling mood. “The instability in Iraq and the sudden change in the energy market were disruptive and they weren’t in anyone’s forecast,” says Tobias Levkovich, the chief U.S. equity strategist at Citigroup.

Thirty or 40 years ago, this kind of shock in the energy market would have moved stocks more, argues Canally. But our transition to a service economy from one based on manufacturing, plus increasing domestic oil production, soften the impact of changes in oil prices.

Other data points also proved bearish, with the University of Michigan consumer-sentiment gauge falling in June despite expectations it would rise, and May retail-sales growth disappointing the Street.

Strategists tend to see stocks moving up through the summer and the end of the year, although they don’t see spectacular gains. The S&P 500 is already up 4.75% for the year, and is within spitting distance of the end-of-year targets analysts had projected at the start of the year. But corporate earnings were surprisingly strong in the first quarter, growing about 5%, Levkovich notes. And investors still seem to think stocks are more attractive than just about any other asset class; equity-fund inflows rose sharply last week.

“The case for a summer melt-up remains stronger than that for a summer melt-down, as the high-liquidity, low-growth backdrop forces investor cash levels down,” writes Bank of America Merrill Lynch chief investment strategist Michael Hartnett.

(Source: Barrons Online)

The Markets This Week

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The bull was in full snorting mode last week, as stock prices jumped more than 1% company stocks led by a wide margin, but the bounty was shared with big companies, too, as the Dow Jones Industrial Average inched closer to 17,000. Trading was light, as it has been all year.

Most notably manufacturing and employment and some of the buying was driven by short covering, traders say.

There’s a sense of gathering momentum. For example, the percentage of stocks above their 10-day moving average is back to 85%, according to Wellington Schields. That’s a strong technical-strength signal about the bulls’ basic health, even
if the market usually stalls in the short term at such levels.

Similarly, there are indications economic velocity is improving, if the strong manufacturing and jobs data last week are any indication, says Peter Kenny,
chief executive of broker-dealer Clearpool Group. And though the low trading it’s less and less an arbiter of whether the market’s move is valid.”

In spite of the spring rotation out of biotech and momentum shares, where some stocks lost 20% to 40%, the broad market’s been resilient, says Marc Pado, CEO of Dow Bull Advisors. Those short have expected the emergence of the traditionally weak summer season for the market. However, the rotation back into those beaten-up stocks; the data; and Thursday’s easing by the European Central Bank, made shorts wonder, “Why be short?” and some threw in the towel, he says. Money doesn’t want to leave the market, even if it rotates out of one sector temporarily, he adds.

Last week, the Dow rose 207 points or 1.2% to 16,924.28, a new high. The Standard & Poor’s 500 picked up 26 to 1949.44, also a record. The Nasdaq Composite index rose 2%, or 79, to 4321.40. The Russell 2000 index soared 3% to 1165.21, and is back in positive territory for the year.

Friday, the Labor Department said that in May the U.S. added 217,000 jobs, in line with expectations. The unemployment rate was 6.3%, unchanged from April.

Investors don’t see macroeconomic and U.S. earnings growth factors as negatives and they won’t likely be that, says Michael Mullaney, chief investment officer at Fiduciary Trust. U.S. and global leading indicators are up, and it looks like “a mini-industrial revolution.” The single biggest factor in the rest
of 2014 is likely to be geopolitical risk, he adds.

The market’s valuation, however, can no longer be called fair. The bears argue stocks have already anticipated a stronger second half for the economy, given the S&P’s 2014 price/earnings ratio of 16 times, a bit higher than the long-term average of 15.

This week sees fewer U.S. data releases after the economic firepower of last week, so short of a major exogenous surprise we might be in for sideways action.

(Source: Barrons Online).


The Markets This Week

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For
a few days at least, the stock market resembled its 2013 self, setting high
after high last week. Share prices rose smartly, over 1%, and the Standard
& Poor’s 500 index saw record closes in three of last week’s four trading
days, while the Dow Jones Industrial Average also had its all-time best close
Friday.


The
surge came amid thin volumes in a holiday-shortened week. Despite poor
first-quarter GDP numbers — which investors blamed on frigid weather — most of
the economic data, such as falling jobless claims, were positive.


Also
boosting stocks and spirits was a lack of geopolitical tension; an M&A
battle in the food industry; a recovery in small-cap stocks; and expectations
that the European Central Bank will do some monetary easing next week, says
Michael Matousek, head trader at U.S. Global Investors. Even the $2 billion
offer for the Los Angeles Clippers by former Microsoft chief Steve Ballmer
probably got animal spirits moving, he adds.


On
Thursday, first-quarter gross domestic product was revised down to an
annualized negative 1%, or contraction, from a positive 0.1%, weaker than
expected, though much of the revision came from lower inventories. Investors
mostly ignored GDP data, says Tom Carter, a trader with JonesTrading
Institutional Services. With little to dampen the mood, investors found it
tough to sit on the sidelines watching stocks rise day after day, and the
“pain trade was up,” he adds.


Jobless
claims for the week ending May 24 fell 27,000 to 300,000, below the consensus.
That, adds Mark Luschini, chief market strategist at Janney Montgomery Scott,
measures a more recent past than GDP and points to improving labor and housing
markets. It’s more indicative about the second-half, which should see rising
economic activity and a good climate for profit growth, says the bullish
strategist, who notes that outside the stock market, investors still face a
lack of better-yielding alternatives.


Last
week, the Dow rose 111 points, 0.7% to 16,717.17. The S&P 500 closed at
1923.57, up 23 points. The Nasdaq Composite index advanced 1.4%, or 57, to
4242.62.


This
week promises new data with “more gravity,” says Carter, and perhaps
a truer indication of market sentiment. Investors will most likely focus on two
figures from the Institute for Supply Management that could give a more
up-to-date picture of the economy than GDP did: the ISM May manufacturing
purchasing managers index on Monday, and the nonmanufacturing PMI on Wednesday (Barrons Online).


The Markets This Week

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The
stock market closed sharply higher with the broad Standard & Poor’s 500
index setting an all-time record Friday, finally punching through the 1900
level after several failures in recent weeks.


Volumes
were low ahead of Monday’s Memorial Day holiday in the U.S. Macroeconomic data
continued to be positive, though mildly so, and stocks continued their hesitant
upward drift.


Next
week is without much in the way of potentially market-moving data. Market
participants point to the June 6 release of May non-farm payroll data and the unemployment
rate as indicators that could provide the next pivot point.


Last
week, the Dow Jones Industrial Average gained 115 points, or 0.7%, to 16,606.27.
The S&P 500 closed up 23 points, to 1900.53, an all-time high, as noted.
The Nasdaq Composite index rose 2.3%, or 95, to 4185.81. The Russell 2000
small-cap index tacked on 2.1% to 1126.19.


A
positive tone Friday was set early by reassuring words from Russian President
Vladimir Putin that his country would respect the results of Ukraine’s
presidential election Sunday, says Kimberly Forrest, a senior equity analyst at
Fort Pitt Capital Group. “We’ll see whether or not he respects that,”
she adds.


Nevertheless,
it had a calming influence on a light-volume day, she says, allowing the
market’s generally upward bias of recent months to reassert itself.


Economic
data continue a two-step-forward, one-step-back dance. Last week initial weekly
jobless claims increased slightly but new-home sales improved. Friday, the
Commerce Department said new U.S. single-family home sales rose to 433,000,
modestly above consensus but better than March.


While
economic news has been generally supportive of higher share prices, the market
remains hesitant and still has a wait-and-see attitude, says Timothy Leach,
chief investment officer at U.S. Bank Wealth Management. Investors are
apprehensive about the effect on the economy of the Federal Reserve ending its
quantitative-easing strategy later this year, he adds. It’s as if the market is
trying to navigate a river of doubt, using each data point as a stone to hop
across, he says.


Despite
the worry, and with bonds still yielding so little, stocks as an asset class
win out, argues Andrew Ahrens, who runs Ahrens Investment Partners. “You
can’t get a return on your investment elsewhere…and by a process of elimination
stocks are the place to be until interest rates go up,” he says.


Separately,
the venerable Dow Theory remains in a bullish trend for stocks, according to
Ned Davis Research. For youngsters, the theory goes that industrials make the
goods and transportation firms ship them, so when there’s confirmation between
the Dow and the Dow Jones Transportation Average, it’s a signal about stock
trends.


Both
the Dow and the DJTA are above their 200-day moving average. The Dow set a new
record in the previous week and the DJTA did this past week.

Source: Barrons Online


The Markets This Week

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A stun grenade seemingly landed in the stock market last week, with blinding light, noise, and smoke that disoriented equity investors but caused no permanent damage. The broad market indexes managed to set new all-time highs early on, only to suffer a big 1% drop Thursday.

The volatile trading occurred as small-cap stocks flirted with correction territory, continuing a bearish trend that began in March. Meanwhile, the continuing and surprising rally in the bond market is making some investors nervous about the strength of an expected U.S. economic recovery. Such anxiety was confirmed by mixed economic data released last week, with April housing starts and jobs data strong but industrial production and capacity-utilization weak.

Amid these cross currents, the broad indexes finished pretty much unchanged. The Dow Jones Industrial Average ended the week at 16,491.31, down 0.6%, and below an all-time high of 16,715.44 set Tuesday. The Standard & Poor’s 500 ended at 1877.86, flat on the week, but down from an all-time high of 1897.45, also set Tuesday. The Nasdaq Composite bucked the trend and rose 0.5%, or 19, to 4090.59. The Russell 2000 small-cap index fell 0.4% to 1102.91, and briefly dropped 10% from its high on Thursday—technically, a correction.

Despite the index highs, “there’s an incredible amount of pessimism and negativity” in equity markets, says Michael Marrale, head of research, sales, and trading at broker-dealer ITG. He says hedge funds have sharply reduced their equity exposure since March, but he views the selling as a pause, as there is money on the sidelines and people are nervous. “You want to be a contrarian to the pervasive pessimism,” he says.

The mixed data scared stock investors, as “most thought the economy was accelerating,” says Brian Reynolds, chief market strategist at Rosenblatt Securities. He, too, is sanguine, and observes that corporate bond prices are near all-time high.

The bond-market rally was caused by short-covering, the weak industrial-production number, and growing expectations that the European Central Bank will cut rates in June, says Quincy Krosby, market strategist at Prudential Financial. Investors continue to struggle, she says, with how to value stocks in a world where the Federal Reserve is winding down its quantitative stimulus program this year.

(Source: Barrons Online)


The Markets This Week

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Big
was good, small was bad last week. Again. The Dow Jones Industrial Average, a
narrow band of 30 megacaps, rose 0.4% and finished at a new all-time high on
Friday. Broad stock market indexes lost some ground in an up-and-down week.


In
particular, the stock market continued its 10-week rotation away from more
speculative Internet stocks and small-caps, which fell, and toward more stable,
large-capitalization stocks, which rose.


The
Dow rose nearly 71 points to 16,583.34. The Standard & Poor’s 500 index,
however, fell three points to 1878.48. The Nasdaq Composite index lost 1.3%, or
52 points, to 4071.87. Moving down the size continuum, the Russell 2000
small-cap index fell 2% last week, to 1107.22, with the tech sector down 3.5%.


Stocks
like Groupon (ticker: GRPN) and Twitter (TWTR) fell 14% and
17%, respectively. The Global X Social Media Index ETF (SOCL) of such
stocks is down 25% since the end of February. Now that the market is into its
fifth month of 2014, it’s safe to conclude it probably won’t be like last year.
The market’s behavior and psychology has moved into a new cycle, says Michael
Yoshikami, CEO of Destination Wealth Management. When the market senses a new
opportunity, such as the social-media space last year, but doesn’t know who the
winners will be, all stocks tend to go up together in frenzied activity, he
says.


That’s
followed by a period of separating the wheat from the chaff, as results come
out quarter after quarter and the market starts to make distinctions about, for
example, who is going to monetize their social-media assets, he adds. Twitter’s
first-quarter results, for example, disappointed earlier this month. It’s going
to be a “Dow world” this year, he asserts, “as investors are now
buying companies based on valuations rather than hope.” The rotation is healthier
for the market, he adds.


Layered
over this internal stock market rotation is a U.S. economy that’s viewed as
“could be better, could be worse,” says Paul Nolte, a portfolio
manager with Kingsview Asset Management in Chicago. Part of the hesitation
derives from investors wanting to see how the U.S. economy really fares
“once the IV drip” of the Federal Reserve’s quantitative-easing
program ends later this year.


For
now, all investors have seen is market stasis, with the S&P 500 index up
just 1.6% in 2014, compared with 14% at the same time last year and 30% for all
of 2013. It’s possible that the broad market will remain flat or even rise a
bit this year while that rotation continues underneath.


Investors
didn’t have to parse much in the way of directional macroeconomic data last
week, and the first-quarter earnings season is close to winding down. With some
453 companies reporting so far, earnings per share for the S&P 50 index is
on track to be up 5.9% in the first quarter, according to RBC Capital Markets.


May
is already here, and veteran investors know that we are approaching a
traditionally weak seasonal summer period for stocks.

(Source: Barrons Online).


The Markets This Week

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Another Friday fade wasn’t enough last week to reverse the
market’s momentum, as stocks held on to a 1% gain for the five-day stretch,
despite slipping in the final session. The Dow Jones Industrial Average
finished the week slightly below a new record high reached Wednesday. As has
been the case numerous times in the recent past, stocks fell Friday and
investors sold down some positions ahead of a weekend of potentially renewed
geopolitical tension.


Despite the release of mostly positive economic data, particularly
on Friday, traders say that escalating tensions in Ukraine are causing
investors to hesitate. In recent days, insurgents reportedly have shot down
Ukrainian helicopters, and Russia warned Ukraine Friday of “catastrophic
consequences” unless it halted a military operation against pro-Russian
insurgents in the eastern part of the country.


During a week of low trading volume, the Dow finished up 0.9%,
or 151 points, to 16,512.89. On Wednesday, it hit an all-time high of
16,580.84. The Standard & Poor’s 500 index increased nearly 18 to 1881.14.
The Nasdaq Composite index added 48, or 1.2%, to 4123.90.


Friday, the Labor Department said American job growth in April
was the biggest in more than two years. At the same time, the unemployment rate
fell to 6.3% last month from 6.7% in March, a low not seen since the bad old
days of September 2008. Payrolls grew by 288,000 from March and trounced
expectations of about 210,000 to 220,000. There was some confusion in equity
markets caused by the bond market’s rise in the face of Friday’s strong jobs
report. Some argued that the data below the headline numbers, such as a decline
in the participation rate, weren’t as good.


The problems in Ukraine “seem to be accelerating from
rhetoric to reality,” says Jason Weisberg, a partner at Seaport
Securities. That seemed to spook investors Friday. Troops are on the move,
aircraft have been shot down, and suddenly things have worsened, he says.


“It seems like on every Friday since mid-February there has
been a partial or full selloff,” says one investment strategist. That
suggests traders are unwilling to hold stocks during the weekend. If Ukraine
weren’t an issue, bond yields would have crashed through 3% instead of falling,
as they did Friday. (Bond prices move inversely to yields.)


Stock investors have to be wondering about a clarification
here.  Maybe the Ukraine issue will fade
in the face of more good news on the economic front, but it’s hard to see how
the situation will improve.


The data, at least, were good, says Michael Shaoul, chairman of
Marketfield Asset Management. The April figures are strong enough to silence
fears about the economy’s weakness in January and February. “There’s no
sense that the economy is decelerating,” he says.

(Source: Barrons Online).


The Markets This Week

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“Mo” stumbled again. The once-popular momentum stocks continued their reversal last week, pressuring the broad market, which fell more than 2% in volatile trading.

As they have since late February, investors shed highly valued shares of mostly small and mid-sized biotech and social media companies, market leaders in 2013. Last week weakness spread to big “old” technology stocks considered safe havens such as Microsoft (ticker: MSFT), which fell 1.7%, to $39.21.

While first-quarter earnings released Friday from banking bellwether JPMorgan (JPM) were weaker than expected, and its stock fell 7.5%, there appears to be no discernible reason for the downdraft other than high valuations of stocks leading the retreat.

“There’s been a core of momentum stocks like Tesla Motors (TSLA) and others that nobody could find [satisfactory] valuation methods for,” says Scott Colyer, CEO of Advisors Asset Management. Without traditional value measures for these stocks, some investors began to balk, then it snowballed.

The Dow Jones Industrial Average fell 386 points, or 2.3%, to 16,026.75, and the Standard & Poor’s 500 index lost almost 50 points to 1815.69. The technology-heavy Nasdaq Composite index, plunged 3.1%, 128 points, to 3999.73. The small-cap Russell 2000 fell the most, down 3.6% to 1111.45.

It’s been 18 months since investors have experienced this kind of volatility, and many view the pain as a healthy corrective after a huge run-up. “I hope it gets ugly, but not too ugly,” adds Colyer, who thinks the market might test its 200-day moving average, down to about 1760 on the S&P 500.

Speaking of technical moves, one divergence that bears watching is the weekly number of individual stocks making new highs, which peaked at 925 on May 10, 2013, according to Ned Davis Research. Adds Frank Gretz, a technical analyst for Wellington Shields, that number dropped to 700 late last year and more recently close to 500, even as the broad stock market indexes continued to make new highs.

“It’s a bad sign,” Gretz notes, considering that in bull market history, the peak in the number of stocks making new highs comes roughly a year before the bull itself peaks. But there’s a divergence from the divergence: The stocks leading the bull market are usually the last ones to hang on. (Barrons Online).

The Markets This Week

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It was a good week to be out of U.S. stocks as broad market indexes here gave up ground. That was in marked contrast to major markets around the world, which posted solid rises. After American stocks smoked foreign equities last year, this was a rare week of role reversal.

In sympathy with overseas equities, the largest U.S. companies—which tend to get a good chunk of their sales from international sources—did better. Small-company stocks, typically more domestically focused, fell sharply. Among them, technology and biotech did especially poorly.

Don’t mistake this for the return of the “risk off” trade, since even the MSCI Emerging Markets index—a beaten-down but riskier set of stocks—rose more than 3% last week. World equities, not including the U.S., were up 1.8%; German stocks rose nearly 3%, Japan was up 1.5%.

On these shores, the Standard & Poor’s 500 index dropped nine points to 1857.62. The Nasdaq Composite index lost 121 points, or 2.8%, to 4155.76. The Russell 2000 small-company index dropped 42 points, or 3.5%, to 1151.81. Only the Dow Jones Industrial Average gained, up 0.1%, 20 points, to 16,323.06.

With the quarter about to end, the S&P 500 is essentially flat, a far cry from the 10% rise in the same year-ago period. The bond market continues to confound. Though many have expected interest rates to rise since the Fed announced the tapering in mid-December, bond prices are higher and rates lower. The long end of the Treasury yield curve has flattened a little bit, suggesting bond investors don’t see much in the way of U.S. economic growth. Maybe that’s why some have put their money to work overseas.  (Barrons Online).