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Dow Outlook

Credit Suisse: 15% more for stocks, tapering fears are overdone

The fact everyone else seems to be scared out of their wits over the end of Fed tapering appears to be a big green “buy” light for Credit Suisse.

That taper worm, as some call it, spoiled a 20-session Tuesday winning run for the Dow industrials, with investors wringing their hands and selling stocks amid a high state of anxiety over when the Fed is going to pull back on its bond-buying strategy.

On Wednesday, a team of Credit Suisse analysts led by Andrew Garthwaite projected another 15% upside for equities. They lifted their year-end target for the S& P 500  to 1,730 from 1,640 and introduced a new target of 1,900 for end-2014.

Garthwaite and other research analysts laid out their case for staying overweight on equities right now with five reasons, including the overreaction to tapering time:

1. Relative valuation: The equity risk premium is 6.1% where CS models suggest it should be more around 4.8%.
2. Earnings upgrades: U.S. earnings revisions have turned positive for the first time since May 2012, which is normally a good thing for markets. While two-thirds of CS clients think margins will fall over the next two years, Garthwaite and others say that’s not likely until rates rise or labor gets pricing power, which probably won’t come until 2015.
3. Economic momentum is troughing on several indicators:  normally a good thing for equities.
4. Too much pessimism over tapering: This is where they go on at length to clearly make a point. Even if the Fed steps off, developed market central banks’ balance sheets are still going to expand. Markets peaked seven months after QE1 and QE2 ended, and easy money could well go into the middle of next year. “Markets are pricing in the first Fed rate hike for September 2014, according to our rates strategists. This is too pessimistic, in our view. Excess liquidity is still rising at 6%.”
5. Fund flows are still supportive: Long-term equity weightings remain low despite the fact 88% of clients see equities as the best-performing asset class over the next two years.  The corporate sector is also set to start buying more.
6. Tactical indicators: Equity-sector risk is only slightly above average, market breadth is good and equity sentiment indicators are also just above average. “Since 1987, we have had three much longer periods without a 10%-plus correction. Credit spreads tend to start rising three months before the peak in equities — and so far they have only moved up marginally.”

 

Goldman’s chief economist Hatzius: Fed may taper in September

  If Goldman Sachs’s latest guess is on the money, the Fed could start tapering its $85 billion monthly bond-buying program as soon as September.

“A September tapering is certainly possible. I think that is going to depend on the data,” said Goldman’s chief economist, Jan Hatzius, in an interview with Bloomberg Television on Monday.

Goldman’s bottom-line belief remains that the Fed will hold steady until December, in light of expectations that the economy will grow around 2% over the next two quarters and inflation will stay “well below” target. But, Hatzius says, Fed Chairman Ben Bernanke could ease up on the throttle sooner if payrolls start rising by more than 200,000 a month or inflation, stripping out food and energy costs, starts picking up.

...more...

 

U.S. stocks hit by central-bank worries

Friday’s nonfarm-payrolls report likely to be a factor in Fed moves

“The past few weeks have been all about whether the taper is going to occur or not, and what that means,” Nick Raich, CEO of the Earnings Scout, said of the heightened volatility that has come with uncertainty as to whether the Federal Reserve would curb its $85 billion in monthly bond purchases sooner than anticipated. 

On Tuesday afternoon, Fed Bank of Kansas City President Esther George cancelled a speech slated to be delivered in New Mexico, but her prepared remarks had her advocating for the central bank to cut the size of its asset-purchase program.

The Chicago Board Options Exchange Volatility Index is up 30% in the last month, and 15% in the last week, and that’s because of the tapering concern, said Raich.

On Tuesday, equities illustrated that volatility by fluctuating on either side of unchanged before sinking in afternoon trade.

Rising as much as 50 points and falling as much as 153, the Dow Jones Industrial Average lost 76.49 points, or 0.5%, to end at 15,177.54, halting a Tuesday winning streak at 20 consecutive sessions.

A year ago, the 10-year Treasury yield started the month of June at 1.455%. By late May of this year, that yield was climbing to just above 2% for the first time in more than a year.

“The Fed wants that yield to go up it will help banks with their net interest margins. For the spread-base lenders, it helps their profits,” said Raich.

  The S& P 500 index fell 9.04 points, or 0.6%, to 1,631.38, with financials pacing the losses that included all but two of its 10 major industry groups.

Shares of Dollar General Corp. fell 9.2% after the retailer reduced its 2013 earnings outlook. “A lot of these retailers reporting in the last quarter have been cutting their estimates pretty hard,” said Raich.

The Nasdaq Composite lost 20.11 points to 3,445.26.

For every stock rising nearly two fell on the New York Stock Exchange, where nearly 786 million shares traded.

Composite volume approached 3.6 billion.

 

Will investors buy the dip yet again?

NEW YORK -- If there's been a winning investment strategy since the bull market began in March 2009, it's been the decision of investors to " buy the dip," or load up on stocks after a brief slide and ride prices back up.

Whether the stock market can regain its footing and resume its run back to fresh record highs could depend on the willingness of investors to view the current lull in prices as another buying opportunity. The first test appears underway now, as investors gauge the impact of the Federal Reserve dialing back on its stimulus policy sooner than expected.

Randy Frederick, managing director of active trading at Charles Schwab, still thinks the buy-on-weakness strategy makes sense. " I believe pullbacks make for good buying opportunities," he says. He advises investors to buy when the S& P 500 trades at or near the 1635 level, a level that it briefly fell below Friday after a late-day sell-off, rather than near the top of its recent range of 1665 to 1670. Still, he admits investors are likely to be faced with heightened volatility in the near term as investors sort out the Fed's potential stimulus-tapering schedule.

Ever since the S& P's 500-stock index hit its record high of 1669.16 on May 21, investors appear more hesitant to dive back in, although Monday's 0.6% gain to 1640 was a sign of strength. Given that the S& P 500 has fallen a maximum 2.3% since its peak suggests folks might be waiting for a bigger pullback before getting in. The index suffered its last 10%-plus " correction" in fall of 2011.

 

...lets welcome the beautiful Tuesday....

Why the Dow loves Tuesday

 

5 reasons to keep buying stocks: J.P. Morgan

While it was a contrarian call two months ago to go against typical seasonal weakness and not dump stocks,   J.P. Morgan Cazenove says it’s now sitting on top of a crowded call. Still, that’s no reason to turn your back on stocks, the investment bank says.

“The fundamental positives that were supporting stocks over the past few months are still in place, in our view,” says a team of strategists led by J.P. Morgan’s  Mislav Matejka.

Here are those five fundamental positives:

1. “The big picture remains the one of asset reflation with inflows into equities picking up, especially as global stocks are beating almost all the other main assets year-to-date by 10% or more. Not even a much bigger move up in bond yields could alter the strong valuation case for equities.”
2. Inflation risk remains minimal and inflation expectations are moving down.
3. U.S. data outflow is encouraging, notably with regards to house-price appreciation, rising confidence among consumers and improved jobs data. (Big nonfarm payroll data is due Friday. ISM manufacturing data Monday was the worst reading in four years.)
4. Lower commodity prices aren’t a zero-sum game, but are ultimately positive for global growth.
5. The euro zone’s lower tier is stable this time around and activity is bottoming out.

Not that there aren’t risks:

1.       China rebalancing, credit growth is running at 60%, but activity has slowed.
2.       Increased volatility in Japan equities, bonds and foreign exchange.
3.       Emerging-market bonds are seeing a “significant weakness, notably Mexico, Brazil, Russia and South Africa.”
4.       Global  profit margins have peaked.

OK, even taking those risks on board, J.P. Morgan strategists say current market volatility “should not turn into something more sinister” and dips should be used as buying opportunities.

 

'Dr. Boom'? Roubini Sees Two Years of Stock Gains

Stock market prices will continue to rise for the next two years until the wealth gap between Wall Street and Main Street gets too high and reality sets in, economist Nouriel Roubini told CNBC.    _{(such a +ve remark from Dr Doom)}

Worry about the Federal Reserve backing off its historically unprecedented monetary easing is premature, Roubini said, as economic growth is too tenuous and the market too dependent on the $85 billion in monthly asset purchases from the central bank.

" Growth is not going to pick up and inflation actually is falling," the head of Roubini Global Economics and noted " Dr. Doom" told " Closing Bell." " So the markets are worried about tapering off sooner, but I think tapering off is going to occur later and therefore the market is going to rally."

  Stocks have staged a huge surge this year despite tepid economic growth, with the S& P's 500 rising 0.6% Monday and 15% for 2015.

" You're going to have an increasing gap between Wall Street and Main Street, between what's happening to asset prices and real economic growth," he said. The effect of the Fed helping stock prices " for now is dominant, but of course over time it cannot trump those gravitational forces of economic fundamentals."

In the meantime, the Fed will continue to try to manage its exit in a way that won't be too disruptive either to rates or the market forces on Wall Street.

" When the Fed is going to exit, it's going to have exit very, very slowly," Roubini said. " The economy is weak and the stock market does not want a correction."

 

With the most recent market rally from the March 2009 Dow Jones Industrial Average low of 6,547 to the recent eclipse of 15,000, Investors are beginning to bring back all the old Wall Street myths that just won't die.

If you’re saving for retirement, you would be wise to ignore these long-held canards:

Myth No. 1: The stock market averages 10% annually over time

Investors have been conditioned by the news media, financial commentators and some fund families that if they stay invested over long periods of time they should expect to average about 10% growth in the stock market.

Sure, there have been times where the stock market, based on the S& P’s 500 Index,  did average 10% or higher. We can think of the 90s, where the market did go up very nicely for many years. But conversely, we can look back and see that from 1964-1982, the market average basically went sideways for 18 years. No 10% per year growth there.

No one should really expect to consistently earn 10% per year in the stock market. Just buying and holding and hoping for 10%, could be dangerous.

Myth No. 2: Find the best track record

With the popularity of investing information websites, researching and analyzing investments can be very easy. The most common mistake I see investors make, is just searching for what has the highest track record. Basically choosing their investments on what ever theme is in vogue. This is probably the easiest mistake to make.

Why choose an investment that has recently not done well? Diversifying your investments, would require you to invest in some asset classes that are not going up right now and some that may be doing very well. In your allocation, you want to strive for assets that are not perfectly correlated so if some are going down, others may be going up.

Myth No. 3: Investing risk goes down over time

Investing always involves risk and whether you have been investing for one year or 30 years, the risk of loss is still the same. The longer you invest, does not mean the risk of loss declines. You may even have more money at risk, if your investments have grown over time. If stocks always went up, the cost of hedging a portfolio against the risk free rate would decline over time. But it doesn't.

Now would be a good time to get with your adviser and look at rebalancing your investments to make sure your risk level is still consistent with your risk tolerance and investing objectives.

 

U.S. stocks make late leap in Fed-inspired trade

After spending much of the day in the red, Nasdaq recovers

NEW YORK (MarketWatch) — U.S. stocks rallied on Monday, bouncing back from weekly losses, as investors gauged the impact of disappointing factory data on potential QE moves by the Federal Reserve.

In an interview on Bloomberg Television, Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank remains committed to record stimulus, saying “any adjustment is not a major policy shift.”

Lockhart, who is a nonvoting member of the FOMC this year, also noted that economic data are “still very mixed,” with Monday’s ISM manufacturing report being a good example.

The Institute for Supply Management said Monday its business-conditions index last month fell to 49% in its first contraction since November.

“We can now say with even more confidence that there is literally zero chance the Fed announces any adjustments to its QE program in June,” noted Dan Greenhaus, chief global strategist at BTIG LLC.

After falling nearly 8 points, the Dow Jones Industrial Average gained 138.46 points, or 0.9%, to end at 15,254.03.


The S& P 500 index  gained 9.68 points, or 0.6%, to 1,640.42, with consumer staples leading the gains that included all of its 10 major industry sectors.

After spending nearly all of the session in negative terrain, the Nasdaq Composite rose 9.45 points, or 0.3%, to end at 3,465.37.

The FOMC will meet on June 18 and 19.

In May, the Dow rose 1.9%, the S& P added 2.1% and the Nasdaq Composite rose 3.8%.

 

Goldman: S& P 500 poised to rise with bond yields

The S& P 500 index  still looks attractive, despite the fact that we are beginning a month with the 10-year Treasury note yield roughly half-a-percentage point higher than the start of the previous one.

So says Goldman Sachs, the investment bank that predicted back in April that interest rates would rise to 2.5% by the end of 2013. They are hanging onto that prediction, but say that as rates rise higher, U.S. and European equities can too.

Because the rise in yields during the month of May was driven by expectations of economic growth and potential U.S. monetary policy changes — rather than inflation fears — the bank is still bullish on companies listed in the S& P 500.

Goldman analysts, led by Chief U.S. Equity Strategist David Kostin, say that if those factors continue to drive the trend of rising yields, the S& P will remain attractive.

They recommend buying stocks in sectors that are sensitive to yields, namely financials and industrials.

They cite three reasons for their bullishness in a Friday note:

1. S& P 500 valuation has exhibited positive correlation with 10-year yields since 2000
2. A large equity — bond yield gap can tolerate higher bond yields and
3. A better growth outlook is good for EPS growth

Last week the 10-year Treasury yield passed the  S& P 500 index dividend yield, prompting questions about whether investors would move from stocks back into bonds. But in a Monday note, Goldman further reiterated its stance, noting a revision upward in dividend forecasts.

      “We increase our S& P 500 dividend forecasts but upside still remains limited — implied growth has been very correlated with equities.”

 

胡 立 阳 ： 下 半 年 可 能 美 股 重 挫 A股 上 冲

5月 23日 消 息 ， 亚 太 股 市 今 日 集 体 大 跌 ， Nikkei 收 跌 7%， 截 止 14:30港 股 恒 指 跌 幅 超 2%。 有 台 湾 股 神 之 称 的 胡 立 阳 对 新 浪 财 经 表 示 ， 美 股 和 美 国 国 债 下 半 年 可 能 出 现 因 为 QE结 束 的 过 山 车 及 重 挫 ， 相 反 A股 可 能 往 上 冲 ， 跟 美 股 形 成 跷 跷 板 。

胡 立 阳 称 ， 今 日 亚 太 股 市 大 跌 表 明 全 世 界 资 本 市 场 的 神 经 都 被 美 股 牵 着 走 。 美 股 一 个 月 来 一 路 涨 涨 不 休 ， 像 过 山 车 一 样 往 上 爬 ， 当 越 来 越 高 时 迟 早 要 下 来 。 而 美 股 上 下 的 原 因 就 是 QE， 市 场 对 此 心 惊 胆 战 。 最 近 总 听 到 消 息 称 QE随 时 会 结 束 。 因 此 下 半 年 美 股 将 会 像 过 山 车 一 样 吓 人 ， 真 正 的 起 伏 将 出 现 。

胡 立 阳 还 表 示 ， 美 股 为 什 么 会 涨 涨 不 休 ， 首 先 要 了 解 资 金 的 动 态 。 最 重 要 的 就 是 通 过 美 国 10年 期 国 债 收 益 率 来 看 资 金 状 况 。 实 际 上 国 债 收 益 率 这 个 月 一 直 往 上 至 接 近 2%， 几 乎 是 今 年 来 新 高 。 国 债 收 益 率 上 升 代 表 债 券 价 格 下 跌 。 大 家 担 心 美 国 资 金 紧 缩 和 加 息 。 美 国 债 券 价 格 已 跌 一 个 月 。 资 金 在 过 去 一 个 月 从 债 券 市 场 流 入 美 股 ， 因 此 道 指 涨 涨 不 休 。 但 如 果 美 国 QE结 束 ， 债 券 和 股 市 将 一 样 重 挫 。

当 谈 到 A股 时 ， 胡 立 阳 称 他 对 A股 不 会 过 分 担 心 ， 其 他 很 多 涨 得 多 的 国 家 股 市 才 会 被 拉 回 。 A股 与 美 股 联 动 少 ， 目 前 仍 处 于 低 位 区 域 ， 因 此 不 会 受 太 多 牵 连 。 不 排 除 下 半 年 出 现 美 股 下 跌 ， A股 出 现 往 上 冲 的 跷 跷 板 走 势 ， 就 想 2008年 四 季 度 一 样 。 香 港 的 中 资 股 还 是 沾 着 A股 ， 所 受 的 牵 连 也 比 较 少 。

胡 立 阳 称 对 于 美 股 ， 必 须 提 防 两 个 时 间 段 。 一 个 是 过 去 20,30年 间 ， 美 股 6,7,8月 回 出 现 放 暑 假 (熄 火 )行 情 ， 不 排 除 重 演 下 跌 。 另 一 个 是 10和 11月 。

---

 

A strong month on Wall Street ended on a weak note Friday after a late-day sell-off sent stocks down more than 1%.

The  Dow Jones industrial average  fell 209 points, or 1.3%, with most of the selling in the final hour of trading. The  S& P 500  sank 1.4% and  Nasdaq  slid 1%.

Despite Friday's losses, all three indexes ended May in the black. The Dow and S& P 500 both gained about 2%, while the Nasdaq advanced nearly 4%.

It's the first time the Dow has ended higher in May since 2009, and marks the sixth monthly gain for the index. So far this year, the major gauges are all up about 16%.

 

U.S. stocks end positive May with thud

NEW YORK (MarketWatch) — U.S. stocks fell sharply Friday afternoon as Wall Street closed another month of gains with a whimper after mixed economic reports.

“We’ve had a week of mediocre news for the United States not a soft patch, not concerning, but certainly not inspiring,” said Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati.



“We would like to see a quiet summer, where the market marks some time and consolidates some recent gains,” added Russell of Wall Street’s advance, which put the DJIA ahead 1.9%, the S& P 500 index up 2.1%, and the Nasdaq Composite up 3.8% for the month.

After rising 67.8 points, the DJIA ended down 208.96 points, or 1.4%, at 15,115.57, its steepest drop since mid-April. The selloff accelerated late in the session:about 30 points of the Dow’s 209-point slide came in the last minute, FactSet data show.

 

Dow, S& P 500 plunge 1.4% in final minutes

Benchmark stock indexes sank Friday afternoon after climbing earlier in the day. The Dow Jones industrial average closed down 208.96 points, 1.4%, to 15,115.57, and the S& P's 500 index plunged 23.67 points, 1.4%, to close at 1,630.74.

Analysts said the last-minute sell-off was due to investors taking profits at the end of May and before the end of the second quarter next month. It shows a growing fear that the market's stunning run so far this year is at risk of ending in the second half.

It was the worst day in a month-and-a-half for the Dow and the S& P 500 though the broader index has now posted gains for seven straight months, its longest winning streak since 2009.

The tech-laden Nasdaq composite index lost 35.38 points Friday, 1%, to finish at 3,455.91. Earlier gains in stocks were credited to a report that showed consumer sentiment was stronger in May than initially estimated.

The yield on the benchmark 10-year Treasury note remained high at 2.16%. And the price of gold dropped $27 an ounce, 1.9%,to about $1,385.After a report that unemployment in the eurozone reached an all-time high in April, major European stock indexes took a hit.

 

This Chart Shows Dow Should Be Lower...a Lot Lower

While earnings have grown only modestly over the past few quarters, stock prices have surged, sending what could be a disconcerting message to investors.

The Dow industrials, in particular, have seen a 17% jump in 2013 alone even as earnings in the past two quarters have grown little.

That trend disrupted a formerly symbiotic relationship between earnings and stock prices and is indicating that the bluechip average is in for a substantial pullback, according to Tom Kee, who runs the StockTradersDaily investor web site.

" They've been moving in tandem since 2009, until recently. Earnings per share for the Dow Jones industrial average have flatlined and the price has taken off," Kee said. " There is something happening here that defines a bubble."           ...more...


 

 

Buying will return soon!

 

Stocks pare gains late in day, close moderately higher

It seemed Thursday as though nothing would unsettle traders who were in a buying mood again. Benchmark stock indexes spent the day well in the black despite three economic reports that missed economists' expectations and mortgage rates hitting a one-year high.

The weaker-than-expected economic news may have temporarily eased fears that the Federal Reserve is poised to pull back on its stimulus bond-buying. Worries about the timing of the Fed's so-called tapering have been a major driver of the market this week.

Each major index closed higher on Thursday, and if the trend continues stocks are on track for the first positive month of May since 2009.

After a late-day pullback erased some of the day's best gains, the Dow Jones industrial average closed at 15,324.23, up 21.73 points, or 0.1%. The broader S& P's 500 index closed up 0.4% at 1654.41, gaining 6.05 points.

The tech-laden Nasdaq composite index erased Wednesday's losses and closed 0.7% higher at 3491.30, up 23.78 points. Tech stocks were mostly higher on a 5.3% jump in Facebook shares, following an analyst's upgrade ahead of the opening bell.

U.S. investors seemed unmoved by a 5.2% plunge in Japan's Nikkei 225 index in the final minutes of trading.

 

The story we keep getting told is that it is only QE that is keeping the equity markets alive. End it, and we will see a crash that will make 1929 seem like a mere wobble on the charts.

Again, not true.

QE will only come to an end when you get a growing economy, with rising employment, and a healthy property market. All that is by definition good for company profits and good for equities. At the same time, if bond yields stay very low, then with a more confident economy investors will be attracted by the higher yields offered by equities. So equity markets will rise as well.

Most of the debate around QE assumes it is going to be withdrawn while the economy is in dire straits.

But why would that happen? Nobody stops the medicine before the disease has been bought under control.

You can certainly argue about whether printing money is the right solution. But whether it is or not, it is the one that central bankers have fixed upon — and they are not likely to stop until they have finished the job. QE will only end when the economic outlook is definitely improving, and while it may involve some shocks along the way, it will be good for most markets rather than bad.

 

Stocks end lower but cut early losses

Stocks losses deepened Wednesday as rising interest rates sent investors fleeing.

The Dow Jones industrial average's decline at one point was almost 200 points in morning trading after the yield on the bellwether 10-year Treasury note topped 2.17% this week, a 14-month high. On Wednesday, the yield finished at 2.12%.

By day's end Wednesday, about half of the trading session's earlier losses had been erased. The Dow closed down 106.59 points, 0.7%, to 15,302.80. The broader S& P's 500 index finished down 11.70 points, 0.7%, to 1,648.36. The tech-laden Nasdaq composite index closed down 21.37 points, 0.6%, to 3,467.52.

After closing at its 25th record high so far this year Tuesday, the Dow Wednesday suffered its biggest one-day drop since May 1 and it was the lowest close for the S& P 500 since mid-May.

 

... yes, it is a correction widely expected.... generally predicted to be 5 to 10% that last about three months or so ....