Saturday, 19 August 2017

Markets fall, US stocks most expensive since 2003

Markets fell on Friday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 fell 0.7 percent and the Nikkei 225 plunged 1.2 percent.

While US stocks were lower for the week for the second consecutive week, the S&P 500's earnings per share increased 10.8 percent in the second quarter, the first time the index has posted two quarters of double-digit gains since 2011.

However, the US stock market remains expensive. According to Bank of America Merrill Lynch, the S&P 500's forward P/E ratio rose to 17.7 in July, its highest level in 13½ years.

Bill Baruch, senior market strategist at iiTrader, said that the market has gotten “a little ahead of itself” while Samuel Rines, chief economist and global macro portfolio manager at Avalon Advisors, said that a rise in interest rates “should lead to multiple contraction”.

Other analysts are unperturbed.

Erin Gibbs, portfolio manager at S&P Global, said that the S&P 500's forward P/E ratio would have to touch about 19 times to appear “peakish”.

In the meantime, BMO's Brian Belski said that “we are now closely monitoring our target models to determine if an upward revision is needed”.

Friday, 18 August 2017

Markets fall amid concerns over terrorism and US presidency

Markets fell on Thursday.

The S&P 500 plunged 1.5 percent, the STOXX Europe 600 fell 0.6 percent and the Nikkei 225 fell 0.1 percent.

US stocks were particularly hit by news of a suspected terrorism attack in Barcelona, Spain and concerns that Gary Cohn was resigning as economic adviser to President Donald Trump.

“With the light volume, Barcelona is not something that the market is going to handle well,” said Mark Kepner, managing director of sales and trading at Themis Trading.

“There’s no direct market impact in what Trump has done recently, but if things continue to be so polarized that his agenda is completely dead on arrival, that would have a negative impact,” said Mark Spellman, portfolio manager at Alpine Funds.

Indeed, Brett Arends at MarketWatch noted that over the past 100 years, when the US president has become too politically weakened to lead effectively, the Dow Jones Industrial Average lost an average of 14 percent of its value in constant dollars.

Thursday, 17 August 2017

Markets rise as tensions over N Korea recede

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.1 percent while the STOXX Europe 600 rose 0.7 percent but the Nikkei 225 fell 0.1 percent.

“Over the past couple of days we’ve seen a decent rebound in equity markets as risky assets start to regain some of their attraction, as concerns about tensions in North Korea show signs of settling down a little,” wrote Michael Hewson, chief market analyst at CMC Markets.

Indeed, a Bloomberg report noted that compared to other times in the last few years when the S&P 500 took one-day plunges of between 1 percent to 3 percent, the rebound since Thursday ranks among the fastest.

Wednesday, 16 August 2017

Most analysts think US market overvalued

Markets were mixed on Tuesday.

The Nikkei 225 jumped 1.1 percent, reversing the previous day's 1 percent decline, but the STOXX Europe 600 rose just 0.1 percent and the S&P 500 fell less than 0.1 percent.

The latest Bank of America Merrill Lynch Fund Manager Survey showed that a net 46 percent of respondents considered stocks overvalued, the biggest gap ever recorded in the survey.

At the same time, investors have lowered their expectations for corporate earnings, with a net 33 percent saying profits will improve over the next 12 months, down 25 percentage points from 2017.

However, long-time bull David Tepper, head of Appaloosa Management, does not seem to agree.

“Any comparisons to past overheated markets are ridiculous,” he told CNBC. “I'm not saying stocks are screaming cheap, but you're nowhere near an overheated market.”

Tuesday, 15 August 2017

Markets rise, earnings forecasts fall

Markets were mostly higher on Monday.

The S&P 500 rose 1.0 percent, the STOXX Europe 600 rose 1.1 percent and the Shanghai Composite rose 0.9 percent.

“After some short-term knee-jerk reactions last week, the market is having that moment of clarity rally—earnings are marching forward, the economy is strengthening, [and] global economic conditions are gaining steam,” said Karyn Cavanaugh, senior market strategist at Voya Financial.

Other analysts are not so sure.

Ryan Vlastelica at MarketWatch said that despite strong earnings growth in the second quarter, analysts have lowered S&P 500 earnings forecasts for 2018 by 0.2 percent since the end of June.

Monday, 14 August 2017

US stock market declines but bull run may not be over

The US stock market fell 1.4 percent last week but some bulls remain undaunted.

John Tobey suggested that “it's time to ride stocks and leave the worrying to others”.

Tobey said: “[T]his market is filled with concerns – its calm rise, higher valuations and the supposed complacency of others. Therefore, there is no bubble to pop.”

Instead, Tobey said that recent warnings about stock investing dangers are a “bullish indicator”.

He quoted Richard Barley as saying that “the real time to worry should be when no one is worried” and that “day has yet to arrive.

Similarly, Jeffrey Saut, Raymond James' chief investment strategist, recently said on CNBC that “it's still a secular bull market”.

However, Saut noted that there has been “some technical damage done” and that he is “not sure the downside is over with”.

Nevertheless, for the longer term, Saut said that earnings have been coming in better than expected and that should help drive the secular bull market.