Tuesday, 24 October 2017

Markets mixed but earnings a “solid tailwind”

Markets were mixed on Monday.

The S&P 500 fell 0.4 percent to end a six-day winning streak.

However, elsewhere, the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 jumped 1.1 percent after Japanese Prime Minister Shinzo Abe's ruling coalition secured a two-thirds majority at Sunday's election.

The decline in US stocks on Monday did little to dampen optimisim.

“Earnings remain a solid tailwind for equity prices,” said Robert Doll, chief equity strategist at Nuveen Asset Management LLC, in a note.

Avi Gilburt, an Elliott Wave technical analyst and author of ElliottWaveTrader.net, does expect a pullback in the coming weeks but then expects the market to “rally into the end of the year”.

Monday, 23 October 2017

US stock market record-breaking run could keep going

The S&P 500 rose 0.9 percent last week to end at another record high, and many analysts think it can go even higher.

The S&P 500 rose 0.5 percent on Friday on hopes of tax cuts and Doug Gordon, senior portfolio manager at Russell Investments, thinks that tax reform in the US could keep the bull market going.

“I don't think we have it fully priced in as of yet,” Gordon told CNBC last week referring to the tax reform.

Gordon suggested that non-US developed equities “look modestly more attractive” than US equity markets.

However, sounding a cautionary note, Gordon said that the market has moved into the late stages of the bull run and that the market “could get those irrational exuberance kind of moments” but “I don't think we're quite there yet”.

Indeed, most analysts remain optimistic.

“We are getting more calls from our clients asking us whether they should sell their stocks rather than buy them, because they are scared. This is not what you normally see at market tops,” noted Maris Ogg, president at Tower Bridge Advisors, who thinks that the market could continue to climb for another couple of years.

Meanwhile, Bespoke Investment Group noted that “2017 is tied for the fifth most closing highs on record, dating back to 1929” and that “there’s the potential for more”.

Still Ogg did warn that there is risk of a sudden drop in profit margins. While net profit margin was 9.5 percent in the third quarter and close to a record high, Ogg sees wage pressure “building up”.

Indeed, John Hussman, President of Hussman Investment Trust, warned in a recent article that “the process of profit margin normalization is already underway”, driven by a low unemployment rate and the demographic constraint of a slow-growing labour force.

Without the boost from a rising profit margin and with valuation already “2.75 times their historical norms”, Hussman warned that “the S&P 500 is likely to post negative total returns over the coming 10-12 year horizon, with a likely interim loss in excess of -60%”.

Saturday, 21 October 2017

Markets rise as Trump trade reignited amid “synchronized expansion” in global economy

Markets rose on Friday.

The S&P 500 rose 0.5 percent to a record high after the US Senate passed a budget blueprint for the next fiscal year to pave the way for tax cuts.

The STOXX Europe 600 rose 0.3 percent despite continuing concerns over the issue of Catalonian independence from Spain.

The Nikkei 225 rose less than 0.1 percent ahead of an election on Sunday but that was still its 14th consecutive gain.

“The Trump trade has been reignited, so it seems. Tax reform is definitely back on—if it was ever off, thanks to the Senate approving of the Republican-backed budget Thursday night,” said Neil Wilson, senior market analyst at ETX Capital, in a note.

“The global economy has now entered a synchronized expansion for the first time in many years, and the usual macro fears are largely absent,” wrote Bill Miller, portfolio manager at Miller Opportunity Trust mutual fund on Wednesday. “This has underpinned a global bull market in stocks without (yet) triggering a significant rise in interest rates.”

“Low interest rates coupled with still solid earnings growth suggest valuations can remain high amid a tame business cycle, absent an exogenous shock,” said Third Point's Dan Loeb.

Friday, 20 October 2017

Markets mixed as US stocks rebound after losses elsewhere

Markets were mixed on Thursday.

Early in the day in Asia, the Nikkei 225 rose 0.4 percent but the Hang Seng Index tumbled 1.9 percent and the Shanghai Composite fell 0.3 percent after a report showed that China's economy grew 6.8 percent in the third quarter, down from 6.9 percent in the second quarter.

The STOXX Europe 600 fell 0.6 percent as the China data combined with an escalation of political tension in Spain and disappointing corporate results to drag stocks down.

However, the S&P 500 managed to rebound from early declines to finish flat.

“While there is no question that markets are overvalued and we could see some corrections, the path of least resistance for stocks is still to go higher,” said Jack Ablin, chief investment officer at BMO Private Bank.

Thursday, 19 October 2017

Stocks rise amid positive global earnings trends and flattening yield curve

Markets rose on Wednesday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Shanghai Composite rose 0.3 percent.

“Overall, earnings are coming in very nicely,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.

“Economic data globally is confirming positive earnings trends,” said Maris Ogg, president of Tower Bridge Advisors.

Luiz Sauerbronn, director of the investments group at Brandes Investment Partners, said that European corporate profitability is “starting to recover now” while valuations are “very attractive relative to the US”.

One risk, though, is a flattening yield curve.

CNBC reported that this week, the spread between 2-year note yields and 10-year yields in the US reached near the lowest it has been since before the financial crisis.

Wednesday, 18 October 2017

Markets mixed but US stocks edge up on positive earnings

Markets were mixed on Tuesday.

The S&P 500 edged up by less than 0.1 percent while the Nikkei 225 rose 0.4 percent but the STOXX Europe 600 fell 0.3 percent.

Positive earnings reports from major companies boosted sentiment in the US.

Karyn Cavanaugh, senior market strategist at Voya Financial, said that “the market is climbing thanks to global growth that’s been driving earnings”.

Bill McNabb, chairman of Vanguard, told the BBC that financial markets “keep reaching new highs” despite valuations being “very high” partly because they had ignored some of the political turbulence around US President Donald Trump's administration.

However, he added: “We expect there could be a decent-sized correction at some point.”