The market will see two really big technology events in the next two weeks. On Tuesday, Apple will unveil its IPhone 6 and their newest family member — the iWatch. Certainly Apple action will be driven by this show, but tech in general will also get dragged into the excitement and with that many expect that the Nasdaq Composite will challenge its 52-week high of 4,610.44. Unless, of course, investors are disappointed with what they see. Thursday, Sept. 18th brings the $24 billion dollar NYSE IPO of Alibaba – the Chinese retailing giant representing the largest IPO in U.S. history. Initial estimates reveal a pricing in the range of $60 to $66 a share and would give this company a $163 billion dollar value – this is also sure to raise the temperature on the technology sector and create massive excitement as well.
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From the global perspective, Milan plays host to the annual Eurofi Financial Forum on September 10 to 12 – this year's discussion will focus on "Relaunching Growth in the Current EU Economic and Regulatory Environment." Eurofi is a European think tank dedicated to financial regulation and supervision. The purpose is to help European industry, elected officials and public decision makers find ways to create solutions between regulatory, governmental and financial services. All of the who's who – the Bundesbank, the ECB, the EU Commission, elected officials from the continent and your friends at Goldman Sachs, BAC, JPMorgan to name just a few will be in attendance. Now, no one is really expecting any earth shattering news to come of it but all ears will be listening to speech by European Central Bank President Mario Draghi to see if they missed anything last week or if he slips something new into the conversation.
Thursday will bring Chinese macro data — PPI and CPI inflation rates. Most estimates suggest further weakening in both those reports which then brings up the conversation about what if anything the People's Bank of China will say. Finally, Friday brings us a peek at U.S. retail sales.
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Now mid-September is an interesting time. First, it is the time when we begin to see analysts tweak their third-quarter estimates (usually downwards) ahead of the actual reporting season causing stocks to react (move lower) on these revisions and then wait patiently for the actual report only to rally when the actual report beats the new estimate. Rarely do we see estimates get lowered and then see the company miss those newly revised lowered numbers. Second, we will see analysts and strategists tighten up their year-end performance and estimate numbers. This year it is no different and Barron's led the charge with this week's cover story: "Steady as She Goes."
The sense is that strategists are confident that third- and fourth-quarter earnings, the October end of the Federal Reserve's quantitative-easing program, the upcoming mid-term elections and the better overall tone to U.S. macro data will continue to propel stocks higher right into year end. As of Friday, the S&P 500 is up 8.3 percent — add in dividends and the return becomes 10+ percent, so if stocks do nothing more through year end, then it will be another winning year. That's not too shabby -- and it does represent a return to normal historical averages. Although stocks may not be cheap, they are also not considered to be expensive. And with rates remaining ultra low, the path of least resistance is still higher over the longer term. That being said, a pullback is not out of the question at all, but any pullback will continue to be seen as an opportunity as analysts cite the large amount of cash still on the sidelines and conservative allocations causing institutional asset managers to be underperforming forcing them to have to play catch up before year end.
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On the other hand, some analysts believe that not only has this rally run its course as the markets continue to disengage from fundamentals but now because parts of Europe are in recession and Germany is contracting, there are challenges ahead that will catch the markets off guard. Add in the continued geopolitical uncertainty and the bears are chomping at the bit. I am not a buyer of this argument as I continue to think that any pullback caused by geopolitical events will be short-lived and any pullback created by one-off macro events will be met with plenty of natural demand. Investors are a forgiving bunch as long as the broader picture remains clear – and while individual names may get punished or rewarded, the broader market cannot fully re-price with the continued stimulus and aggressive monetary policies from central banks around the globe.
