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By: Brian Price
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One well-known market bull believes that stocks are set to keep climbing, but is looking for a key catalyst to drive further market growth.
Jeremy Siegel, professor at the University of Pennsylvania's Wharton School, appeared on CNBC's "Trading Nation" in July to predict that equities could jump by as much as 15 percent in the second half of the year. In an appearance Tuesday on CNBC's "Futures Now" he reinforced his outlook, though this time with the caveat that a strong earnings season is needed or the market could see its wings clipped.
"I think we need an earnings acceleration If we really want to get this market moving," said Siegel. "But in the presence of a 1.5 percent 10-year [Treasury note yield], low rates, the Fed [giving] at most one increase [this year] and the dividend yield on the stock market being over 2 percent, people are saying, 'Hey, it's not bad being here.'"
While investors have been thrilled with the continual highs set by today's markets, there has also been a touch of caution even in spite of the good news. Three consecutive quarters of lower productivity growth, weak GDP expansion around the world and record low inflation have caused even a market bull like Siegel to temper their predictions for a market rally.
But with a steady earnings season, things could change. Big tech stocks like Apple and Facebook have led the charge in second-quarter earnings, while financials have recovered somewhat with many of the big banks beating estimates. Biotech companies have also performed relatively well, with giants like Amgen and Biogen crushing estimates, sending their stocks soaring in the aftermath.
The successes have been offset, however, by other sectors that have seen disappointing results. While a handful of retail's big names, like Michael Kors and Ralph Lauren, have managed to beat earnings estimates, investors are still urged to approach them with caution given the industry's struggles this year. Energy earnings have also disappointed this quarter, with big names like Exxon Mobil missing estimates by large margins.
Siegel still sees the S&P 500 headed above 2,300 this year, which means that the index would have to rise about another 6 percent based on Wednesday's level of 2,177.34. But Siegel is also looking at possible rallies in the Nasdaq and the Dow to take the markets higher.
More specifically, Siegel believes that if a catalyst like earnings appears to drive growth, the Dow could beat its intraday record of 18,622.01, which the index set in late July.
"We'll get over 19,000, that isn't much from now [and] it could reach near 20,000 if we get a meaningful acceleration in GDP and earnings growth, [along with] getting oil back towards $50 to $55," said Siegel. "That would revive the energy sector, which has been a big drain on earnings."
But at the same time, the current economic environment could also mean that all three indexes fall short of reaching their full potential, especially if the rest of this season's earnings reports don't pick up.
"I don't think there's going to be that much deviation between the S&P, the Dow and the Nasdaq, [with] the Nasdaq [being] more tech heavy, [and] the tech sector has been doing well," he added. "That's really where the only real growth tends to be, but I think all of them are going to be up less than 10 percent this year unless we get a meaningful acceleration in the second half of the year."
Crude's recent brush with levels close to $40 per barrel has made a lot of energy watchers nervous, but a top market analyst believes that international events will conspire to send oil prices sharply higher over the next several months.
Helima Croft, the global head of commodities strategy at RBC Capital Markets, identified supply talk surrounding Libya and Nigeria as two "bearish red herrings" for the oil market. Instability in both countries has sharply curtailed production in both OPEC member states, with Nigerian supply cut in half as militants target the country's pipelines.
"Right now there is kind of this fear that we could get 900,000 additional barrels [per day] out of Libya, the head of the national company said that by year-end," Croft said last week on CNBC's "Futures Now."
Meanwhile, "there's this view that because Nigeria [has] resumed these amnesty payments, it's going to bounce back as well [with] 400,000, 500,000 barrels," she added, referring to funds the country is providing to militants in order to halt attacks on Nigeria's oil arteries.
Nevertheless, "we just think those producers are going to remain distressed," Croft said, meaning that global oil supplies will likely remain crimped, putting upward pressure on prices.
Amid global oversupply and a strong U.S. dollar, crude's downward spiral will continue, according to one of Wall Street's largest firms. But that may not be terrible news for all investors.
"Oil could get down to the $35 per barrel level, which would most certainly at this point take the equity markets with it," Bank of America Merrill Lynch's Paul Ciana told CNBC's "Futures Now" on Tuesday.
In January, crude and equities traded in a near identical correlation before the February lows. Ciana explained that with crude now down 21 percent from the year-to-date highs, he's concerned that eventually equities may feel the impact. Then, global markets could see another spike in volatility as investors grow worry about a correction.
Crude fell more than 1 percent on Tuesday to settle at its lowest level since April. On Wednesday, U.S. crude was up slightly but still below $40 a barrel.
"We could see the beta between crude and global markets increase again," Ciana said, referring to volatility. "Oil has reached the target from the technical top, and seasonals point to weakness in September to October."
Seasonal patterns may be the biggest headwind for crude, since prices typically peak in August toward the end of the summer U.S. driving season and then decline on average through November. With crude at the lows in August, Ciana sees trouble.
"Crude oil is already down so much from the June [$51 per barrel] highs," he said. Ultimately, Ciana said, this week's break below $40 could lead to a retracement of the year-to-date high-low range of $35.84. However, this movement could also provide a fresh opportunity for commodity investors in the mid-term.
"The next trade for crude oil would be to let it get down to the mid-30s and let some of that risk offset sentiment," Ciana said. "Let some of the headlines run and then take a stab at actually buying crude oil."
Ciana concluded that, at an intermediary trend perspective, if crude can hold the $35 support level the technical set-up would be in place to begin forming the right shoulder of a head-and-shoulders bottom pattern.
"From that point, we would need to see crude rally up to test the neckline and break through $52. That could launch crude oil much higher into 2017," Ciana said.
As the race for the White House heats up, former U.S. Representative Ron Paul says neither Hillary Clinton nor Donald Trump offer what the U.S. economy needs right now.
"I think neither one will restore a great, great economy, because I think there's too many mistakes out there, too much mal-investment, too much debt, too much pain to correct these things," Paul said last week on CNBC's "Futures Now."
The Libertarian firebrand has long predicted a bubble in stocks, and doesn't see Trump or Clinton offering solutions to the issues he feels plague the economy.
"I'm still looking for my third candidate," the former Republican Party presidential candidate said.
"I want just to move in the direction of less spending, less taxes, less regulations, less pruning of money, less power in the financial system, less power from the Federal Reserve and I don't see that candidate that will do that."
After a strong first half of the year, oil just posted its worst month since July 2015.
Despite fears that the commodity could retest the mid-$30 range, one closely-followed oil watcher is especially bullish on where energy is heading in the coming months and years—and investors should not get comfortable with currently low prices.
"It may get a little uglier with some European refinery shutdowns," admitted Tom Kloza recently on CNBC's "Futures Now" when discussing the potential for a near-term slowdown in the U.S. "But this is very seasonal."
The global head of energy analysis for the Oil Price Information Service (OPIS) explained that, while he expects to see a $39 handle for oil in the coming weeks, prices will see significant gains in the long-term.
"I'm pretty comfortable in predicting that crude oil prices will be much higher one year from now, two years from now, and three years from now with prices perhaps in the $50 to $75 range," Kloza told CNBC.
"But, like the New York Yankees, we may have to waddle through a long period of mediocrity and pain until things turn around," he added.
Crude oil hit a 2016 high of $51.67 on June 9, but has since fallen nearly to 20 percent.
"Speak softly and carry a big stick."
"When it comes to rate hikes, the Fed has no stick. All they can do is speak loudly," explained the CEO of Euro Pacific Capital on Tuesday on CNBC's "Futures Now" when discussing the Fed's strategy in 2016. "The Fed has been bluffing. They're finished tightening."
Furthermore, Schiff believes that the Fed already has the wheels in motion to enact another round of quantitative easing, but wants to represent the possibility of another rate hike to the market. Schiff maintained that if the Fed chooses to raise rates, the whole U.S. economy could implode.
"Instead, they keep positioning that they're about to raise rates, but then they keep coming up with one excuse after another," claimed Schiff, who stuck to the bearish view that the U.S. economy is on the doorstep of another recession.
"I think what they're going to do to ease monetary policy going forward is to adjust their rhetoric," explained Schiff, who noted that the Fed lacks mobility, with only a quarter of a point to maneuver within if it chooses to lower rates. "They'll start talking about not raising rates soon, then they may admit that they no longer have a bias to tightening, then they can say they have a bias to easing."
Schiff was also quick to dismiss Fed policy as the key driver behind this year's rally. Rather, he believes the market's ability to absorb Brexit aftershocks is what has helped stocks climb to record levels in 2016.
"When Brexit happened, central banks starting talking about more stimulus," noted Schiff. "I think it was Brexit that took the Fed out of the game. That's what caused the rally."
Since Britain's vote to the leave the EU, the Dow and S&P rallied 6 and 7 percent from the lows, respectively. With speculation that rates would be lowered around the world, Schiff believes the rally is "phony" and is based on the belief that there will be cheap money readily available for investors.
Schiff added that flawed central bank policies around the world have led to a "bond bubble" and warned investors about the draw of high-yielding treasuries.
"I don't own any bonds," he explained when pressed by "Futures Now" trader Scott Nations on why his bond fund is underperforming the market. "It's a bond fund that has no bonds, because I don't want to participate in a bond bubble. When the bond bubble bursts, my bond fund is going to be number one. All I have is very short-term debt in foreign currencies."
When confronted further by Nations about his call of no interest rates in 2015, Schiff was adamant that a quarter of a point is nothing to write home about.
"If you go back to late 2014, the consensus among most of the people that came on your show was that by the end of this year, the Fed will have raised interest rates between 6 and 8 times," argued Schiff. "I said they wouldn't raise them at all. Everybody was off by a mile! Nobody got closer than me!"
Of course, the Fed raised once in 2015, which led Schiff to maintain that he was far closer to being correct versus his colleagues on Wall Street.
"I knew that the Fed couldn't raise rates! The fact that they did one trivial quarter-point rate hike, and then back-tracked and took [other hikes] off the table proves that I was right," said Schiff. "They raised interest rates, the markets got crushed and the only reason the markets rallied back was because they stopped raising rates!"
The Fed will announce its July rate decision today with additional announcements scheduled for September, November and December. Schiff concluded that the Fed's next move will be a cut, not an increase in rates.
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