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By: Brian Price
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As a rough January for stocks comes to an end, BMO Private Bank's chief operating officer Jack Ablin sees a few reasons to be optimistic.
First of all, the decline in stock prices have made U.S. stocks—which he has recently perceived as rather pricey—a better value.
"We are getting close, or closer, to fair value, and I think that's something that investors can eventually sink their teeth into," Ablin said last week on CNBC's "Futures Now."
A tumultuous start to the year for the markets has investors running for cover — in bonds.
The 10-year treasury futures, which trade inversely with the10-year yield, are tracking for their best month of gains since January 2015. This as the 10-year yield has fallen from 2.30 percent to 1.98 percent in the last four weeks. As the ratchet month comes to an end, one technical strategist says there are signs in the chart that could be foreshadowing "a lot of pain" for global assets.
"From the futures perspective, it's getting a little intimidating," Bank of America Merrill Lynch's Paul Ciana told CNBC's "Futures Now" on Thursday.
Looking at a long-term chart of the 10-year Treasury futures, Ciana pointed to a head and shoulders pattern that has been forming over the last several years as cause for concern. As he sees it, a break above 129'20, which corresponds with the late September low in the S&P 500, could activate the pattern and propel the treasurys market sharply higher.
The brutal sell off Wall Street has endured over the last few weeks may have a silver lining.
The S&P 500 Index is currently trading at about 15 times the earnings analysts expect constituent companies to post over the next year, according to FactSet. This reading on this popular measure of valuation, known as "forward P/E," compares to a 15-year average forward P/E ratio of 15.7.
Of course, the conclusion gleaned from a historical comparison depends on the timeframe considered. In this case, it is worth noting that the current valuation level still represents a premium to the average of 14.3 seen over the past five- and ten-year periods.
Meanwhile, and likely because the firm is using different earnings estimates, S&P Capital IQ's current forward valuation number is 15.7, although they also note that is below the 15-year average.
However one does his or her math, there is no escaping the conclusion that by traditional metrics, stocks are cheaper now than they were in the middle of 2014; as record highs were hit in 2015; or even a few weeks ago.
Broadly speaking, what appears to have happened is that even as some investors provide a variety of economic feas or selling stocks ("The recession is nigh!"), analysts haven't substantially reduced their earnings estimates.
That means that the numerator in the "P/E" ratio has fallen, even as the denominator remains relatively static.
Meanwhile, the first earnings to trickle in have verged on decent, as 73 percent of S&P 500 companies have beaten their earnings estimates.
Predicting the short-term fluctuations of a multifaceted and sentiment-driven market is probably a fool's errand. But for long-term-focused investors, the question appears to be: Is the economy actually getting worse, and will earnings subsequently drop?
If their answer to that second, more important question is "no," then increasing their allocation to stocks right now could be a decent proposition.
(A note: Some might prefer to consider a trailing earnings ratio instead, despite the fact that few investors pay today's dollars for last years' results, but this shows a similar result: The last-twelve months number currently shows a reading at 16.3 last-twelve-months' earning, compared to a 15-year average of 17.7, according to numbers provided by FactSet senior earnings analyst John Butters.)
The International Energy Agency renewed concerns about a global oil glut after it said crude oversupply should continue through the end of 2016. The announcement follows the lifting of U.S. sanctions on Iran over the weekend, which experts project will add more crude to the market. Oil prices fell more than 3 percent Tuesday, settling at their lowest level since September 2003.
Despite the overwhelmingly bearish picture for the energy space, one expert maintains his view that we will see oil back above $40 by the end of the year.
"We think oil is going to go higher in the second half of the year because, even with Iran gradually increasing output, we expect the first signs of the rebalancing in the oil market," Mike Wittner said Tuesday on CNBC's "Futures Now." Crude oil has been in a precipitous decline for the last two years as supply and demand continue to drag the market lower. WTI crude is down 70 percent since January 2013.
To say that 2016 — all two weeks of it — has been tough would be a vast understatement.
Global markets have seen more than $3 trillion in losses this year as a heap of selling has pushed stocks around the world either into correction or an outright bear market, according to data pulled by Howard Silverblatt of S&P Dow Jones Indices. However, as many on Wall Street point the finger at the collapse in oil prices and continued turmoil in the Chinese stock market, one market pundit says there's no one to blame but the Federal Reserve.
"I think the reason the market is going down is because the Fed pricked the bubble. The Fed raised rates," Peter Schiff, the head of Euro Pacific Capital told CNBC's "Futures Now" in a recent interview. Schiff is a fierce critic of the central bank, which he believes has done more harm than good with its accomodative monetary policy.
"We are trying to rationalize it by pretending what's happening in the U.S. stock market has to do with factors beyond our control…so people can continue to pretend that everything is fine, that we have a legitimate recovery, the Fed can continue to raise interest rates and everything is going to be great," he added.
The S&P 500 is down more than 9 percent from since Fed Chair Janet Yellen announced she would raise interest rates for the first time in nearly a decade last month. A move in which Schiff, a longtime Fed critic, believes she will quickly have to reverse.
Despite this week's market turmoil around the world, one of Wall Street's biggest bulls maintains the end of the correction may be near.
On CNBC's "Futures Now" on Thursday, Tony Dwyer, who has an impressive 2,350 price target on the S&P 500, said he is watching four key indicators that prove the market may have found a bottom this week.
"We tend to wait for the market to get oversold enough and as of this week we got into that category," said the chief U.S. market strategist for Canaccord Genuity. "Our key four indicators will close this week in an extreme enough oversold condition that suggests any additional weakness from current levels should be made up very quickly."
First, Dwyer looks at something called a stochastic indicator — a technical measure that compares the current price of an asset to the highest and lowest price it's traded at over the last 14 weeks. He noted that when the indicator drops below 30, it shows an abundance of selling in the market. "It's now at 24, so barring any kind of incredible ramp it's going to close the week there," he said.
Next, Dwyer noted that the percentage of stocks trading above their 10-day moving average has diminished in the last few sessions, which is a sign that "you have a low that's pretty imminent." The S&P 500 hit a year-to-date intraday low of 1,878.93 on Thursday morning.
Stocks regained footing this week after a massive global sell-off had investors hitting the panic button. But amid all the negativity, one economist says all Wall Street needs to do is "take a deep breath and relax."
On CNBC's "Futures Now," Bank of America Merrill Lynch's Ethan Harris said that rather than fret over uncertainty in China, investors should look at the market for what it really is: overdone.
"I think that the market is overwhelmed with too many blindside hits," Harris said Tuesday. "You had geopolitical concerns around the Middle East and North Korea, you had weakness in the equity market and currency market in China, you had a little bit of soft data, and if you put it all together it was just a little bit too much for the equity market."
Even after a tumultuous year, the S&P 500 ended 2015 nearly flat. However, technician Jonathan Krinsky says stocks won't be so fortunate in 2016.
Markets kicked off the new year with a steep sell-off, with major U.S. indexes falling about 1.5 percent this week. But even as the S&P 500 has stalled, Krinsky pointed to weakness in the broader S&P 1500 index as a warning sign for large-cap indexes.
"We're moving sideways overall, but the internals are weakening. Nearly half of the S&P 1500 is down 20 percent from its 52-week highs, so you could almost say that half the market is already in a bear market here," the MKM Partners technician said Tuesday on CNBC's "Futures Now."
Another bad sign, Krinsky said, is the absence of a "Santa Claus rally" at the end of 2015.
"Since 1985, there have been just seven negative Santa Claus rally periods, and for four of the seven years, the next year was down and that included two of the bear markets in 2000 and 2008," he said.
And while Krinsky said history provides more of a guideline than a hard-and-fast rule, the addition of internal weakness will weigh even more on the S&P 500 this year. The major U.S. index has been making lower highs and lower lows in recent months, he said, a sign that large-cap stocks are following smaller-cap stocks down.
Krinsky said the next level of support for the S&P 500 comes in around 1,870, a 7 percent drop from where the index traded on Tuesday. A break below that could mean an even more drastic plunge for stocks, he said.
"If we get to the 1,870 level and we don't see a meaningful rebound with breadth and volume off that level, you're probably looking at something with a 17 handle on the S&P," Krinsky said Tuesday.
A drop to, say, 1,799 would represent a 10.7 percent drop for the S&P 500.
You know it's grim when a sector's primary bull case involves bankruptcy.
Unfortunately for those in the base metals space, "that's the situation we find ourselves in," said Edward Meir, senior commodity analyst with INTL FCStone.
The just-concluded year of 2015 is one that base metals investors will desperately want to forget. Amid a dour environment for commodities overall, these industrial metals were among the hardest hit. Aluminum slid 11 percent, copper was down 24 percent, nickel dropped 42 percent, and precious-metal-with-industrial-uses platinum fell 26 percent. With that in mind, observers warn not to expect much in the way of a reprieve.
The twin problems for the space are a glut of supply and a dramatic slowing of demand, mostly due to a slowing Chinese economy — conditions that are unlikely to change merely because the calendar has turned.
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