Oil companies are shying away from commenting on outlook as crude oil falls to multi-year lows; however, analysts are slashing estimates.» Read More
It's been a rough two weeks for the markets, and pessimistic gauges are in the danger zone. Indexes have been down on several concerns, principally growth fears stemming from Europe and China, and now Ebola. This has been balanced against a number of positive developments:
1) Improving U.S. economy;
2) Low inflation;
3) Accomodative central banks;
4) Valuations mostly not expensive; and
5) Lack of investment alternatives.
Still, sentiment seems extremely negative.The CBOE Volatility Index is up over 80 percent in the last month; market internal indicators have deteriorated dramatically, with an expansion of new lows and much technical damage. CNNMoney's Fear and Greed Index has indicated "extreme fear," up from "neutral" just a month ago.
For all of you who thought high-speed trading began 10 years ago, think again.
Here's an excerpt:
From the outset there was a deep and abiding suspicion of the broker, who, for a price, was willing to buy or sell your stock, bond or commodity. It was a suspicion that these middlemen knew something that buyers and sellers did not.
True or not, these complaints underscore a larger historical fact: any technology that increased the speed of information flow was immediately adopted by the trading community in both Europe and the United States. Traders have employed every known conveyance to trade faster and cheaper. They were among the earliest adopters of faster boats, faster stagecoaches and private horse expresses. The trading of securities was among the very first uses of the telegraph.
The adoption of these high-speed trading techniques had two characteristics: 1) they greatly reduced the price differences between markets, and 2) those who were slower to adopt bitterly complained that the new technologies offered unfair advantages to the participants.
The S&P 500 Index is at a two-month low. How real is the main concern, which is slowing global growth?
There is some basis for nervousness. German industrial production is down 4.0 percent month-over-month; August exports tumbled 5.8 percent month-over-month. Meanwhile, Italian third quarter GDP will likely be negative, and even Germany will be lucky if it ekes out a 1 percent gain.
Even International Monetary Fund chief Christine Lagarde is downbeat; the IMF this week said that the euro zone faces a one-in-three risk of falling back into a recession within the next six months.
The issues dogging the market are essentially the same as a couple days ago: It's the collision between a slowdown in global growth (ex-U.S.) and the Fed debate on when it should raise interest rates.
Specifically, the market is dealing with:
1) There's poor German trade data. German exports dropped 5.8 percent in August, the largest decline since the financial crisis 5.5 years ago.
There's starting to be lots of push back on initial public offering (IPO) pricings. Investors want to make money rather than just spend it. Given that IPO returns have been weak since the debut of Alibaba, investors are now demanding price cuts.
You can see that effect on market action in the last few new offerings.
Whatever happened to IBM's Watson? It's been more than three years since it defeated the "Jeopardy" champions, and not much has been heard from it. There was a brief flurry of interest in January when CEO Ginni Rometty made a $1 billion pledge toward the development of Watson, but specific innovations have been lacking.
The new mediocre. Christine Lagarde, head of the IMF, had it right when she lowered global growth prospects today and called global prospects "mediocre."
There was nothing mediocre in the stock market's action. Ending on the lows. Four to one declining to advancing stocks. Volume heavy.
What has happened is that we have nervousness about the global growth outlook colliding with the certainty the Fed will be tightening sometime in the future.
There was some hope that sell pressures we have seen from Europe would abate once that market closed at 11:30 AM ET, but that didn't happen.
Right now, it doesn't feel like anyone is missing a lot by staying out of the market, but remember this is a seasonally weak period, and so far it is following the traditional pattern.
But in a few weeks we will be entering a seasonally stronger period.
Generally, selling off going into earnings season has been a buying opportunity in the past.
As for earning season, predictably, companies--and analysts--have been lowering estimates, so the bar once again is low going into the season. We are expecting roughly 6 percent earnings growth from the S&P 500, and if past trends hold we will end up with roughly 10 percent growth.
Right now, we may not get the beat rate we got in Q2, but it's unlikely earnings will miss.
It's critical now for corporations to clarify the global growth picture, particularly those with exposure to Europe and Asia. I've said it several times: we are going to get positive comments on the U.S. outlook, but for multinationals with exposure to Asia and Europe the commentary will be much more cautious.
Global industrial have reflected that concern. Deere (DE), with nearly 40 percent of its revenues outside the U.S., closed at a 52-week low.
Why are sell-side stock market analysts so wrong? Is there a better way to gather earnings estimates?
It's earnings season again. So you will hear umpteen statements like this from the financial press: "XYZ stock reported earnings of 37 cents, beating estimates by 2 cents."
A few weeks ago, an old friend, Christine Short, emailed me to say she was leaving her post covering earnings for S&P Capital IQ and moving to a new company, Estimize.
September's Jobs report brings back Goldilocks scenario: goods news is good news for stocks.
How far has the market come? A year ago, if we would have had a jobs report like this, with strong upward revisions in the prior two months, the stock market might have gone DOWN, and Treasury yields ROCKETED upward, on fear that the Fed may begin raising rates soon.
What happened today? Stocks have been RISING all day, and 10-year yields are up a modest 1 percent or so, though the shorter end is up more.
What do we have? We have an improving economy, growth in jobs, and low inflation.
That's Goldilocks, and that's why stocks are strong.
Two good examples of sectors reacting to an improving economy: transports and retail.
The Dow Transports are having a huge day, up almost two percent. Right across the board, every sub-sector is up: railroads, airlines, shippers, logistics and truckers.
Besides the jobs report, the only other thing that has changed is prices. From the September intraday high to yesterday's low, the S&P was down almost 5 percent.
That created a new dynamic--bargain hunting, particularly in beaten-up sectors like retail.
The SPDR S&P Retail ETF (XRT), a basket of retail stocks, is up 1.6 percent after getting beaten up badly last month.
The most likely explanation is that this is short covering on the September job growth numbers, since traders have been very negative on the group. There may be some expectation that wages will likely rise sometime in the future, which would be positive for the retailers.
And, if we ever get oil prices to stabilize, the energy complex will see a jump as well. The Energy Select ETF (XLE), a basket of energy stocks, is down more than 10 percent in the last month.
The end of Federal Reserve's QE program and its fight against too big to fail banks are on a collision course in the bond market.
Changes in the Fed statement Wednesday sent Wall Street into a tizzy with Fed skeptics slamming Janet Yellen.
Stocks weakened and bonds sold off after a slightly more hawkish tone by the Fed on rate hikes caught investors off guard.