Bill Fleckenstein has missed out on massive gains in the stock market. But that doesn't bother him any.» Read More
Call it a crude conundrum: global oil production is surging, demand is falling and prices are dropping fast. Brent Crude fell under $100 a barrel this week and hit a 17-month low on Thursday, and West Texas Intermediate was trading close to $90 a barrel. All of which has some traders asking when—or if—producers will cut output in order to buttress prices.
Gina Martin Adams of Wells Fargo has long been known as the most bearish strategist on Wall Street. After all, at 1,850, she had the lowest year-end S&P target among major strategists. But on Tuesday, she got rid of that year-end target and initiated at 12-month target of 2,100, reflecting a mildly bullish outlook.
"We've thought for most of this year that we'd have a bit of a trade-off for stocks—earnings growth improving, but the timeline is shrinking for this very accomodative Fed policy environment," Adams said Tuesday on CNBC's "Futures Now."
"We think that's still intact, but quite frankly, earnings have started to take over," meaning that any volatility that accompanies Federal Reserve tightening will serve as a buying opportunity.
She isn't the first strategist to change her stripes. Adams' 1,850 target (which at the beginning of the year merely predicted a flat market, but has become more bearish as the market has risen 8 percent) was shared by David Bianco at Deutsche Bank and Barry Bannister at Stifel Nicolaus. But both have recently increased their calls—to 2,050 in Bianco's case, and 2,300 in Bannister's.
That fresh price target now makes Bannister the Street's most bullish analyst for 2014. (Although it's worth noting Tony Dwyer of Canaccord Genuity, previously the Street's biggest bull, did reduce that gap on Tuesday by raising his year-end target from 2,185 to 2,230.)
For her part, Adams no longer has a year-end target. Instead, because she believes that a short-term drop is likely but that the dip will be a buy, she is simply targeting a move 5 percent higher to 2,100 within one year's time.
It hasn't been a great year for European economies. Italy has slid back into a recession. German GDP contracted in the second quarter, and German finance minister Wolfgang Schaeuble reportedly said on Thursday that the Eurozone's strongest economy is likely to miss its 1.8 percent growth estimate this year. Across the Eurozone, zero growth was shown in the second quarter, and recent manufacturing data indicates that the third quarter may not be much better.
Still, these bad numbers haven't been too damaging for global risk assets—after all, they have clearly increased the European Central Bank's appetite to stimulate the economy. But there may be a limit to how bad Europe can get before bad news becomes bad news once again.
In fact, serious concerns about the Eurozone economy could be one reason why stocks didn't react too enthusiastically to the ECB's surprise Thursday announcement that it would cut rates and commence asset purchases.
The "aggressively dovish moves by the ECB are not being taken well. They're being seen as a sign that the fundamental growth in Europe—which seemed promising less than a year ago—doesn't have a chance and therefore the ECB has to keep papering over the problems," wrote strategist Michael Block of Rhino Trading Partners in a Friday note.
Judging by the muted, even skeptical market reaction to the ECB, investors "are certainly considering the notion that bad news is bad news," said Jim Iuorio of TJM Institutional Services. He added, however, that "I still think they're going to come to the conclusion that it's not. They're going to decide that more money in the system has to be a good thing."
On Thursday morning, the European Central Bank surprised markets with a raft of stimulative measures including cuts in interest rates and the commencement of asset purchases.
The news sent the euro currency much lower, but currency expert Boris Schlossberg of BK Asset Management identifies another reason why the euro could call even further: fresh concerns over a European Union breakup.
ECB president Mario Draghi, in announcing the measures, mentioned that the vote was not unanimous. The strongest economy in the eurozone, Germany, is widely expected to have dissented.
"It's a very, very tenuous union in many ways, and we see the conflict come to the forefront anytime we have these issues," Schlossberg said Thursday on CNBC's "Futures Now."
At this point, German unease over ECB stimulus "could become a very, very serious problem," he said. "We'll be watching the conflict very carefully in the fall and into the winter to see just how serious the Germans are in their opposition to this move."
Many turn to bullion in times of turmoil, viewing gold as a safe haven asset that rises when situations gets scary.
But according to gold experts, that betrays a basic misunderstanding of how the gold market works.
"I don't think the geopoliticals are doing anything for gold. And the only time they do is if they destabilize the equity market," said Edward Meir, senior commodity consultant with INTL FCStone.
In other words, gold may indeed rise when scary situations crop up around the globe, but gold prices are responding to the action in the equity market, not to the conflicts themselves.
That comports with recent market movements.
Despite the Ukraine crisis, which continues to be dicey and somewhat murky, gold prices are trading just off of a 2½-month low, as stocks continue to set record highs.
And despite belligerent-sounding headlines, with Russian President Vladimir Putin reportedly saying he could "take (Ukraine capital) Kiev in two weeks," gold prices dropped 1.7 percent that day.
"It's doesn't respond directly—gold kind of responds afterwards," agreed RBC precious metals analyst George Gero. While noting that gold traders are closely watching the situations in Ukraine and in the Middle East, Gero said that it's "strong stocks and a strong dollar" that have hurt gold recently.
Another aspect of the trade that many have been missing is that investors around the world have a less volatile safe-haven asset they can turn to: the U.S. dollar.
"We tend to buy gold when faced with geopolitical problems, but outside the U.S., they tend to buy dollars in the face of such turmoil," said Scott Nations of NationsShares.
The hottest trade of the past two months has been a surprising one: Going long the U.S. dollar against other currencies. And the recent dollar strength appears to have had a profoundly negative impact on commodity prices.
Since the end of June, the U.S. Dollar Index (which compares the dollar to a basket of other currencies) has risen 3.5 percent, bringing the index to a 52-week high. And while the weakness in the widely watched euro has certainly contributed to the move, the dollar has also shown considerable strength against currencies like the British pound, the Canadian dollar and the Japanese yen. On Tuesday alone, the dollar rose 0.7 percent against the yen—a serious move for a major currency.
Many expect the European Central Bank to announce easing measures this week, and this expectation is likely contributing to euro weakness and thus dollar strength. But because the move is so broad-based, it can't all be credited to ECB President Mario Draghi.
Read More The wait is over for dollar bulls
"This is much more about the widening gap between the U.S. economy and economic performance in the rest of the world," said Kathy Lien, managing director of FX Strategy at BK Asset Management. "In the U.S., we're seeing a widening divergence between economic growth and monetary policy outlook," which should ultimately lead interest rates to rise. "And as we get more discouraging news from Japan, from the euro zone, etc., that will also boost the attractiveness of the U.S. dollar."
The dollar rally certainly hasn't been celebrated by commodity bulls, who saw gold hit a 2½-month low on Tuesday, and crude plunge by more than 3 percent. Broadly speaking, commodities tend to move inversely to the dollar. This makes sense, given that as each dollar becomes worth more, it should take fewer of them to buy the same amount of hard assets. Most commodities are priced in U.S. dollars.
It's the latest calendar-based worry for investors: That the historically tricky month of September could bring trouble for stocks in 2014. But while the long-term historical metrics make the beginning of autumn look dangerous, Canaccord Genuity strategist Tony Dwyer says that concerns about the month are a bit overblown.
First of all, Dwyer grants that September may bring some trouble. Using data from SentimenTrader, he points out going back to 1929, in the 12 times that the S&P has risen more than 3 percent in August to hit a 52-week high (precisely the situation in the prior month) September has only been positive once. That means it's been a down month 92 percent of the time.
However, the median loss in those situations has been a mere 1 percent, he adds. And even that number is "highly skewed" by massive losses in the Great Depression and in 1987.
And while suggesting that September could bring rockiness, Dwyer maintains a very bullish perspective on stocks as a whole.
"If the market gods give you a gift of weakness, with the fundamental and tactical backdrop that we have, I think you want to be adding to your core position in equities," he said Tuesday on CNBC's "Futures Now."
It used to be common knowledge that the Treasury trade was all about the Federal Reserve. Once the Fed stopped buying bonds and started talking about raising rates, yields would return to more historically normal levels, and the bond rally would finally end.
At least, that's what Wall Street used to think.
This week, yields of long-term bonds (specifically, the 30-year Treasurys) have dropped to the lowest levels of the year. This even as the Fed continues to be on a pace to end quantitative easing, and likely raise rates in the first half of 2015.
But recently, Treasurys have been driven by the historic lows seen in European yields. Yields in the euro zone have plunged due to poor economic conditions, and expectations the European Central Bank may take action by easing.
And when faced with an Italian 30-year yield of 3.6 percent, or a German 30-year yield of 1.7 percent (not to mention a Japanese 40-year yield of 1.8 percent), buying a U.S. bond in order to capture a yield just above 3 percent seems like a pretty good way to go.
"Remember how cute it was in the beginning of the year, when we kind of thought that the tapering of QE would potentially have the Fed lose control of long-term rates?" Jim Iuorio of TJM Institutional Services said Thursday on CNBC's "Futures Now." "The opposite has happened. As a matter of fact, now the tapering of QE is a secondary influencer on the long end. Right now, it's all about Europe. The money just keeps getting flooded into the system, and it has to find yield."
"We say 'wow, [the 30-year yield] has hit a 2014 low—it doesn't look low compared to a lot of the European yields,'" he added. "So in my opinion, it probably goes a little lower still."
Jason Rogan, managing director of U.S. government bond trading at Guggenheim Securities, makes the point that anticipation of a Fed rate hike can indeed be seen in bonds—but only in the shorter-dated Treasury notes, which have observed yields rise considerably over the past three months.
"The curve is being split in the middle," he said. Looking at different bond maturities, Rogan notes that "the 5s and 2s are reflecting the Fed and what the U.S. economy is doing, and 7s and out are reflecting what's going on in Europe."
Ralph Acampora is one of Wall Street's most-respected technicians. So what does he make of the recent cases for a mega-downturn made by analysts such as Abigail Doolittle, who calls for a 50 to 60 percent "correction" based on her technical analysis?
"I hear that and I see what they're talking about, but these people have been saying that for a long time," he said Thursday on CNBC's "Futures Now." "And honestly, if you look at the technicals as I do, there's just no way I can make those downside targets."
Doolittle has long been calling for some sort of market crash or other for at least four years (see, for instance, the May 2010 edition of Doolittle's "Peak Theories Research" in which she said the S&P will "correct severely," or the July 2011 edition in which she notes that she has an S&P 500 target of 425).
The headwinds for gold appear to be mounting.
Stocks are rising to new highs, potentially drawing fresh money into the equity market. Meanwhile, the U.S. dollar index is nearly at a one-year high, which hurts the classic gold-bug argument that the dollar will weaken and only gold can truly store value.
As for fear, it's nearly absent. The CBOE Volatility Index, or the VIX, is back at levels that indicate a lack of concern about the markets, which is another strike against safe-haven assets like gold.
Despite everything that's been thrown gold's way, the precious metal has managed to hold its own, falling only slightly below the key $1,300 per ounce level, and looking to end August about perfectly flat.
"I think the resiliency in gold has been tremendous. Look at every reason the bears have had to sell it—and they have not been victorious," said Jeff Kilburg of KKM Asset Management. "So I like owning gold now, due to the fact that it's kind of like the Rocky Balboa right now—it's going around the ring, it's been knocked a bunch of times, but it will not go now."
Of course, some say it's simply a matter of time.
"It doesn't look that good on the charts, and it doesn't look that good fundamentally. I don't see much going for it, really," said Edward Meir, metals analyst with INFL FCStone. "It could retest the June lows" down at $1,240.
Meir says gold prices have been propped up by concerns emanating from Ukraine and Iraq, but that the picture otherwise looks bleak.
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