BlackRock's Jeff Rosenberg contends that stocks will beat bonds once again in 2015.» Read More
The stock market has heated up mightily after a swift October rout, with the S&P 500 6 percent higher in a month. And history suggests that it could soon get even better for the bulls.
In the 20 times when the S&P 500 has enjoyed moderate gains (between 0 and 15 percent) in the year to Thanksgiving, the S&P has added to those gains 18 of 20 times, according to Jason Goepfert of SentimenTrader. He also notes that "when it does decline, typically it's very, very small, so when you look at risk-reward just based on the time of the year, it's very, very positive."
Interestingly, if we alternately look at years in which the S&P is up 10 percent or more, the results are somewhat more mixed. When Goepfert, going back to 1950, looks solely at the 28 years in which the S&P was up 10 percent or more at Thanksgiving, 68 percent of the years were positive, with those 28 years averaging a healthy return of 2.4 percent between Thanksgiving and New Year's.
"There was actually a negative correlation between the pre-holiday and the post-holiday returns, suggesting that buying pressure earlier in the year exhausted some of the post-holiday enthusiasm," he wrote to CNBC.
What makes this a bit confusing is that performance-chasing is often credited for the year-end rally. In other words, underperforming managers are thought to take heavily bullish positions toward the end of the year in an attempt to make up for lagging the market during most of the year.
However, that would seem to be an argument for proportional gains pre- and post-Thanksgiving; the fact that more enthusiastic action ahead of the turkey carving seems to presage more muted action into New Year's seems to suggest that something else is going on here.
One explanation is that when stocks are up significantly, beating a benchmark like the S&P becomes a bit less important. Since few clients will kvetch about 15 percent gains in any market environment, hanging on to existing profits becomes more important than chasing fresh ones.
It's one of the biggest issues clouding the outlook for stocks in 2015: The Federal Reserve's coming move to increase the federal funds rate. But according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank, investors really shouldn't sweat the coming move.
Ever since December 2008, the Fed's target on its key federal funds rate has been zero to 0.25 percent. This key interest rate (which is the risk-free rate at which institutions lend to each other) has a powerful impact on the inflation outlook and the overall economy, and the central bank's targeting of it has been seen as very useful in the aftermath of the financial crisis. However, the Fed is preparing to finally lift its target on the rate, with many market participants expecting that such a move will come in June 2015.
LaVorgna is in that camp, but he isn't with the market participants who call that a cause for concern.
"A lot of rate hikes will be an issue—but a few, not at all," LaVorgna said Thursday in a phone interview. "It will emphasize that things are actually better. If the economy doesn't weaken, it will be a real sign of confidence that the economy can stand on its own two feet."
It could be a long winter for natural gas bears. According to energy expert Stephen Schork, cold weather will lead to a huge spike in nat gas this winter, just as we saw in the beginning of this year.
Nat gas prices have already shot up on the recent cold snap, soaring 28 percent from the low made on Oct. 28 to the recent high on Nov. 10, before retracing a bit. And that could just be the start.
"As goes Mother Nature, so goes the price with natural gas. Now, what we're seeing is essentially polar vortex 2.0," Schork said Tuesday on CNBC's "Futures Now." So despite inventory levels that remain robust, "the cold weather is here, gas furnaces are burning, demand is increasing and hence we've gotten the spike in price."
Schork adds that the weather is "a roll of the dice," but "if we get another winter similar to last year's, there's a real chance that we'll be well above $6, similar to where we were last year."
After a scary mid-October dip, stocks are already up about 10 percent from their lows. But according to widely respected technician Ralph Acampora, the director of technical analysis at Altaira Limited, stocks are still set to go higher into the end of the year.
"We've got good moves coming between now and the end of the year," he said Tuesday on CNBC's "Futures Now." "So I'm very optimistic."
First of all, the up-and-down action over the past few months is pointing the way to new highs, he says. The Dow Jones Industrial Average first rose to a July peak, then fell in August, then rose to a new high in September, then fell hard in October, then rose sharply from that low. We are still enjoying that fifth, bullish move, Acampora said, and it is a broad one, which indicates that the rally is on firm footing.
The historical indicators also point higher, he says.
"If you look back into history, in midterm election years, the last two months of the year have been very, very strong," Acampora said. In addition, "the third year of a president's term in office is usually the strongest of all four years. So we've got a lot of wind to our backs."
Stocks used to be cheap. Now they're not.
That's how some analysts see it in the context of recent valuations. The question now is whether investors should be concerned—and if so, how should they alter their market strategy.
The most popular valuation metric for the market, the S&P 500's forward price-to-earnings ratio, is sitting at a seven-year high, and is mighty close to 10-year highs.
The S&P 500 is now trading at 15.88 times analysts' bottom-up estimates of what companies will earn over the next 12 months, according to FactSet. That's the highest the S&P P/E ratio has been since 2007, and nearly the highest since 2005. Back in July 2007, it ticked only slightly above that to 15.93, as stocks traded just about at a peak that went unsurpassed until 2013.
Marc Faber is not backing down.
The famed investor known as "Dr. Doom" has been calling for a 20 percent correction in stocks for years, only to see the market continue to march higher and higher. But rather than throw in the towel or even admit that his earlier calls missed the mark, Faber says stocks could fall all the way down to his early bearish targets.
On Thursday's edition of CNBC's "Futures Now," host Jackie DeAngelis played Faber a clip of comments he made more than two years ago, on Oct. 4, 2012, when he said that he has moved largely to cash because "I think within the next six to nine months, we can buy just about everything 20 percent lower."
Of course, the S&P 500 has instead risen more than 40 percent to 2,040, leaving Faber's unofficial S&P target of 1,160 (a 20 percent discount from the opening price on Oct. 4, 2012) deeply in the dust. So she asked if he still sees the market falling to that level.
"Everything is possible," he replied. "I also expressed that it was conceivable that we were in a year like 1987, and that the market would go straight up and then have a meaningful decline. And I still believe that there are considerable risks."
He also points out that some stocks have not done as well as others.
"A lot of stocks are down significantly from their recent highs. Many fund managers have underperformed the indices because so many stocks have been going down," Faber said. "We have to look at everything in the context. And I also have to point out that I've always advocated, in absence of knowing the future, to have roughly 25 percent in stocks, 25 percent in bonds."
Tony Dwyer, chief equity strategist at Canaccord Genuity, admits he has a reputation for being, as he put it, "an uber-bull." And with a year-end S&P 500 target 9 percent above Tuesday's opening price, that reputation may be warranted. However, he says that bears who myopically focus on the potential ramifications of the Federal Reserve's actions are missing a key lesson of investing.
"There will be a time when I'm just as bearish as I am bullish," Dwyer said Tuesday on CNBC's "Futures Now." But "'this will end badly' is a statement that has killed performance for decades. It end badly, [but that thesis] is not investible right now until the Fed begins to aggressively raise rates."
Dwyer believes that those who say the market is "propped up" by the Fed are somewhat missing the point.
"The first half of an economic cycle is always Fed driven. Think about it like putting a fire-starter log to get an outdoor fire going. Eventually, that log is going to have to transfer the energy to the natural wood. And I think that's kind of what's happening in the economy now," Dwyer said. "I think there's real evidence, through consumer confidence, income numbers, payroll data, that you're getting that loan demand that is getting transferred to the wood."
With stocks in slow motion, traders and fund managers are finding big action in the commodity and currency markets.
The S&P 500 may be right at all-time highs, but it didn't move more than 0.6 percent on any day last week. That pales in comparison to the action in gold and crude oil, which traded in 4 percent and 2.5 percent ranges, respectively, on Friday alone.
It is this sort of rocky action that has led the volatility indexes of gold and oil to trade at elevated levels, even as S&P implied volatility has dropped to the lowest levels since September, after October's quick flush and rebound.
This isn't the consequence of more caffeine being served in the commodities trading pits. Since July, the U.S. dollar has been surging against other currencies, and the move has only been exacerbated by the announcement of further asset purchases from the Bank of Japan, and dovish words from the European Central Bank. Incidentally, this has also increased implied volatility in the dollar, with options on the PowerShares Dollar ETF now pricing in annualized volatility of 9 percent, which is up from 5 percent in the beginning of September.
The dollar surge, along with other factors, has put pressure on oil and gold. Commodities tend to enjoy an inverse relationship with the U.S. dollar, given that as each dollar becomes more valuable, it takes fewer of those dollars to buy an ounce of gold or a barrel of oil.
"The biggest story over the last few months have been the dollar strength as central bank policies have diverged, so we should expect commodities that are influenced by the dollar to be pushed around," said Jim Iuorio of TJM Institutional Services.
As we close the book on the silver anniversary of CNBC, the company's digital arm is looking ahead to the next 25 years and the trends, challenges and innovations that will define that era.
The following are companies best positioned to capitalize on these waves. Some may look familiar, while others will be a total surprise. However, they all have one or more of the following characteristics: a deep moat, an energetic leader, steady and growing cash flows, and multiple revenue streams. No need to look up their quotes everyday, just stash these away and open in 2039.
1. Facebook (FB)—The crowd long-term favorite, Mark Zuckerberg's social network has all the attributes listed above. No other company will dominate the way we communicate in the future, as well as entertain and inform ourselves. Twenty-five years from now its 2014 acquisition of Oculus Rift, a 3-D virtual reality headset maker, will look prescient or just downright crazy. Mike Murphy of "Fast Money" thinks it will be our first ever trillion-dollar company.
2. Alibaba (BABA)—With a market value north of $250 billion, the Chinese online retail giant does not have the law of large numbers on its side. But don't tell that to its charismatic leader Jack Ma. The 50 year old has said he wants the company, founded in 1999, to last 102 years so it can "span three centuries." The only company on this list without any exposure to the U.S. will change that soon with the rollout of its "AliExpress" brand.
3. Google (GOOG)—Any long-term portfolio would be incomplete without a position in this do-it-all tech giant. While most of this company's revenues came from search advertising during the previous decade, the next 25 years for Google will not be so easily defined. From a cure for autism to self-driving cars, it will be fun seeing which one of Larry Page's moonshots hits pay dirt first.
4. Apple (AAPL)—Don't worry, there's plenty left for Tim Cook to conquer. The Apple Watch—set for release early 2015—will be the company's first foray into the ubiquitous "Internet of Things." Look for the TV and car to follow suit. And don't forget about the income part of the total return equation. A record-breaking cash hoard means healthy payouts for years to come.
5. Tesla (TSLA)—This list wouldn't be complete without at least one of Elon Musk's ventures. Bottom-basement gas prices have diminished Tesla's environmental appeal. Now it's a bet on convenience and quality. Imagine a nonstop drive from Boston to D.C. where you don't even touch the wheel? We're not that far away.
6. Nike (NKE)—Phil Knight's shoe company stands to benefit from the explosion of the middle class in emerging markets like China and Mexico. "Nike's brand investment, innovation levels and extensive global distribution network should allow further market share growth, often at the expensive of local competitors," Goldman Sachs said in a recent note.
7. Edwards Lifesciences (EW)—The world's largest manufacturer of heart valves will benefit from an aging, active U.S. population. And just wait until the emerging China middle class discovers red meat.
8. Carnival Corp. (CCL)—The world's largest cruise company just commissioned four new ships to be built in less than 18 months. The company can't build boats fast enough to keep up with those retiring baby boomers.
9. Align Technology (ALGN)—Talk about a competitive moat. Align has 80 percent of the invisible braces market. The dental equipment market in emerging countries should grow by double digits annually over the next decade, according to Goldman Sachs.
10. Veolia (VE)—"Futures Now" contributor Scott Nations gives us our last name on the list, a provider of clean water and desalinization techniques. "Water is the main constraint to growth," said Nations. "Veolia is going to be selling the most precious commodity in the world to the people who need it most."
Crude oil may have found its way off of the multiyear low it hit on Tuesday. But according to two traders, bearish dynamics on the supply and demand sides mean it's too early to call the bottom just yet.
"There are so many factors in the equation that are putting downward pressure," on crude oil, Brian Stutland said Thursday on CNBC's "Futures Now. "In the U.S., our oil drums are almost starting to fill up and hit max capacity. You have the Saudis now saying they're going to lower prices in the United States. You have weaker demand in China. And on top of that, a stronger dollar, and crude oil trades in U.S. dollars."
"I think you have to be careful trying to buy bottoms here on such a volatile asset class right now," Stutland concluded.
In fact, he favors making a bearish play on oil futures. Specifically, he advocates selling December crude oil futures at $77.50 per barrel, with a target of $74.50.
"We are just pumping more oil out of the shale plays here in the United States than you can imagine, and that is really putting pressure on oil," Scott Nations agreed. "$75, $74.50 is completely doable."
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