Stocks have tended to do remarkably well over the year's last five trading sessions.» Read More
If you believe the so-called Doctor Copper theory, the diagnosis for stocks is not good.
Copper futures plunged to a 4½-year low Sunday evening, before staging a bit of a resurgence Monday. But with the industrial metal down 9 percent in the past three months, the "Doctor Copper" theory has become a warning, for some, about where stocks are going.
A time-honored concept in markets, the theory holds that copper is able to sense economic turning points early, and thus measure the health of a stock market rally. This is because copper is a near-omnipresent metal used in homes, in electronics and for many industrial purposes. The idea, then, is that if copper prices are falling, economic activity is slowing down, which is bad news for other financial assets.
"Because copper has so many industrial uses, it's probably a great indicator," said metals guru George Gero of RBC Capital Markets, so falling copper prices should indeed cause concern.
Still, Chris Kimble of Kimble Charting Solutions notes that copper has been falling for years, even as equities have skyrocketed.
"Over the past two or three years, if you followed copper, you would have missed the S&P rally," Kimble pointed out.
Kimble said that copper has thus far managed to hold an important support line that it tested in 2002 and 2009. If it breaks below monthly support, which currently lies at $2.75 per pound, he would become concerned about equities. By early afternoon Monday, March copper futures up 1.8 percent to $2.90.
Bond buyers are getting a lot less money for their time. The question now is whether that trend will continue in 2015—and what it will ultimately mean for investors.
Over the course of 2014, the spread between longer-term Treasury yields and shorter-term yields has gotten smooshed. The widely watched 10-year/two-year spread has plunged from 2.7 percent to nearly 1.7 percent, as long-term yields have fallen and short-term yields have risen.
This phenomenon, known as yield curve flattening (because the chart showing the comparison between maturities and yields usually shows a curve with the longer-term bond yielding more, but that curve flattens when the spread diminishes) is common during Fed rate hikes, but is traditionally taken as a signal of coming recession.
That's because if investors are not demanding a higher return for longer-term bonds, it shows that they don't think inflation or growth are set to pick up dramatically.
For Peter Boockvar, chief market analyst at The Lindsey Group, the flattening of the yield curve is problematic indeed.
"There's continued divergence between the optimism of the stock market, and what the yield curve is telling you about a continued slowing in the global economy, which is a threat to corporate profits," Boockvar said. "U.S. equity guys are much more bullish on U.S. growth and think we're decoupling; the bond market is not as optimistic."
Still, more benign explanations also suggest themselves.
The Federal Reserve has said it's looking to raise its federal funds rate target, with many expecting the first hike to come in June 2015. Since short-term yields tend to follow the lead of the benchmark fed funds rate, that should raise short-term Treasury rates.
Meanwhile, inflation readings have been benign, with the consumer price index showing inflation of 1.7 percent over the past year, which is below the Fed's stated 2 percent target. Inflation expectations are critical to longer-term yields, since investors need to be adequately compensated for the risk that the value of money will drop over the decades that they hold those bonds.
The man some regard as the new bond king believes that the flattening will accelerate on the back of a coming rate hike. In a recent interview aired on CNBC, Jeff Gundlach of DoubleLine Capital predicted that the big surprise of 2015 will be just how much the yield curve flattens out.
"I think the Fed's going to raise rates. The message of 2014 has been, as the potential for Fed rate hikes has increased, the long end has done nothing but rally. I think the yield curve is going to flatten at a level previously thought unthinkable," Gundlach said.
It hasn't been a great couple of years to be a gold bug. Since peaking at $1,923.70 per troy ounce in September 2011, gold has lost nearly 40 percent of its value. And while gold hasn't dropped dramatically this year, it has failed to gain back.
But according to George Gero of RBC Capital Markets, the bullion trade is set to turn around in 2015.
"The decline from the $1,900s down to the $1,150s is a major decline, and it was reflected by all the funds fleeing gold and running into better-performing assets, whether it's equities or debt, and that's been continuing," Gero said Tuesday on CNBC's "Futures Now."
In 2014, gold hasn't been helped by the dollar's rally. The greenback has shown serious strength against other currencies, which has reduced gold's attractiveness. After all, since gold is priced in dollars, an increase in the value of a dollar means a decrease in the value of an ounce of gold. Additionally, since people buy gold to hedge against potential inflation, ebbing inflation fears dull gold's appeal.
Gero acknowledges that "crude selling off, and OPEC possibly doing nothing about it, helping crude stay weak, is anti-inflationary—so the people that have been looking for inflation haven't really found it."
But he adds that "now you're going to see some changes based on all the stimulus in Europe, in China and in Japan."
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Thursday's OPEC meeting is expected to have a profound effect on sliding oil prices. But according to one oil trader, it is not likely to be the effect that bulls are looking for.
OPEC nations "would certainly like [the oil price] to be higher, but in the short-term, I haven't heard anything that's going to cause it to go higher," Ray Carbone of Paramount Options said Tuesday on CNBC's "Futures Now."
Initial news out of Vienna, where the meeting is to be held, has not been encouraging. An early meeting between Saudi Arabia, Venezuela, Russia and Mexico yielded no results. In fact, Igor Sechin of Russia's Rosneft said on Tuesday that due to operational reasons, Russia is unable to cut oil output in the near-term.
This news led to skepticism that OPEC would be able to agree to cut production substantially—and oil prices got punished intraday as a result. In fact, WTI crude oil closed Tuesday at the lowest level since September 2010.
"The one that matters the most is the Saudis, and is it in their interest to come in there with an almost unilateral big cut to surprise the market? I'm not sure it is at the moment," Carbone said.
Meanwhile, a smaller cut "could almost be worse than nothing. It would be viewed as a token cut which means they've used some bullets already."
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."
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