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  Monday, 23 Jun 2014 | 10:37 AM ET

Earnings expectations driving stocks this year

Posted By: Alex Rosenberg
Traders work the floor of the New York Stock Exchange.
Jin Lee | Bloomberg | Getty Images
Traders work the floor of the New York Stock Exchange.

The S&P 500 is up a bit more than 6 percent in 2014, and while that isn't breathtaking, the gains have been consistent enough to bring the index to 22 all-time closing highs. What may be less widely known is the role that earnings expectations appear to have played in the gains.

In order to create what's known as a "blended growth rate" for earnings in the first half of the year, FactSet senior earnings analyst John Butters takes the earnings that companies actually reported for the first quarter and combines that with bottom-up analyst expectations about the earnings companies will report in the second quarter. For the first half of 2014, the S&P's blended earnings growth rate is 3.7 percent. When he combines the earnings estimates for the third and fourth quarters, he finds that the overall forecast for earnings growth in the second half is 9.9 percent.

"One possible reason for the rise in the value of the market is the expectation for much higher earnings growth in the index in the second half of 2014," Butters concludes.

This logic certainly comports with the thinking of bullish strategist Jonathan Golub. The chief U.S. market strategist at RBC Capital Markets, Golub determines that "the change in NTM [next 12 month] EPS expectations has contributed 4.6 percent of the S&P 500's 6.2 percent return."

This fact gives Golub confidence that the market will continue higher, eventually reaching his 2,075 target for the end of the year.

"Importantly, the market's return since January has largely been driven by corporate results as opposed to multiple expansion, a healthy sign in our view," he wrote in a Monday note.

Read More Wells Fargo's famous bear is turning a new leaf

»Read more
  Monday, 23 Jun 2014 | 7:41 AM ET

Can market withstand more weak housing numbers?

Posted By: Alex Rosenberg

Widely watched measures of existing home sales and new home sales this week, as well as the latest release of the S&P Case-Shiller Housing Price Index, are expected to shed fresh light on the state of the housing market in America. And with the housing market appearing to lag the rest of the economy, that could have a big effect on where equities are heading.

"These housing numbers are the granddaddy of all numbers, if you ask me," said Anthony Grisanti of GRZ Energy. "If these numbers do not come out good this week, you're going to look at an S&P that's going to be a lot weaker. ... I don't think the market or economy can sustain a few more months of weak housing."

At this point, economists are looking for a mild uptick. Economists polled by Reuters expect existing home sales to register a 1.4 percent rise in May, slightly stronger than the one-month increase of 1.3 percent in April. New home sales are also expected to rise at a slightly faster pace.

Still, the broader picture remains almost oddly dour. On Thursday, the Mortgage Bankers Association chopped its 2014 home sales forecast to 5.28 million, which would be the first yearly decline since 2010.

Read More Mortgage volume tanks on tiny rate rise

"We've basically had almost a year of pretty lackluster performance in housing," said Megan McGrath, senior homebuilding analyst at MKM Partners. "It started last year with the interest rate spike, and we're about to anniversary out a pretty disappointing full year. We've had a litany of reasons why—mortgage rates, the government shutdown, the bad winter—and then we got out to April and May and we're all scratching our heads because we don't have an excuse for this one."


»Read more
  Thursday, 19 Jun 2014 | 4:16 PM ET

Wells Fargo’s famous bear is turning a new leaf

Posted By: Alex Rosenberg

Gina Martin Adams, institutional equity strategist at Wells Fargo Securities, has turned a new leaf.

In 2013, she had the most bearish S&P 500 target on the street, at 1,440. This year, Adams is tied for the lowest S&P target, at 1,850, which means she expects to see a flat year. And even though the market is already trading about 6 percent above her target, she is adamant about not being a bear.

"I certainly wouldn't consider myself bearish," Adams said on Thursday's "Futures Now." "I don't think you can fight this market. I think the trend is pretty consistently higher."

But, that said, Adams still expects to see the market slide at some point in the near future.

"I think we'll have a pretty good opportunity to put some money to work here in the equity market upon a correction. You know, when that correction comes is kind of anyone's guess for now," she said, but "I think you just wait to put a lot more money to work until you get a better valuation on the equity market."

Read More Fed-led market pullback won't stick: Bespoke's Hickey

Describing her overall take on the market, Adams clarifies that "it's not a sell call, [but] it's not an outright buy call either. I think, in terms of what to buy, it's really just a call not to buy the entire market, but to buy, maybe, some of the laggards."

»Read more
  Thursday, 19 Jun 2014 | 2:35 PM ET

Fed is behind gold’s surge: RBC’s George Gero

Posted By: Alex Rosenberg

Gold is rising nearly 3 percent on Thursday, bringing the metal up to the highest intraday level since mid-April. And George Gero, precious metals strategist at RBC Capital Markets, pins the pop firmly on the Fed, which scoffed off inflation concerns and advocated staying dovish on Wednesday.

"Once we saw what the Fed was doing, and they were really right on course with the $10 billion [monthly reduction in quantitative easing] and they were on course on keeping rates low, and then you're seeing the ECB and the Bank of England and they're all keeping rates low, and then Draghi said they would do anything necessary to keep up with the economy recovering in Europe—this is all inflationary in the long run," Gero said on Thursday's "Futures Now."

Read More Gold, silver surge on dollar fall, short-covering

Inflation tends to be good for gold, because as each dollar loses value, more of them are needed to buy the same ounce of gold—raising gold prices and making gold a hedge against inflation.

For Gero, the move has legs.

"I don't think it's a one-day movement. I think such a sharp one-day movement is a signal. I think the institutions are making note of it. I think they've been underinvested," Gero said. "And now the funds are getting questions from fund holders—'Are we coming back into gold? Is the stock market going to pause?'"

»Read more
  Wednesday, 18 Jun 2014 | 7:13 AM ET

Marc Faber: Fed policies have been 'a catastrophe’

Posted By: Alex Rosenberg

The Federal Reserve is expected to announce another $10 billion worth of tapering on Wednesday, reducing the size of its monthly asset purchase program to $35 billion, from $85 billion at the height of the program. And though the hyper inflation many warned would be a consequence of its stimulative policies has not yet reared its head, Fed skeptics like Marc Faber still have strong words for the central bank.

"It's a catastrophe," Faber said Tuesday on CNBC's "Futures Now." "What the Fed has done is to lift asset prices, and the cost of living. In the meantime, as the cost of living increases, are higher than the wage increases, the typical American household income is going down in real terms."

Read MoreManufacturing gets boost from new orders: NY Fed

Faber, editor of the "Gloom, Boom & Doom Report," consequently believes that rising American inequality is a result of the Fed's actions.

"So the Fed is boosting asset prices. It leads to less affordability, people can't buy their homes anymore in the lower income group. Except, of course, the well-to-do people, they can buy homes because their asset prices have gone up and they own the assets," Faber said. "And so the more they print, the more inequality there is, the weaker the economy will become."

Read MoreAre the hawks about to turn up the volume?

»Read more
  Tuesday, 17 Jun 2014 | 1:52 PM ET

Blame the media for gold's decline: Marc Faber

Posted By: Alex Rosenberg

Investors who favor gold have provided many reasons for gold's nearly 30 percent decline in 2013 and overall demolition since it hit $1,934 in September 2011. But on CNBC's "Futures Now," noted investor Marc Faber provided an especially interesting one.

Investors are shunning gold "because the media doesn't like gold," Faber said by phone Tuesday from Thailand. "Nobody at CNBC owns gold. Nobody at Bloomberg owns gold. Gold is being constantly talked down by the media, and Fed officials, and economists, who also don't own any gold. They're all stocked up in equities."

Indeed, Faber, editor and publisher of the Gloom, Boom & Doom Report, has a major problem with the very language used to describe gold proponents.

"When people talk about people who are optimistic about gold, they call them 'gold bugs.' A bug is an insect. I don't call equity bugs 'cockroaches.' Do you understand? There is already a negative connotation with the expression of 'gold bug.'"

»Read more
  Sunday, 15 Jun 2014 | 3:54 PM ET

How the Fed could shock markets this week

Posted By: Alex Rosenberg

The Federal Reserve is widely expected to announce another $10 billion monthly reduction in quantitative easing in Wednesday's FOMC statement. But the focus will be on the Fed's economic assessment, which could end up dramatically realigning investor expectations about when the Fed will hike rates.

In its previous statement, issued in late April, the Federal Open Market Committee noted that "growth in economic activity has picked up recently, after having slowed sharply during the winter," but added that "labor market indicators were mixed" and "the unemployment rate… remains elevated."

The economic outlook certainly seems to have improved since then. The last two employment reports showed monthly nonfarm payrolls growth of 282,000 and 217,000. And after a severely weak first quarter, several economists are looking forward to Q2 GDP growth around 4 percent.

Ironically, at 2.8 percent to 3.0 percent, the Fed's current full-year GDP projections may be too high, simply because of the weather-related contraction in the first quarter. But they could still be understating the overall strength in the economy. And if the Fed acknowledges that the American economy may be entering into a period of above-trend growth, that could distort expectations about the future target of the federal funds rate, the highly influential rate at which banks lend to each other.

Read MoreMost economists say the Fed is wrong about growth

"The risk going into the meeting is for a slightly more hawkish tone than the market is expecting," Societe Generale chief U.S. economist Aneta Markowska wrote to CNBC.com. "We see quite a bit of room for upgrades to the current economic assessment. ... Labor market conditions are no longer 'mixed,' and continue to show further improvement."

Given the current economic outlook, the market expectations for interest rates may be "unrealistically low," and to the extent that this has "driven complacency and risk taking, I think the Fed may opt to lean gently against them," Markowska wrote.

»Read more
  Thursday, 12 Jun 2014 | 3:42 PM ET

Oil could rise another $15: Oppenheimer expert

Posted By: Alex Rosenberg

Crude oil is surging on news of the geopolitical crisis in Iraq, but the spike might not even be close to over, according to Oppenheimer senior energy analyst Fadel Gheit.

"Iraq is responsible for 3 million barrels a day of crude oil supply," Gheit pointed out on Thursday's "Futures Now." So "if Iraq stops exporting oil… add that to the disruption in Libya, the situation in Nigeria, you'll have a total of more than 4 million barrels of lower supply worldwide. And that could push oil prices to a much higher level—maybe 10,15 dollars higher from here."

Read More Iraq violence slingshots Brent, WTI to highest levels of 2014

With crude oil settling at about $106.50 per barrel on Thursday, already a nine-month high, the high estimate would mean crude oil above $120. And lest investors consider that impossible, Gheit is quick to remind that "we've experienced $150 oil five years ago—and we did not have disruption of 4 million barrels."

Sunni rebels have taken control of several areas in Iraq, including the second largest city, Mosul. Issues with Iraqi oil production and export could crop up soon.

"I think oil prices will go higher. How much higher will depend on the magnitude of supply," but "most likely, we will see Iraq oil production decrease," Gheit said.


»Read more
  Friday, 13 Jun 2014 | 7:36 AM ET

Be careful—this rally is in the late innings: Pro

Posted By: Alex Rosenberg

Stock took a dip on Thursday, with the S&P losing ground for the third straight session. And at this point, after a 190 percent rally from the market's nadir, ConvergEx's chief market strategist, Nicholas Colas, warns that investors could be buying into the market at their own peril.

Most investors "are missing that we are in the seventh or eighth inning of a big move," Colas said on Thursday's "Futures Now." "And I think you do have to begin to be a lot more tactical. If you do have big gains, take them off the table. If you want to have one final puff of the cigar, be my guest, but be careful."

Colas says that one might have expected the S&P to drop more than it did on Thursday off of crude oil's Iraq-related spike, but at this point, investors have become lulled into complacency.

Read More Technician: Do not buy stocks right now

"We haven't had a 10 percent pullback for over 30 months. That's gotten deeply ingrained into buyer psychology. It's going to be tough to shake them out of that. Which is why I think you're still seeing a lot of resilience given the headlines we're seeing and oil," Colas said.

»Read more
  Thursday, 12 Jun 2014 | 8:49 AM ET

Death of volatility forces traders to get creative

Posted By: Alex Rosenberg
Getty Images

Stocks aren't the only thing that have gone quiet. Anticipated and actual volatility in many heavily traded commodities have also plunged over the course of this year. And this "all quiet on the Western front" market is forcing traders to rethink the way they turn profits.

"It seems that some folks have already packed up the family truckster, applied the SPF 30 and headed to the beach," said Jeff Kilburg of KKM Financial. "This is reinforced by light volumes, and as traders are viewing the ECB carrying the QE torch being handed off by the Fed," after the European Central Bank announced a raft of stimulative measures, "complacency has certainly found some new company."

The CBOE Volatility Index touched the lowest level since 2007 this month, but it's not just S&P 500 volatility that traders are refusing to pay for. The indexes measuring implied volatility of gold and oil have also plunged this year.

And this doesn't just reflect complacency. These plunges in implied volatility come as realized volatility has collapsed. Stocks, gold and crude oil have all done precious little over the past few months—Thursday's macro-related oil spike aside.

Read More VIX: Index of fear, complacency or ignorance?

"Past is prologue, and the last 30 days have been really quiet. Since it's summer, and most traders are trying to take a little time off, there's no reason to think things are going to magically get volatile now," pointed out Scott Nations, a longtime options trader who is currently the chief investment officer of NationsShares.

This has left traders, who generally look to capitalize off of volatility, searching for new strategies.

"Volatility is DEAD. And as a trader we live for volatility, so right here and now, we must get creative," wrote Rich Ilczyszyn, senior commodities broker at Chicago-based iiTrader, to CNBC.com. "What I do is write premium on current positions or spread. For instance, if I am long WTI [crude oil], I will sell calls against the position to bring in income until the vol comes back."

»Read more

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