Manufacturing and corporate profits are both in recession mode, even though the rest of the U.S. economy continues to limp along.» Read More
Watching investors buy stocks on bad news has been enough to persuade reliably bearish Bob Janjuah to change his mind.
The Nomura analyst said that as long as the market holds its ground from the latest buying spree, being short doesn't make sense.
Specifically, he told clients in a note Tuesday to watch the 2,020 level on the S&P 500. As long as that holds, he thinks the market likely is going up and may even make a run at its historic high.
Weak economic data, ironically, forms the base for Janjuah's theory.
U.S. payrolls growth has slowed considerably in recent months, with September's 142,000 growth helping confirm that the economy is decelerating. Signs of deflation or at least disinflation have cropped up as well, and earnings season is off to an unspectacular start, with S&P Capital IQ on Tuesday projecting a profit decline of 5.1 percent for the S&P 500 in the third quarter.
Market participants, though, have been buying on the disappointment. The S&P 500 has jumped 5.8 percent in October after being down more than 6 percent for the year heading into the month.
If some economists are right, it's going to take a whole lot less progress in the jobs market to get the unemployment rate to keep falling.
Anyone following the steady decline in the jobless figure knows that the reasons for the move are complex and not just about more people finding work. Some of the reasons, in fact, are not particularly positive signs pointing to real economic progress.
Much of the decline has been about people simply leaving the workforce. A record 94.7 million Americans are considered out of the labor force, pushing the participation rate to its lowest level since October 1977.
If someone is not actively looking for employment, they simply aren't counted in the headline number. That's been a big reason the rate has declined from 10 percent in 2009 to 5.1 percent currently. It simply doesn't take as much job creation as it used to in order to get the unemployment rate to drop. The current employment to population ratio of 59.2 percent is about the same as it was when the unemployment rate was 9.6 percent.
If current trends hold, then, it will take even fewer jobs to lower the headline rate than has been the historical norm.
Hedge fund performance over the past three months hearkened back to the bad old days of the financial crisis.
Poor performance weighed heavily on the industry, causing the biggest net loss in capital since the fourth quarter of 2008, according to data released Tuesday by HFR. The $95 billion decline pushed total industry assets further from the vaunted $3 trillion mark.
As measured by the HFRI Fund Weighted Composite Index, the industry saw a 3.9 percent performance drop in the third quarter, taking the barometer into negative territory for the year at minus 1.5 percent. At this pace, hedge funds will turn in their worst performance year since 2011.
The bright side is that the industry actually outperformed the equity market through the end of the quarter, as the S&P 500 fell more than 6 percent through the first nine months. The S&P has since rebounded, jumping 5.6 percent in October to pull within 1.5 percent of breakeven for the year.
Evidence is mounting that the jobs recovery's best days are in the rear view mirror.
Recent Labor Department indicators show that the employment market is tightening, with both fewer job openings and workers willing to leave their current jobs for better environs.
The Job Opening and Labor Turnover Survey, released last week, adds to signs that the market is maturing, and signals to Wall Street that hopes for future blockbuster nonfarm payrolls reports should be tempered.
"Don't expect the employment situation report to print nonfarm payrolls above 200,000 going forward," market strategists at New York-based brokerage Convergex said in a report. "The last two readings fell below that threshold and, unless more highly educated individuals enter the workforce, it's likely to stay there."
Indeed, the most recent payrolls reports have been lackluster, to say the least.
Investors are missing a serious threat ahead in the bond market, according to one analyst who sees the ranks of the "fallen angels" swelling.
The term refers to companies formerly with investment-grade ratings that for one reason or another — often unsustainable debt loads — get downgraded to junk.
Michael Contopoulos, high-yield strategist at Bank of America Merrill Lynch, warned clients to watch out for a "migration cycle" of downgrades could affect $300 billion or more worth of junk debt. That number presumably would shoot even higher if the next cycle is even more serious than historical norms would indicate.
Should his scenario play out, that would grow the entire high-yield space by 25 percent, in the process lowering aggregate credit quality, increasing default risk and causing a glut of junk paper that would cut into the market's value and hit investment returns.
"The overall indigestion to the market could prove massive," Contopoulos wrote. "We hear so much about the potential for outflows, but very little about the potential for new paper through downgrades. The latter dwarfs the former."
Federal investigations can hang over stocks like the sword of Damocles, slashing company market caps as headlines slowly trickle out.
For Valeant Pharmaceuticals, it's been a deep cut so far — almost 30 percent off its capitalization in one month. So is the bad news now priced into the stock?
For Valeant investors, the bad news is that the bad news seemingly keeps on coming. Just this week, Valeant was subpoenaed by federal prosecutors looking for information on its patient assistance programs, drug pricing and distribution practices. This on top of congressional requests for information on drug pricing.
The spark for all these inquiries: shock-inducing price hikes for two heart drugs. A one-milliliter vial of Isuprel, a treatment for abnormal heart rhythms, jumped to $1,346.62 from $215.46. And a two-milliliter vial of Nitropress, a treatment for high blood pressure and acute heart failure, skyrocketed to $805.61 from $257.80. For its part, Valeant says it is cooperating with the probe.
Exchange-traded funds are expanding their quest to take over the investing world.
The $2.1 trillion industry already has set a record in 2015 for fund creation with 2½ months to go. Some 231 new funds have been added as of Wednesday to the increasingly diverse stable of vehicles that look like mutual funds but mostly follow indexes and can be traded like stocks.
That total is more than the 202 ETFs created in all of 2014 and represents 38 percent growth from the same period last year, at which time there had been 167 new funds created, according to ETF.com.
For hedge funds, 2015 has been a year of good news and bad news.
First the good: Amid all the market volatility, the $3 trillion hedge fund industry has outperformed the lackluster 3 percent drop the S&P 500 has turned in.
Now the bad: Despite the outperformance, the group is headed for its worst full-year returns in four years, according to organizations that track the industry. Hedge funds collectively lost more than 8 percent in 2011, but haven't had a negative year since.
A miserable September saw hedge funds lose 1.44 percent, thanks to a 2.2 percent decline in equity-based strategies and a 2.5 percent drop in North America strategy, according to numbers Preqin released Thursday. That brings the full-year return of the Preqin All-Strategies Hedge Fund Benchmark barely above even, with a 0.18 percent gain.
Pretty much the only thing that worked during the month was relative value, a strategy that looks to exploit price differences between related assets. That part of the hedge world eked out a 0.26 percent return for the month.
After a rough summer of market volatility and expectations of rising interest rates, bonds are back.
Recent data show the U.S. is economy is cooling, tamping down the Federal Reserve's appetite to tighten monetary policy. That's pushed investors back into fixed income across the spectrum, but particularly back into high-yield.
Mutual funds focused on bonds saw $60.4 billion in outflows from July to mid-October, according to the Investment Company Institute. From July to August alone, bonds had lost 1.3 percent of total assets.
Equity investors also headed for the exits, but at a far slower pace, pulling $25.9 billion. The $15.6 trillion mutual fund industry holds about $6 trillion in domestic equity assets and $3.8 trillion in total bond-related money.
Of late, the money tide has turned considerably.
At this rate, 2016 as well as 2015 may be out of the picture for an interest rate hike.
Faced with deteriorating economic data and a growing chasm among Federal Reserve officials, traders now aren't pricing in the first rate hike until April 2016, according to Chicago Mercantile Exchange data.
Until the latest round of disappointing economic news Wednesday, traders had been holding out hopes for a March move.
However, signs of a slowdown are increasing.
Everyone knows December is one of the strongest months for stocks, but sector performance varies during the holiday season.
After the 2008 financial crisis, big banks made a big mistake. And now they're paying the price, says Dick Bove.
It may be a new regime for the fixed income market, one investor warns.