The first week of 2012 is in the books and it wasn't bad. We managed a gain of 1.58% in the S&P 500 but if you bought the SPDR S&P 500 (SPY) at the open Tuesday and sold at the close today, you just about broke even as the majority of the gains came over New Year's weekend.
On the other hand, we did have good intraday trading opportunities as dip buyers jumped in on soft opens three straight days. The bounce was a little less energetic today, but again, we managed a decent recovery and had good support. When the dip buyers are busy, that usually bodes well.
Probably the most notable development this week was that we ignored poor action in Europe. Better-than-expected jobs news was the main reason for that, but I expect it also had something to do with positioning and the various games that occur at the start of a new year. I don't think we've seen the last of Europe, but perhaps we will see a little less sensitivity to it -- unless some new drama develops.
Earnings are coming, so next week will be all about expectations.
Thursday, January 5, 2012
The White House denies the report of a massive home refinancing program.
If the equity market continues its advance and bonds start slipping, THE BIG REALLOCATION TRADE (out of bonds and into stocks) is ever closer at hand.
And that could make for fireworks in the months ahead.
Our equity markets, to use a phrase that is being used more frequently (perhaps too much so!) these days, may have become the best house in a bad neighborhood.
Here are 10 reasons for my optimism:
1. U.S. relative and absolute economic growth is superior to global growth. The U.S. economy, though sluggish in recovery relative to past expansions, is superior to most of the world's economies (with the exception of some emerging markets) in terms of diversity of end markets, quality of global franchises, management expertise, operating execution and financial foundations.
2. U.S. banks are well-capitalized, liquid and deposit-funded. Our banking industry's health, which is the foundation of credit and growth, is far better off than the rest of the world in terms of liquidity and capital. Our largest financial institutions raised capital in 2008-2009, a full three years ahead of the rest of the world. As an example, eurozone banks continue to delay the inevitability of their necessary capital raises. Importantly, our banking system is deposit-funded, while Europe's banking system is wholesale-funded (and far more dependent on confidence).
3. U.S. corporations boast strong balance sheets and healthy margins/profits. Our corporations are better positioned than the rest of the world. Through aggressive cost-cutting, productivity gains, external acquisitions, (internal) capital expenditures and the absence of a reliance on debt markets -- most have opportunistically rolled over their higher-cost debt -- U.S. corporations are rock-solid operationally and financially. Even throughout the 2008-2009 recession, most solidified their global franchises that serve increasingly diverse end markets and geographies.
4. The U.S. consumer is more liquid and stable. An aggressive Fed (through its extended time frame of zero interest rate policy) has resulted in an American consumer that has re-liquefied more than individuals that live in most of the other areas in the world. (Debt service and household debt is down dramatically relative to income.)
5. The U.S. is politically stable. After watching regime after regime fall in Europe in recent weeks (and given the instability of other rulers throughout the Middle East), it should be clear that the U.S. is more secure politically and from a defense standpoint than most other regions of the world. Our democracy, despite all its inadequacies, has resulted in civil discourse, relatively balanced legislation, smooth regime changes and law that has contributed to social stability and a sense of overall order.
6. The U.S. has a solid and transparent corporate reporting system. Our regulatory and reporting standards are among the strongest in the world. Compare, for example, the opaque reporting and absence of regulatory oversight in China vs. the U.S. (It is beyond compare.)
7. The U.S. is rich in resources.
8. The U.S. has a functioning and forward-looking central bank that is aggressive in policy (when necessary!) and capable of acting during crisis.
9. The U.S. dollar is still the world's reserve currency and is far more solid than the euro.
10. The U.S. is a magnet for immigrants seeking a better life. This and other factors have contributed to a better demographic profile in our country that has led to consistent population growth and formation of households. (Demographic trends in the U.S. are particularly more favorable for growth than those population trends in the Far East.)
ISM services index came in at 52.6 vs. consensus at 53 and November at 52.
There were no surprises in the components, though the labor component was weaker than the ADP report.
Risk premiums are back to 1974 ratios -- and that level led to 35% and 19% S&P 500 rebounds in 1975 and 1976, respectively.
If the equity market continues its advance and bonds start slipping, THE BIG REALLOCATION TRADE (out of bonds and into stocks) is ever closer at hand.
And that could make for fireworks in the months ahead.
Our equity markets, to use a phrase that is being used more frequently (perhaps too much so!) these days, may have become the best house in a bad neighborhood.
Here are 10 reasons for my optimism:
1. U.S. relative and absolute economic growth is superior to global growth. The U.S. economy, though sluggish in recovery relative to past expansions, is superior to most of the world's economies (with the exception of some emerging markets) in terms of diversity of end markets, quality of global franchises, management expertise, operating execution and financial foundations.
2. U.S. banks are well-capitalized, liquid and deposit-funded. Our banking industry's health, which is the foundation of credit and growth, is far better off than the rest of the world in terms of liquidity and capital. Our largest financial institutions raised capital in 2008-2009, a full three years ahead of the rest of the world. As an example, eurozone banks continue to delay the inevitability of their necessary capital raises. Importantly, our banking system is deposit-funded, while Europe's banking system is wholesale-funded (and far more dependent on confidence).
3. U.S. corporations boast strong balance sheets and healthy margins/profits. Our corporations are better positioned than the rest of the world. Through aggressive cost-cutting, productivity gains, external acquisitions, (internal) capital expenditures and the absence of a reliance on debt markets -- most have opportunistically rolled over their higher-cost debt -- U.S. corporations are rock-solid operationally and financially. Even throughout the 2008-2009 recession, most solidified their global franchises that serve increasingly diverse end markets and geographies.
4. The U.S. consumer is more liquid and stable. An aggressive Fed (through its extended time frame of zero interest rate policy) has resulted in an American consumer that has re-liquefied more than individuals that live in most of the other areas in the world. (Debt service and household debt is down dramatically relative to income.)
5. The U.S. is politically stable. After watching regime after regime fall in Europe in recent weeks (and given the instability of other rulers throughout the Middle East), it should be clear that the U.S. is more secure politically and from a defense standpoint than most other regions of the world. Our democracy, despite all its inadequacies, has resulted in civil discourse, relatively balanced legislation, smooth regime changes and law that has contributed to social stability and a sense of overall order.
6. The U.S. has a solid and transparent corporate reporting system. Our regulatory and reporting standards are among the strongest in the world. Compare, for example, the opaque reporting and absence of regulatory oversight in China vs. the U.S. (It is beyond compare.)
7. The U.S. is rich in resources.
8. The U.S. has a functioning and forward-looking central bank that is aggressive in policy (when necessary!) and capable of acting during crisis.
9. The U.S. dollar is still the world's reserve currency and is far more solid than the euro.
10. The U.S. is a magnet for immigrants seeking a better life. This and other factors have contributed to a better demographic profile in our country that has led to consistent population growth and formation of households. (Demographic trends in the U.S. are particularly more favorable for growth than those population trends in the Far East.)
ISM services index came in at 52.6 vs. consensus at 53 and November at 52.
There were no surprises in the components, though the labor component was weaker than the ADP report.
Risk premiums are back to 1974 ratios -- and that level led to 35% and 19% S&P 500 rebounds in 1975 and 1976, respectively.
The market did a surprisingly good job of shrugging off weak action in Europe. We gapped down to start the day on the usual negative headlines, but chugged steadily upward the rest of the day and even gained traction after Europe closed in the red across the board.
Have we finally stopped moving in lockstep with each new development in Europe? That would be nice, but those problems are not going to go away quickly or easily, and they are severe enough to be a continuing issue. It's progress when we can have a day without the European pall, but it's premature to believe that we will become completely uncoupled.
The supposedly-strong-but-not-really ADP employment report certainly helped the mood, but it is going to be quickly tested by the government report tomorrow morning. I suspect the bears stood aside this afternoon rather than risk being squeezed on that news in the morning.
After the close, we had another warning in the technology sector and one in the retail group. This is by far the most warnings in quite some, time but we have yet to see much of it reflected in the overall market. Good earnings have been the best thing that market has had going for it since the lows in 2009, and it is going to be interesting to see how we deal with it if we don't see the same level of beats as the past quarter.
Have we finally stopped moving in lockstep with each new development in Europe? That would be nice, but those problems are not going to go away quickly or easily, and they are severe enough to be a continuing issue. It's progress when we can have a day without the European pall, but it's premature to believe that we will become completely uncoupled.
The supposedly-strong-but-not-really ADP employment report certainly helped the mood, but it is going to be quickly tested by the government report tomorrow morning. I suspect the bears stood aside this afternoon rather than risk being squeezed on that news in the morning.
After the close, we had another warning in the technology sector and one in the retail group. This is by far the most warnings in quite some, time but we have yet to see much of it reflected in the overall market. Good earnings have been the best thing that market has had going for it since the lows in 2009, and it is going to be interesting to see how we deal with it if we don't see the same level of beats as the past quarter.
Wednesday, January 4, 2012
Rumors of dubious QCOM accounting practices; what took them so long?
The last time risk premiums were this high (in 1974) the S&P index rose by 31.5% in 1975 and 19.1% in 1976.
Rising interest rates will accelerate and hasten the almost inevitable rotation out of bonds and into stocks (as losses mount).
Rising interest rates will benefit the savings class, who will have more money to spend.
Market sectors with balance sheets that have an imbalance of rate sensitivity on the asset side -- like banks and insurance stocks -- will thrive as interest rates rise.
Rising interest rates will encourage fence-sitters who plan to make durable purchases (e.g., housing and autos) to take the plunge and buy.
Rising interest rates will signal to many that the economy is advancing.
Run, don't walk, to read monthly commentary from Pimco's Bill Gross, "Towards the Paranormal."
A year ago, I predicted Romney would be the next POTUS. Despite the closeness of the Iowa race, I continue to strongly expect Mitt Romney to be the Republican presidential nominee and to become the next president.
The last time risk premiums were this high (in 1974) the S&P index rose by 31.5% in 1975 and 19.1% in 1976.
Rising interest rates will accelerate and hasten the almost inevitable rotation out of bonds and into stocks (as losses mount).
Rising interest rates will benefit the savings class, who will have more money to spend.
Market sectors with balance sheets that have an imbalance of rate sensitivity on the asset side -- like banks and insurance stocks -- will thrive as interest rates rise.
Rising interest rates will encourage fence-sitters who plan to make durable purchases (e.g., housing and autos) to take the plunge and buy.
Rising interest rates will signal to many that the economy is advancing.
Run, don't walk, to read monthly commentary from Pimco's Bill Gross, "Towards the Paranormal."
A year ago, I predicted Romney would be the next POTUS. Despite the closeness of the Iowa race, I continue to strongly expect Mitt Romney to be the Republican presidential nominee and to become the next president.
The market battled back from a poor open and the senior indices even managed to end with minor gains, but it was tired action with a few big-caps, MSFT, AAPL and GOOG, doing most of the heavy lifting.
The big question is whether the market is vulnerable to a pullback as positive seasonality winds down and we enter earnings-warning season. We are still a bit overbought and the action has been a little tired, but we were able to shake off European worries and the struggling euro.
One thing that has plagued this market for a while is the lack of any real leadership. That needs to change for us to have a powerful market move. Strong markets need leadership, and this one doesn't have much. Overall, the market is in OK shape but a bit tired and in need of more energy and leadership.
The big question is whether the market is vulnerable to a pullback as positive seasonality winds down and we enter earnings-warning season. We are still a bit overbought and the action has been a little tired, but we were able to shake off European worries and the struggling euro.
One thing that has plagued this market for a while is the lack of any real leadership. That needs to change for us to have a powerful market move. Strong markets need leadership, and this one doesn't have much. Overall, the market is in OK shape but a bit tired and in need of more energy and leadership.
Tuesday, January 3, 2012
The December ISM came in at 53.9 (above expectations of 53.5) and better than 52.7 in the prior reporting month. That's the best print in six months and well above the six-month average and long-term average of about 51.7. In terms of components production and new orders, we're at an eight-month high.
If there is one factor that is beginning to concern me regarding the markets and the economy, it is the rising price of crude oil -- now up by nearly $4 a barrel, to $102.50.
From my perch, the four conditions for a sharp upward turn in equity prices are moving into place:
1. reduced volatility;
2. improving domestic economic statistics;
3. aggressive moves to address/contain the European debt contagion;
4. and a more pro-active movement on the U.S. fiscal imbalances and pro-growth policy (in large measure brought on by a growing likelihood of a Republican presidential win in November).
A soft landing in China and India? China's December PMI was better than expected at 50.3 -- the consensus was at 49.1 -- and the prior month came in at 49.0. China's December non-manufacturing PMI at 56.0 was well above the November print at 49.7. Manufacturing expanded above consensus in India.
German unemployment fell by a better-than-expected 22,000 jobs. U.K. December manufacturing also rose above expectations.
If there is one factor that is beginning to concern me regarding the markets and the economy, it is the rising price of crude oil -- now up by nearly $4 a barrel, to $102.50.
From my perch, the four conditions for a sharp upward turn in equity prices are moving into place:
1. reduced volatility;
2. improving domestic economic statistics;
3. aggressive moves to address/contain the European debt contagion;
4. and a more pro-active movement on the U.S. fiscal imbalances and pro-growth policy (in large measure brought on by a growing likelihood of a Republican presidential win in November).
A soft landing in China and India? China's December PMI was better than expected at 50.3 -- the consensus was at 49.1 -- and the prior month came in at 49.0. China's December non-manufacturing PMI at 56.0 was well above the November print at 49.7. Manufacturing expanded above consensus in India.
German unemployment fell by a better-than-expected 22,000 jobs. U.K. December manufacturing also rose above expectations.
Of course, the news media is celebrating the fact that the indices kicked off 2012 with a good-sized gain. But for traders, it was awful. Following the gap up to start the day, we traded poorly and closed at the low. All the gains came overnight, and there was no intraday momentum to be found.
Breath was quite good and all major sectors were in the green, but volume was light and few, if any stocks, closed at their highs. It's the same action that has frustrated traders for months because all the movement occurs overnight. Pure day traders, who aren't carrying any inventory, had few chances to match the gains of the indices.
The second day of the new year is generally considered the close of the holiday trading period, and much of the artificiality caused by mark-ups, positioning and tax moves end. That doesn't mean stocks will suddenly start trading on their individual merits, but there should be a bit more focus on stock picking as we head into earnings season.
Breath was quite good and all major sectors were in the green, but volume was light and few, if any stocks, closed at their highs. It's the same action that has frustrated traders for months because all the movement occurs overnight. Pure day traders, who aren't carrying any inventory, had few chances to match the gains of the indices.
The second day of the new year is generally considered the close of the holiday trading period, and much of the artificiality caused by mark-ups, positioning and tax moves end. That doesn't mean stocks will suddenly start trading on their individual merits, but there should be a bit more focus on stock picking as we head into earnings season.
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