If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right?
Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend, something suggested by this presentation from Claude Erb, the West Coast based manager of TR.
Which is going to take us on a mostly chart based and, we hope, relatively painless tour of a wonky concept — the equity risk premium. But it’s also a way to come at those arguments about long term measures of stock market valuation, the Cape ratio and Shiller PE, from another direction. Read more
Tech is down, Treasuries are up, stocks are flattish: whatever happened to asset rotation, great or otherwise?
For an answer, we turn to the flows as interpreted by Nikolaos Panigirtzoglou and team at JP Morgan, who have found that the bond selling of late last year has reversed:
non-bank investors appear to be responsible for most of this year’s bond rally of which retail investors were one. Neither speculative investors, who appeared to have increased their US rate shorts by $110bn duration-weighted YTD, nor banks who, driven by FX managers, sold USTs this year, appear to have caused this year’s bond rally.
About that European bull market. Enthusiasm is there, but the earnings not so much yet.
With little support from earnings, European equities continue to be re-rated in P/E and price/book terms. From 10x in late 2011 to 17x now, European equities trade above both post-1980 and post-1990 average P/Es.
Citi strategist Jonathan Stubbs finds that it’s not just the average, value stocks no longer offer great value either. So, look for places where corporate earnings are actually, y’know, growing. Read more
So, havens were what worked in the first quarter, led by a niche precious metal.
Double double, toil and trouble…
Morgan Stanley’s US quant team has an eye on the market cauldron, and the simmering has a late nineties feel to it: Read more
Big declines for the Japanese benchmarks, with the Nikkei 225 rapidly approaching 14,000 from the wrong direction to leave it and the broader Topix firmly in correction territory.
There are reasons aplenty. Japan vied with Portugal for most go-go market last year, Chinese growth appears to be slowing, the US had a bad day, and then there is the whole taper-related, Turkey-inspired return of general angst.
Still, momentum watchers may have reason to be concerned by the following chart: Read more
So yes, the Cape measure of long term valuation might have some flaws, but don’t expect them to keep a good bear down. The latest from Andrew Smithers provides some more (over) valuation points to chew on. Read more
Pop quiz – what was the price earnings ratio for the UK benchmark at its previous peak of 6,722 in October 2007?
We ask because the FTSE 100, now slightly higher, is near as dammit at the same valuation once again. But the real surprise is perhaps the lowly level of that ratio. Read more
A new year is a new country, so far as the investment prognostication world is concerned. What will people do with their clean slates, we wonder?
Buy equities is a strong contender. It appears to be what retail investors finally did last year after years of revealing their preference for bonds, and they aren’t done yet. If you don’t believe us, well, we have charts… Read more
With thanks to the eagle eyed Tracy Alloway, the year in asset class returns illustrated in shades of Deutsche Bank blue.
(Spoiler: not such a good year for gold, commodities, or A-Rod baseball cards). Read more
This bull train is ready to blow off some steam, maybe.
Seeing as we can’t remember if good news is still good news, or if it counts as bad news these days, why not throw some technical thoughts into the mix. GaveKal’s Jean-Yeves Dumont has his finger on the sell trigger: Read more
Sounds impressive, doesn’t it — more than $100bn in investor money has sploshed over to the US stock market since the start of 2013, according to EPFR and BNP Paribas:
Better news out of Europe sparked a rally in growth-focused assets as trading started to thin ahead of the holiday season, reports the FT. The FTSE All-World equity index was up about 2 per cent, with risk appetite building as shown by a 0.9 per cent fall for the dollar index and sturdy buying in the commodity space, where copper was up 2 per cent to $3.37 a pound. Gold, which has been trading of late with a close correlation to stocks, rose over 1 per cent to $1,613 an ounce. Much was made of the bullion’s drop below the 200-day moving average last week, so traders are eyeing that technical indicator again as it now becomes potential resistance at $1,621. Wall Street’s S&P 500 rebounded and jumped over 3 per cent, more than overcoming Monday’s losses, which came after Bank of America’s share price slipped below $5 for the first time this year, triggering heavy selling of financials. A report on Tuesday that showed US home building starts at a one-and-a-half year high in November added to evidence the struggling housing market may be gaining traction, further buoying investors. The mood was calmer early on in the session, with Asian markets recouping some of Monday’s losses as tensions surrounding the transition of power in North Korea eased a touch. Sentiment also improved in Europe after the Ifo survey of German business confidence defied the gloom-mongers by rising sharply in December. This was followed by a well-received €5.6bn auction of Spanish short-term debt, which reduced fears about sovereign funding difficulties across the eurozone.
Market schizophrenia alert. The Monti put that might have triggered the Italian bond rally today seems to have inspired a rally in global stocks. Who knows how long this will last. And maybe that’s the point — it’s a game of gambling on possible outcomes rather than fundamental investing at this stage.
That’s the seemingly obvious point that’s worth stating from Mark Dow, portfolio manager at Pharo Management, a New York-based hedge fund. The Pharo investor is a former economist at the IMF and the US Treasury so his macro intuitions are
scary worthy of note. Dow told FT Alphaville this week that he is grappling with the challenge of expressing a bearish position across asset classes in a market that boasts some positive technicals but lacks meaningful direction for now. Read more
The ebullience of recent sessions was subsiding as traders took stock ahead of further developments on the eurozone fiscal crisis and the start of the US third-quarter earnings season, the FT reported. The FTSE All-World equity index was up 0.4 per cent, supported by a 2 per cent jump in Tokyo, which was playing catch-up after Monday’s holiday, during which time global risk assets enjoyed one of their strongest days for some while. The FTSE Eurofirst was down fractionally and S&P 500 futures pointed to Wall Street dipping just 0.1 per cent at the open. The US benchmark jumped 3.4 per cent on Monday, taking its gains since last Tuesday’s intraday low to 11.2 per cent. The rally came partly as a result of dwindling concerns over the health of the world’s biggest economy, after better-than-expected US jobs numbers on Friday finished topped off several examples of forecast-beating macroeconomic data. But the main impetus behind the surge is, arguably, raised hopes that the European authorities will manage to create a grand plan for the bloc that by recapitalising the region’s banks, may allow for a managed Greek default and thus contain sovereign debt contagion and restore confidence in the euro project.
Tuesday 21.30 BST. Wall Street has averted entering an official bear market with a stunning late rally of more than 4 per cent in the S&P 500, after the FT reported that European Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions. In the final 45 minutes of trading, the S&P rebounded from a loss of 1.8 per cent to close up 2.3 per cent at 1,123.94. Bank stocks led the rebound with the S&P financials index rising 4.1 per cent and reversing an early drop of 2.9 per cent. That helped the S&P avoid closing down more than 20 per cent from its April high, which is the threshold for a bear market. “Positive European headlines have been few and far between, and, ultimately, today’s rally was spurred by a headline and not the actual implementation of a policy decision,” said Dan Greenhaus, chief global strategist at BTIG. Such doubt is echoed across other markets, as the dollar and Treasury bonds were hit by late selling pressure as stocks surged. However, many strategists were sceptical that a turning point had been reached, especially as the surge in optimism drowned out other worrying news, namely a three-notch downgrade of Italy’s sovereign credit rating to Aa2.
OK, volumes are seriously low and it’s Labor Day in the States. On the other hand…
Monday’s WSJ gives lengthy treatment to the scramble among analysts to work out whether stocks are cheap considering the uncertainty about the path of US corporate earnings.
There’s plenty of disagreement among the sell-siders and cheapness is itself a hazy concept. Using the Shiller-based P/E ratio of comparing prices against historical earnings going back ten years, stocks would appear to be, if not too expensive, then nothing like a bargain either. But shift to projected earnings and ratios still look mighty appetising — though of course, much will depend on whether the “projected” bit turns out to be accurate. Read more
August’s extreme stock trading volatility will still not be enough to turn around declining revenues on Wall Street, the WSJ reports. Despite the past week having seen some of the busiest trading days in history, banks are unlikely to take enough commission revenue from trades to make up for declines in the inventories of stocks they hold. Similarly, bond trades have increased but new underwriting deals remain absent from markets. Merger and stock underwriting volumes are also down sharply on the year. Underwriting fees on public offerings for companies bailed out in the crisis are also falling as the government haggles with banks, Reuters reports.
US chief executives are buying shares in their companies on a scale not seen since March 2009, the FT reports. Executives at Morgan Stanley, Chiquita Brands, General Motors and the holding company of United Airlines and Continental are among those who in the past week have purchases shares in order to show their confidence. Analysts remain divided over whether the buying portends a rally in the short term or whether it is a false signal much like insider purchases before the 2008 financial crisis. August 2011 has already shown the fastest pace in insider buying since May 2008, according to Trimtabs data, says FT Alphaville.
Marginally more tasteful than a hooker’s drawers anyway… (H/T Michael Roston)
Friday’s newspaper round-up (with a little help from Sky News and now with added Daily Mirror).
Nine days of stocks falling. Nasdaq — like the S&P 500 — is now negative for the year. Situation in crude also ugly and the 10-year Treasury yield is advancing down to 2.5 per cent: Read more
Buyers were returning to risk assets as the confidence wobble seen at the start of the week quickly faded on Wednesday, the FT’s global market overview reports. The FTSE All-World equity index was up 0.3 per cent, many commodities were enjoying bids and safety plays, such as core government bonds, and haven currencies were falling back. US stock futures suggested Wall Street, which lost 1.1 per cent in the previous two sessions, would open up by 0.3 per cent. A burst of insecurity on Monday and Tuesday had caused a flight out of erstwhile market darlings, such as oil, precious metals, agricultural products, stocks and high-yielding forex units. This coincided with a mixed reception afforded by the IMF’s latest world economic bulletin and a poorly received earnings report from Alcoa, the aluminium producer, as it kicked off the US reporting season.
Key stock benchmarks are idling near cyclical highs, as not even wariness over rising interest rates, sparked by tightening in China and hawkish sentiment from the US, or continuing concerns about Libya and Japan can keep a lid on underlying optimism regarding the global economy, reports the FT. A belief that interest rates could start rising after years of decline has been bolstered by bullish minutes from the Federal Reserve’s last open market committee meeting, which revealed that a faction of Fed members – the minutes did not say how large – believed it may be “appropriate to reduce the pace or overall size of the purchase programme”. Following the report, stocks fell back from their intraday highs, US Treasuries were sold off and the yen fell to its weakest level versus the dollar since September. It is down 0.9 per cent to Y84.87. Gold and silver are extending their highs, with the yellow metal seeing a new record price of $1,456 an ounce, and silver at $39 an ounce, its highest since 1980. The FTSE All-World equity index is off fractionally, but still a stone’s throw from February’s post-credit crunch high of 228.9. The S&P 500 on Wall Street is also off by just a fraction of a point, having given up earlier gains, but it is still less than 1 per cent away from its 2011 high.
Traders are trying to finish a volatile quarter on an upbeat note as a powerful undercurrent of bullishness based on hopes for global growth continues to battle with nervousness over Japan’s nuclear problems, Middle East unrest and eurozone fiscal woes. The S&P 500 on Wall Street is down 0.2 per cent at 1,325, as investors weighed another sub-400,000 number for weekly jobless claims against softer-than-expected March factory orders. The FTSE All-World equity index is up 0.1 per cent to 226.3, taking the benchmark’s gains since the start of the year to 4 per cent and leaving it less than 1 per cent below February’s cyclical peak. The Reuters-Jefferies CRB Commodities index is up 5.7 per cent for the quarter, a move that speaks to the optimism over resource demand that travels hand-in-hand with a positive prognosis for the global economy. Such a trundle higher in riskier assets has confounded the bears because it has come during a quarter in which markets have had to cope with a batch of worries, potentially all the more destabilising for their diversity.
European bourses are breaking a five-day losing streak after the Tokyo stock market rallied nearly 6 per cent in the belief that recent selling had been overdone, the FT reports in its rolling global market overview. “Bargain hunters” have moved back into many riskier assets following a two-session tumble on Japanese nuclear fallout fears that had seen global equities shed about $1,600bn. See also FT Alphaville on Japan’s Wednesday bounce, and for a look at who’s been selling Japanese stocks.
Japan has defied investor logic even more than usual in the past few days.
Even as the sense of crisis deepened around Japan’s stricken Fukushima nuclear plant, with reports of a fresh fire and radioactive leaks, stocks bounced back some on Wednesday, with the Nikkei 225 Stock Average closing up nearly 6 per cent. Read more