R.I.P the one chart bear case for US stocks.
A compelling chart included in the recent presentation by Jeffrey Gundlach of DoubleLine, the LA based bond manager, was too good to be true. There have been bull markets lasting more than six years in the last century. Twice in the last thirty years, in fact.
The anonymous Wall Street Ranter caught the data fail:
…a quick check of the history books will remind everyone that the market was up 8 straight years from 1982-1989 and then was also up 9 straight years from 1991-1999.
There is a ripost to our one chart bear case for US stocks.
The latter was an eye catcher from Jeffrey Gundlach, showing that since 1871 the longest run of consecutive yearly gains for the US market was six. The current bull market has just entered its seventh year.
True, says Lukas Daalder, chief investment officer for Robeco Investment Solutions, but only if you are a prisoner of the calendar. Look April to April, instead… Read more
Jeffrey Gundlach, founder and head of the LA based bond management shop DoubleLine, was talking about infinite quantitative easing years ago and is one of the most prominent bears on the investment scene, correctly predicting last year’s fall in bond yields.
Tuesday’s presentation was a variation on that theme, with the investor warning that while lower oil prices help the US economy, watch out for the impact of the shale boom deflating. A few choice slides below, starting with one to keep in mind on the US stock market.
We always hesitate to use the word unprecedented.* Still, another year of gains for US stocks would be the seventh in a row and, well… Read more
Outflows from US high yield bond exchange traded funds slowed last week, according to JP Morgan, so that mini-correction in debt markets may have run its course.
Keep an eye on US stocks, however, as the mini-correction there has only seen 0.5 per cent of the assets in equity ETFs withdrawn since June 24th, leaving further outflows as a potential source of vulnerability, in the judgement of strategist Nikolaos Panigirtzoglou. Read more
A likely quiet week lies ahead after trading holidays in the UK and US, and with limited data releases on the calendar. The FT’s Mike Mackenzie and I have a look at the US markets where the S&P closed at a record high on Friday but the pace of gains has slowed to a crawl.
The pseudonymous Jesse Livermore returns to his mission of demolishing favourite bear arguments, hollow reasoning he thinks has served too long as an excuse to avoid investing.
The latest forray is on the subject of US margins, which for the last decade appear to have been much higher than during the half century that preceded it. Inevitable reversion to the mean, means corporate profitability must (one day) fall, say the pessimists. Read more
Interruption not inflection, says BoAML’s Michael Hartnett, who sees the beginning not the end of the fun.
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
The battle to claim the long term is in full force, focused on the use, interpretation and adjustment of the Cape Ratio to value the US stock market.
Pessimists hold dear the Cyclically Adjusted Price Earnings ratio, a value calculation using average annual profits over 10 years, as a signal that equities have been overpriced pretty much since since the first Bush administration. Damn you irrational exuberance, the day of reckoning will come, just you wait… Read more
OK, we’ll admit it, when it comes to long term measures of stock market valuation something might actually be different this time.
Which prompts a question: is a moderately negative case actually worse for market enthusiasm than predictions of disaster that can be dismissed out of hand? Read more
You don’t need one right now…
“The difference between investing in Emerging Markets equities, Developed Markets equities, and High Yield bonds is now effectively zero.” Read more
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
Seasonal cheer continued to drive risky assets in European and Asian markets on Tuesday, but the shine may be wearing off, the FT says. Commodities were modestly firmer and markets in Asia up below 1 per cent as traders tentatively added to bullish positions on hopes for better global growth in 2011. Monday’s flat finish in the S&P 500 has however caused some to argue that a 5.1 per cent gain in just over a week will not carry through to similar advances before December 24.
European bourses tracked declines in Asia on Tuesday, with a return to full post-summer trading providing a challenge to ebullience seen since the start of September, the FT reports. Wall Street will open lower by 0.4 per cent, according to US equity futures. Financial stocks took damage in Europe on reports that recent stress tests had failed to hold banks’ feet to the fire on their government debt exposures. A grimmer take on US economic data is also likely to reign, with Goldman Sachs’ Jan Hatzius predicting that the Fed will eventually commit to $1,000bn of quantitative easing, FT Alphaville observes.
The September stock surge entered its fourth consecutive session in Asian and European markets on Monday, with mostly improving economic data over the past few days encouraging a shift into plays on global growth, says the FT. Even though US markets are taking a break for Labor Day, the S&P 500 has already rallied 5.3 per cent so far in September, versus a 4.8 per cent fall in August. Investors are playing catch-up with Friday’s jobs report, according to Reuters — but the IMF’s chief economist is still warning of weak growth in the US and Europe.
Confused about the Fed’s latest round of pseudo-quantitative easing?
Fear not. Read more
Shares in Cisco Systems plummeted 8 per cent in after-hours trading on Wednesday after the firm’s chief executive John Chambers warned of ‘unusual uncertainty’ in the economic and revenue outlook, Reuters reports. Cisco’s warning sparked fears that a rise in technology spending could vanish before it has properly begun, following a set of disappointing results for IBM and Texas Instruments last month, says the FT.
Global equity markets faced picking up the pieces on Thursday after investors sought safety in government bonds as a deteriorating economic outlooks led by the US fanned an aversion for holding risky assets, the FT reports. The White House warned that the US was “not immune to slowdowns that might start in other parts of the world” after statistics brought grim news of a widening US trade gap and faltering industrial output in China. The Dow has now lost the year’s gains, the WSJ reports. Asian stocks continued to tumble on Thursday, Bloomberg reports.
These aren’t the only reasons for the market’s volatility, Pimco’s Mohamed El-Erian writes on FT Alphaville — investors increasingly perceive fatter tail-risks and a nasty deflation trap. Beneath it all, the Fed’s slight shift this week towards monetary easing has failed to bring clarity to the market, Reuters says.
And the early US market take on the Federal Reserve’s latest policy shift was…
While US stocks reversed losses yesterday in response to the Fed’s changed tack on dealing with a faltering economic recovery, European and Asian bourses have edged lower as investors digest the shift in policy, the FT reports. Ten-year Japanese and German bond yields both ploughed to new record lows, while the dollar came under pressure against a stronger yen — touching a 15-year low, according to Reuters.
August is a quirky month on the stock market, the WSJ reports. While stocks often drift higher in August, amid few earnings reports and summer vacations, the thin volumes can quickly magnify the impact of sudden and unexpected news — as the reaction to Friday’s payrolls data, plus the generalised fear of deflation, may show. Markets have suffered the Russian default, the Asian financial crisis and Hurricane Katrina in Augusts, while stocks peaked in August 1987 ahead of October’s crash.
The US economy may seem to be on a weak footing but signs of on-track recoveries elsewhere are proving enough for investors to nudge risky assets further up from recent lows, according to the FT’s global market overview. Asian stocks shrugged off a weak Wall Street session on Tuesday, while European bourses have climbed to a 12-week high on European bank optimism and corporate earnings, Bloomberg reports. US equity futures looked forward to a 0.3 per cent rise on the open, the FT added.