Record S&P 500 Momentum Unwinding as China Quashes Euphoria – Bloomberg 02-03-14

Salient to Investors:

The S&P 500 is down 4.1 percent in 2014, its worst start to a year since 2009. Of the S&P 500 companies:

  • Almost 160 were below their 200-day moving average last week, more than any time in 2013
  • 86 stocks set 1-yr highs when the index hit a record on January 15, versus an average of 112 when peaks were reached in Q3, 2013.
  • 460 climbed in 2013
  • 2 stocks have climbed for each stock that has fallen on days when the S&P 500 has risen during the last 7 months versus a ratio of 2.5 for the rest of the bull market

59 percent of NYSE companies traded below their 200-day moving averages on January  29 versus more than 80 percent above in May 2013. Bank of America said when the proportion falls below 60 percent, it is a negative signal. It went below 60 percent in April 1998, three months before the S&P 500 fell 19 percent. In 2007, the percentage of NYSE-listed stocks trading above their averages fell from 65 percent to less than 30 percent in a matter of weeks, and the S&P 500 lost 57 percent from October 2007 through March 2009.

Jason Brady at Thornburg Investment Mgmt said slowing momentum has sometimes been bullish when valuations shrink, but investors should prepare for more months like January because you need new reasons for prices to rise and maybe there are none.

Byron Wien at Blackstone and Robert Doll Jr. at Nuveen Investment say the S&P 500 is due for its first 10 percent drop since 2011.

Brad McMillan at Commonwealth Financial Network is cautious.

John Carey at Pioneer Investment Mgmt said investors are becoming more selective and favoring companies with meaningful growth in earnings prospects for 2014, so expects a more typical market with rougher swings in price in 2014.

James Paulsen at Wells Capital Mgmt said slowing momentum should be expected in a bull market entering its 6th year and after the S&P 500 rise of 30 percent in 2013. Paulsen said this is a refreshing pause and not a correction, and diminishing breadth means investors are acting with more discretion, not turning bearish.

During the 4 biggest bull markets of the last 25 years, peaks in smaller companies, banks and transportation stocks came before the S&P 500 peaked almost 90 percent of the time.

The Russell 2000 Index reached an all-time high on Jan. 22, the S&P 500 Financials Index climbed last month to the highest point since September 2008, and transportation stocks reached a record on January 23.

Economists expect the economy to grow 2.8 percent in 2014 and 3 percent in 2015, versus an average 3.3 percent since 1948.

Christopher Wolfe at Bank of America Merrill Lynch said people have become used to markets going up all the time, and while the market is ripe for a correction, there are fundamental issues as well.

Jeff Saut at Raymond James said breadth has been deteriorating and the equity market has had a heart attack, and does not think the S&P has found a short-term to intermediate-term bottom.

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Is the rally nearing an end? 10 savants weigh in – InvestmentNews 05-06-13

Salient to Investors:

Larry Fink at BlackRock says investors should be heavily invested in equities due to its fair value at a 15.5 P/E ratio for the S&P 500 and good earnings season.

Jeffrey Gundlach at DoubleLine said in mid-April that he expects a catastrophic failure because the developed world since 2005 has been living on a debt-financed economic upturn that is unsustainable and which cannot be paid back. Gundlach started buying 10-yr T-notes in February.

Josh Brown said half the market has not kept up with the major averages so now is a great time to be selective.

Ken Heebner at Capital Growth Mgmt said US growth will get stronger because of the positive impact of rising house prices which could push stock prices up 50 percent in 2 or 3 years.

Byron Wein at Blackstone in March said the market is beginning to verge on the euphoric, outstripping so-so economic data, and eventually the fundamentals, including Washington and earnings disappointments, will take over and the market will become a more reasonable place.

Gregory Harmon at Dragonfly Capital Mgmt says a simple Harmonic pattern shows that a reasonable target on the Dow is 16,810 and 20,770 is possible.

Doug Kass at Seabreeze says this is a solely Fed-driven rally, and earnings continues to be challenging but the market hasn’t cared because global monetary policy is dominating the revenue and earnings lethargy. Kass said we are in a P/E driven market, which are always far more difficult to predict than earnings driven markets.

Bob Doll says the path of least resistance is higher, with ideal conditions in an economy operating on only 5 or 6 out of 8 cylinders which keeps a lid on interest rates. Doll said other assets offer little return so if the weak fundamentals remain intact, any correction will only be a few percent.

Laszlo Birinyi is bullish and expects the S&P 500 going to 1900 in a series of steps.

Warren Buffett said we will see markets far higher in our lifetimes, fueled by the retention of earnings by American industry, and US growth.

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Risk Unrewarded as Emerging Stocks Lag Behind Most Since ’98 – Bloomberg 03-25-13

Salient to Investors:

The MSCI Emerging Markets Index is up 22 percent since its October 2011 low versus the 33 percent advance for the MSCI World Index – the first time since 1998 they have underperformed during a global rally.

Bulls say emerging markets will lead the next stage of the global rally as record low interest rates send investors into riskier securities. Bears say the trend will continue as investors favor more transparent markets.

Michael Hartnett at Bank of America cut developing-nation shares for the first time in 6 months and raised positions in the SPX to the highest level since July. Morgan Stanley cut its estimate for gains in emerging-market equities and raised projections for US and Japanese shares.

Emerging market shares beat developed equities by an average 46 percent during bull markets since index data began in 1988.

Most developing market companies have missed analyst estimates for the last 5 quarters, while a majority of MSCI World companies beat estimates.

The only other bull market in which emerging stocks lagged was from September 1990 through July 1998, when US shares surged during the dot-com bubble and Asian equities were hurt by a financial crisis.

MSCI volatility was higher than the developed-country index during each rally by 30 percent on average, while emerging equities saw steeper declines and bigger price swings than developed shares during bear markets.

Scott Wren at Wells Fargo Advisors said investors want to own stocks more than they did a while ago but remain hesitant to take on risk.

Russ Koesterich at BlackRock said the US has been delivering.

Economists predict the US to grow 1.9 percent in 2013.

Byron Wien at Blackstone said emerging markets have flaws but have enormous economic momentum while developed markets are mature, and predicts emerging markets will lead gains in global stocks in 2013 with double-digit returns.

David Kelly at JPMorgan Funds said relative to Europe and Japan, emerging markets do not have the same indebtedness problem.  The IMF says developing nations’ government debt has declined to 34 percent of GDP from 52 percent a decade ago, versus 110 percent in developed countries.

The MSCI Emerging Markets Index is at 10 times 12-month profit estimates versus 13 times for the MSCI World, the widest gap since November 2008.

Rupal Bhansali at Ariel Investments says the risk of emerging markets is that their institutional frameworks are a work in progress.

Jason Hsu at Research Affiliates said inflation is preventing central banks in emerging markets from stimulating their economies as much as developed nations.

Andrew Milligan at Standard Life Investments sees QE continuing in advanced economies, which at the margin, will support developed rather than emerging markets.

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6 Outrageous Predictions For 2013 – Seeking Alpha 01-21-13

Salient to Investors:

Doug Short at Advisor Perspectives writes:

  • Statistics says that 99.7% of all daily movements should fall within three standard deviations of the mean, but Deutsche Bank research shows that three standard deviation movements are not as rare – some instances, like the 2008  financial collapse, happen over 25% of the time. So bet on the unexpected happening much more frequently than everyone else. John Templeton said it is impossible to produce superior performance unless you do something different from the majority.
  • We psychologically gravitate toward predictions that jive with our own personal convictions and seek out information congruent with our own beliefs.
  • The rally in Japanese stocks will continue. Byron Wien at Blackstone expects the Nikkei 225 to rise above 12,000 as exports improve and investors return.
  • Congress will pass a budget. Stocks will rise more than 15%.
  • Deutsche Bank said stronger equities may be the necessary tonic to further increase household wealth: and the Fed can take more extreme actions in ‘unusual and exigent circumstances.’
  • Morgan Stanley says inflation could be triggered by a combination of drought-limited agricultural production, stronger-than-expected recoveries from China and the US, and ballooning central bank balance sheets. Inflation hedges include gold, silver, timberland, real estate and, best of all, stocks.
  • Deutsche Bank said Greece has sizeable undersea terrain in the Mediterranean, and several Mediterranean countries have already discovered undersea natural resources. The Global X FTSE Greece 20 is up 60% over the last 6 months so is a momentum play.

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S&P 500 10% From Record as Birinyi Sees Bears Capitulate – Bloomberg 09-06-12

Salient to Investors:

The S&Ps 500 Index is closer to a record than any other major stock market.

Laszlo Birinyi expects more gains as bearish investors give up excuses of no volume and the belief that earnings aren’t going to be good, and start buying.  Birinyi is surprised by the market’s strength and breadth.

Byron Wien at Blackstone said everybody knows that stocks should go higher, but say this time is different as there are so many problems.

Mark Luschini at Janney Montgomery Scott 2007 levels would indicate a bubble if we got there soon with no change in data flow or prospects, but wouldn’t if it took 12 to 18 months on a stabilizing Europe and China.

68 stocks have been replaced in the S&P 500 since 2009 following takeovers, declines in market value, corporate restructurings and bankruptcies, including GM and Black & Decker.

The S&P 500 is trading 13 percent below its average valuation since the 1950s and its P/E has fallen since 2009.

James McDonald at Northern Trust said the U.S. has recovered better than the other markets because its financial system and companies have restructured and responded first – likes the U.S. market the best.

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Wien Unbowed by U.S. Shares Slump Joins Birinyi Seeing Rally – Bloomberg 06-11-12

Salient to Investors:

Bloomberg reports 64 percent of 108 S&P 500 companies had analyst ratings lowered in the past week.

Investment Company Institute say American equity mutual funds had $7.2 billion of outflows during the week ended May 23 versus $178 billion of outflows in the previous 12 months.


Blackstone Group’s Byron Wien says it’s safe to buy, more investor disappointments are unlikely, everyone is bearish, and investors have cash.

Laszlo Birinyi reiterated buy recommendation, says market was due for a correction.  Historically the last stage of a bull market sees a very strong rally but we still have too much skepticism. Expects the last phase of this bull market to start around September. Owns Whirlpool. Nike and Chipotle Mexican Grill.

UBS’s Jonathan Golub said the market was due for a correction, sees S&P 500 at 1,475 by year-end because U.S. economic conditions are strong and Europe will stem its crisis. Likes technology and consumer discretionary companies.

Canaccord Genuity Securities’ Tony Dwyer says market correction normal and healthy, sees S&P 500 at 1,575 as the fundamental backdrop remains constructive. Producer price below 3 percent annual means expenses won’t curb profits. Likes technology and consumer discretionary companies.

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