Stock Market Looks Smarter Than Bond Market This Time – Bloomberg 06-05-14

Salient to Investors:

  • Ed Yardeni at Yardeni Research said a common worry was that the drop in bond yields may be predicting economic slowdown.
  • Investors Intelligence’s percentage of bulls is at the highest level since January 2005.
  • The conventional wisdom, at least among fixed-income traders and the smartest stock traders, is that the bond market is always smarter than the stock market about predicting the economy.
  • The Dow Jones Transportation Average is up 9.2 percent in 2014, more than twice the S&P 500 gain.
  • Cowen raised earnings estimates for railroads on robust traffic growth in the first two months of Q2.
  • Wunderlich Securities said per-week hours among trash haulers are near records and well above historical averages even as the number of collection employees is up 1.7 percent.
  • Jeff Kleintop at LPL Financial said bond and stock markets are not in disagreement, and that money has flowed into Treasuries because of low European yields as well as unusual declines in China’s currency.

Read the full article at http://www.bloomberg.com/news/2014-06-05/stock-market-looking-smarter-than-bond-market-just-this-one-time.html

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Rail Stocks to Lag Behind Earnings as U.S. GDP Help Fades: EcoPulse – Bloomberg 02-25-14

Salient to Investors:

John Larkin at Stifel Nicolaus said:

  • Railroad stocks are overvalued at 10.9 times enterprise value to EBITD on a trailing 12-month basis versus an average of 9.4 since 1993. The biggest gains are behind them.
  • Their cyclical earnings power will diminish, especially in a mediocre economic environment, and has no buy recommendations on companies in the index.
  • The margin boost rail operators enjoyed from re-pricing their legacy contracts has run its course, making it more difficult to surprise investors, while coal volumes have been weak – hurting profitability in a permanent way.
  • In-line performance relative to the market since 2012 coincides with the decline in coal volumes.

The S&P Supercomposite Railroads Index has beaten the S&P 500 Index by 2.9 percent over the last 12 months after being ahead by almost 500 percent since 2000.

Robbert Van Batenburg at Newedge said:

  • The strength of rail stocks earlier in the economic recovery that began in mid-2009 relative to the broader market showed investors were betting on accelerating GDP, but with the Fed tapering being overweight the group is no longer as viable.
  • Rail stocks need better-than-forecast economic growth to resume their outperformance of  the market on a longer-term basis.
  • The economy won’t expand at a rate that causes the volume of cyclical shipments to rise much beyond the current level.
  • The decline in car purchases means slower earnings growth for railroads, which transport large volumes of them.
  • Any boost to stock performance from a pick-up in weather-related coal volumes will be temporary.
  • The slowing Chinese economy is a potentially serious problem because many commodity exports are transported by rail.
  • Approval of the Keystone XL pipeline would further diminish the volume of rail-shipped commodities and hurt rail companies’ performance.

Andrew Burkly at Oppenheimer said railroad stocks offer a domestic play on the US economy, though are not universally attractive.

Jeffrey Kleintop at LPL Financial is still positive on the group, particularly in the midst of this unusually harsh winter, as railroads could see a reversal of years of declining coal shipments as stockpiles are depleted and the price of natural gas rises amid colder-than-normal weather.

The median economist expects Q1 GDP to rise at an annual pace of 2.2 percent versus an annualized gain of 3.2 percent Q4 2013 and 4.1 percent in Q3 2013.

Read the full article at http://www.bloomberg.com/news/2014-02-25/rail-stocks-to-lag-behind-earnings-as-u-s-gdp-help-fades.html

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Apple to IBM Push Buyback to Record Trading – Bloomberg 12-16-13

Salient to Investors:

Bloomberg and Birinyi Associates data show stock buybacks have increased each of the last 4 years and were 6.4 percent of daily trading in the Russell 3000 Index by value through September, exceeding 2007’s level of 4.1 percent and reflect a seven-year decline in equity volume. Birinyi data show companies authorized $728 billion in repurchase programs in 2013 versus $467 billion at this point in 2012.

Companies took advantage of record-low interest rates to raise an unprecedented amount of debt financing and repurchased stock, helping boost per-share US earnings for four years. With cash at a record, buying by companies is poised to continue.

Martin Leclerc at Barrack Yard Advisors sees continued or increased buybacks because things are good.

The 100 stocks in the S&P 500 with the most buybacks relative to market value have returned 40 percent, including dividends, in 2013 versus 27 percent for the index – and 270 percent versus 190 percent since March 2009. S&P said S&P 500 companies had $1.14 trillion of cash on June 30 and are on track to top that for Q3 – almost twice the level in October 2007.

The S&P 500 PE is at 16.7 versus the average since 1998 of 19, and earnings are forecast to rise 5.3 percent to $109.40 in 2013, and sales to rise 4.1 percent in 2014 and 4.5 percent in 2015.

Paul Zemsky at ING Investment Mgmt said we are nowhere near the overall valuation where companies will not buy stock back.

Bank of America Merrill Lynch said investment-grade corporate bonds issued in 2013 is at a record and the average yield of 3.11 percent is almost 1.8 percent below the decade mean.

Edward Yardeni at Yardeni Research said many companies are using their cash flow to buy back shares or borrowing to buy back shares and that will continue at the current pace.

12 of 35 economists expect the Fed to taper at its December meeting, 9 predict January and 14 predict March. 86 economists predict 2013 GDP of 1.7 percent versus 2.8 percent in 2012 and an average of 2.3 percent per quarter since 2009.

Bruce McCain at KeyCorp said share buybacks have boosted earnings but signal the economy is not strong enough to support corporate investments.

Jeffery Kleintop at LPL Financial said a slowdown in buybacks would not be negative as companies shift in 2014 to investing in fundamental growth and not financial engineering, which is much more healthy.

Thomas Garcia at Thornburg Investment Mgmt said buybacks are good and show companies have cash flow.

Read the full article at http://www.bloomberg.com/news/2013-12-16/apple-to-ibm-push-buyback-to-record-trading-as-volume-slows-1-.html

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Goldman Sachs Buyback Orders Reach Highest Level of Year – Bloomberg 05-24-13

Salient to Investors:

Jeffrey Kleintop at LPL Financial said US companies announced $275 billion of repurchases this quarter, the highest in more than 5 years. 79 percent of buyback orders at Goldman Sachs corporate trading desk were active yesterday, the most in 2013.

Jim Welsh at Forward Mgmt said the overall buy-the-dip mentality is very, very prevalent and corporate buybacks help support the market. Welsh said many buybacks are on autopilots.

The Nasdaq Buyback Achievers Index of companies that repurchased at least 5 percent of their shares in the previous 12 months, has tripled since March 2009 versus the 144 percent gain in the S&P 500.

David Kostin at Goldman Sachs said the S&P 500 is at 15 times 2013 earnings estimates versus the 5-year average of 13 times.

Read the full article at http://www.bloomberg.com/news/2013-05-24/goldman-sachs-buyback-orders-reach-highest-level-of-year.html

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Reluctant Bulls Key for Birinyi Amid Record S&P 500 Rally – Bloomberg 03-29-13

Salient to Investors:

Laszlo Birinyi at Birinyi Associates says:

  • The S&P 500 rally has a good year to go as investors give up their pessimism and buy. The bull is very much alive given this sort of hesitancy or reluctance instead of acceptance.
  • There is nothing troubling in view unless people start talking about S&P 2,000 or buy more Netflix.
  • It a surprise it’s not the deep cyclicals or the names that I would have expected in a really good market, which shows that people are comfortable with the market, and there’s more of a focus on stock picking than people realize.

Jeffrey Kleintop at LPL Financial expects flat earnings growth, and says the market needs earnings to rise before it can really begin to move higher. Kleintop said health-care and consumer staples leading the rally also signal the advance in the S&P 500 may slow because you don’t usually see defensive groups leading the market to all-time highs, and we may see repeat the last few years of a pullback starting in April. (The S&P 500 lost 16 percent over two months in 2010 and 19.4 percent over five months in 2011, both starting in April and both recovering when the Fed committed more QE.)

  • Investors added $14.1 billion to equity mutual funds in February and $20.2 billion to bond funds; versus $600 billion withdrawn in the 6 years through 2012.
  • Share volume on all US exchanges has declined for 4 straight years and is the lowest since at least 2008.
  • Analysts forecast per-share earnings to reach $109.40 in 2013 versus $62 in 2009, but expect a contraction of 1.8 percent in Q1 2013.
  • The average strategist expects the S&P 500 to hit 1,583 in 2013.

Read the full article at http://www.bloomberg.com/news/2013-03-28/birinyi-says-buy-mining-technology-shares-as-bull-ages.html

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Fifth-Year U.S. Stock Surge Seen in Precedents: Chart of the Day – Bloomberg 03-12-13

Salient to Investors:

Jeffrey Kleintop at LPL Financial said:

  • One year or more of gains lie ahead for US stocks if history is any guide. This bull market is the 7th to last at least four years since World War II, 4 of which ran for 5 years or more, and the fifth year produced a 22 percent average gain for the S&P 500 Index.
  • The bull market will continue, though the S&P 500 is overdue for a drop of 5 percent or more. Pullbacks help sustain the bull market and provide opportunities for investors to put money to work at a discount.

Read the full article at http://www.bloomberg.com/news/2013-03-13/fifth-year-u-s-stock-surge-seen-in-precedents-chart-of-the-day.html 

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Jeffrey Kleintop, LPL Financial Corp.’s chief market strategist.