Confidence in U.S. Consumer Stocks Seen at UBS: Chart of the Day – Bloomberg 05-28-13

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Jonathan Golub at UBS recommends overweighting consumer-discretionary stocks. Golub said consumer strength will have a positive impact on a host of industries, whereas businesses remain hesitant to put cash to work. Golub is neutral on industrial and tech stocks.

The consumer-discretionary index is the top performer among the S&P 500’s 10 broadest industry groups since stocks began climbing in March 2009, and outperforming the S&P 500 in 2013.

The Conference Board said consumers were the most confident in April since February 2008, whereas Chief Executive magazine cited a slump in sentiment among business leaders in a May survey.

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Bulls Corralled as April Losses History Seen Jolting Rally – Bloomberg 04-08-13

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Russ Koesterich of BlackRock sees an increased risk of a correction and the best performing sector the defensives are very expensive – this is a very different rally than what people are used to. Koesterich sold smaller companies on concern the US economy is not expanding fast enough.

Valentijn Van Nieuwenhuijzen at ING Investment Mgmt says risks are rising and is not making new share purchases.

Jim Russell at US Bank Wealth Mgmt said the strength and breadth of the equities market surprised most investors in Q1 as pensions and other funds owned too few shares in November. Russell is selling US equities and buying bonds expecting a pullback soon.

Chad Morganlander at Stifel Nicolaus is very cautious because of the absence of the self-sustaining lift needed to go from 1,550 to 1,750, and is 18 percent in cash and buying bonds.

The median economist expects the economy to grow 1.9 percent in 2013 and earnings to lose 1.8 percent in Q1 2013 versus a gain of 1.2 percent predicted at the start of the year.

John Stoltzfus at Oppenheimer said higher p/e ratios for defensive stocks are no reason for the rally to fizzle and may reflect conservative investing by individuals returning to the equity market for the first time since 2007. Stoltzfus said the real improvement in fundamentals is driving stocks higher and sees the S&P 500 at 1,585 by year-end.

Defensive industries are at a 26 percent valuation premium to the rest of the market. Consumer staples in the S&P 500 trade at 18.1 times earnings, Utilities at 17 times, and health-care at its highest p/e since February 2008.

Jonathan Golub at UBS said valuations signal danger after investors withdrew more than $400 billion from US stock mutual funds between 2009 and 2012. ICI said funds had $18.4 billion inflows in January and $1.1 billion in February and in March. Golub said a defensive-led market is not positive for a continued rally and sees the S&P 500 falling 8.3 percent to 1,425 by year-end. The average year-end strategist expects 1,583.

Brian Belski at BMO Capital Markets said this year is strikingly similar to the last three years with investors bracing for losses, and expects the S&P 500 to end 2013 at 1575 as earnings continue to expand.

The S&P 500 is at 15.3 times trailing earnings.

David Joy at Ameriprise Financial said there’s no question the cyclicals are cheaper but when do they take over the leadership? Joy would not be terribly aggressive.

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U.S. Stocks Advance Amid Better-Than-Estimated Reports – Bloomberg 02-26-13

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Brad Sorensen at Charles Schwab said the economic numbers are holding up really well, and housing rebounding will continue, feeding into consumer confidence.

74 percent of S&P 500 companies so far reporting quarterly results have beat estimates. The index is at 14.8 times reported earnings versus the average since 1954 of 16.4.

Jonathan Golub at UBS said retail sales are rising fast enough to dismiss the effects of tax-law changes and gas price increases on consumer spending. Golub says the general trend is healthy despite the end of a payroll-tax break, a delay in income-tax refunds and higher gas prices, and recommends makers of food, beverages and other staples, and companies most dependent on consumers’ discretionary spending.

David Bianco at Deutsche Bank reaffirmed underweight ratings on staples companies and retailers due to the continuing struggle of low to middle-income households to make ends meet.

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Oil Stocks Biggest Losers With Valuations Lowest Since 2009 – Bloomberg 06-25-12

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The MSCI World Energy Index is down 9.6 percent in 2012, more than any other group, and is up 45 percent since the market bottom in 2009, less than any other industry with earnings tied to economic growth. U.S. energy stocks are at the cheapest levels relative to the Standard & Poor’s 500 Index since 2009. Growing consumption of energy has been met with even bigger gains in supply – U.S. crude inventories are the highest since 1990 and natural gas prices are down  38 percent in 12 months amid a glut spurred by hydraulic fracturing.

Energy stocks are trailing the S&P 500 by 43 percentage points since March 2009. In the bull market which ended in October, 2007, the industry surged 242 percent, better than any industry and more than double the full index, as earnings from oil and gas explorers and refiners climbed to 12.9 percent of overall S&P 500 profits in 2007 – now at 10.7 percent.

Energy companies are the only U.S. industry whose earnings forecasts have been revised from growth to contraction in 2012 – analysts estimate profits for 2012 will drop 5.8 percent versus 7.4 percent for the S&P 500.

Since 2000, energy shares lagged the S&P 500 for four months or more on two occasions, when the S&P 500 lost an averaging 12 percent over the next three months. When the industry last trailed for five months, ending in March 2010, the S&P 500 fell 16 percent from April through July.

Natural gas prices have dropped as much as 86 percent during the past four years due to advances in technology – horizontal drilling and hydraulic fracturing have become standard extraction techniques in America – prompting companies to try to offset falling profits by boosting drilling.

U.S. met 81 percent of its energy demand in 2011, the highest level since 1992,

Dean Junkans at Wells Fargo says we are getting energy independent as a country, pressuring oil prices and energy stocks.

The S&P 500 Energy Index traded at 5.33 times the price of oil in Q2 versus the average ratio of 7 in the past two decades. Fuel producers sell for 9.68 times 12-month earnings, 28 percent below S&P 500’s multiple of 13.5 and the widest discount since September 2009.


Jim Russell at U.S. Bank Wealth Management says the S&P 500 will meaningfully rise until the energy sector bottoms and begins to rise. Russell says energy stock valuations are cheap but the fundamentals have yet to bottom.

Joseph Quinlan at U.S. Trust fears energy will be weaker for longer since it is cyclically driven by weaker global demand and therefore weaker earnings outlook.

Jonathan Golub at UBS raised energy stocks to overweight from market weight on expected rebound in oil prices as macro concerns fade and prices become more closely driven by supply and demand.

Bloomberg’s median economist expects the world economy to grow 2.3 percent in 2012 and 2.8 percent in 2013.

Birinyi Associates says the S&P 500 is up 97 percent from its 12-year low on March 9, 2009: 111 percent excluding energy stocks

Stephen Wood at Russell Investments expects the market to continue to be challenged and volatile, says energy prices are a consequence, not a cause.

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

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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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