Get ready for a lousy September as investor sentiment slips – MarketWatch 09-06-15

Salient to Investors:

The market is bearish. Investor sentiment is unlikely to improve short-term as international concerns overshadow domestic ones.

Brad McMillan at Commonwealth Financial said it will be another month or so before investor confidence bounces back, and if the S&P 500 falls to as low as 1,790 the likelihood for a September interest rate increase drops below 50%.

Tobias Levkovich at Citi Research said his Panic/Euphoria indicator broke into “panic” territory for the first time since late 2012 – a level from which stocks have historically risen 96% of the time over the next 12 months.

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Bull Market Has Years Left for Shaoul on S&P 500 Values – Bloomberg 01-06-14

Salient to Investors:

  • Wall Street strategists are the most cautious in almost a decade. The average of 20 estimates predicts the S&P 500 will rise 5.8 percent in 2014 versus the average projection of 11 percent over the last 5 years. The mean estimate is 1,955.
  • 116 S&P stocks are predicted to fall in 2014, the largest number of bearish forecasts in 9 years. The average index stock will rise 4.8 percent, the least optimistic forecast since 2004.
  • S&P 500 earnings will climb 9.7 percent in 2014, almost double 2013, as sales increase 3.8 percent versus 2.2 percent in 2013 and the economy expands 2.6 percent in 2014 versus 1.7 percent in 2013.
  • More than 90 percent of S&P Index stocks and 85 percent of Russell 3000 Index stocks rose in 2013.
  • Since 1936, the S&P has risen 69 percent of the time following quarters when P/E valuations widened.
  • The S&P’s P/E ratio rose in 3 of the 4 quarters in 2013, the first time since 2008.
  • In the 156 quarters since 1936 that the S&P multiple rose, the index itself rose 108 times by an average 3 percent over the next 3 months, versus an average gain of 1.9 percent in all 308 quarters.
  • Bloomberg data show the S&P rose 13 percent in 2010 after 427 companies increased in 2009, 27 percent in 1998 after 402 stocks rose in 1997, and 20 percent in 1996 after 434 stocks rallied in 1995.

Strategas Research Partners said the S&P 500 average return is 14 percent in years where over 400 Index stocks climbed and since 1990, US stocks have never retreated after gains were as widespread in 2013.

Michael Shaoul at Marketfield Asset Mgmt said a sign that things are becoming more popular is they are more expensive and expects the bull market to continue for another 2 to 3 years as nothing happened in 2013 to halt the rally in equities.. “Where we are right now, the fundamentals are good, the earnings are really there and they’re likely to accelerate in a couple of key sectors,” Shaoul said. “There’s risks in this equity market, but they’re largely exogenous.”

Mark Luschini at Janney Montgomery Scott said a lot of the breadth in 2013 was driven by the start of the rotation from bond funds to equity funds, and it is bullish that there is not an exceedingly narrow list of companies driving the market.

ICI and Bloomberg data show equity funds attracted more than $160 billion in 2013, the most since 2000, and versus $80 billion in withdrawals from bond funds.

Brian Belski at BMO Capital Markets said in December that the market is not grossly overvalued but for the rally to continue it must have earnings growth. Belski predicts the S&P 500 will rise 2.8 percent to 1,900 by the end of 2014.

Barry Knapp at Barclays predicts 1900 at year-end 2014 because the market has already accounted for improving earnings.

Tobias Levkovich at Citigroup raised his target to 1,975 in December but says increased volatility may lead to a 10 percent drop during half1.

Tim Hartzell at Sequent Asset Mgmt said 2014 is going to be a thin year in stocks as the Fed has already announced that they are removing the punch bowl, so start trimming stocks and moving into bonds and gold.

Walter Todd at Greenwood Capital said 2013 was really just a return of confidence, and the economy picking up steam bodes well for earnings and multiples, predicting the S&P 500 may climb 10 percent to 15 percent in 2014.

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Trio of Strategists Agree S&P 500 to Reach Record in 2013 – Bloomberg 09-14-12

Salient to Investors:

Tobias Levkovich at Citigroup predicts the S&P 500 will hit 1,615 in 2013.

Brian Belski at Bank of Montreal predicts the S&P 500 to hit 1,575  in 2013.

Savita Subramanian at Bank of America expects the S&P 500 to hit  1,600, but straight up, in 2013 on record earnings, reduced concerns about the global economy, and high bearishness on Wall Street. Subramanian said economic growth could disappoint in half2 2012 and early 2013, adding to recession in Europe and decelerating trends in emerging markets.

Abby Joseph Cohen at Goldman Sachs said investors risk tolerance is improving but still not back to normal.

The S&P 500 companies have posted 11 quarters of earnings expansion.

11 of 12 analysts surveyed expect S&P 500 earnings above $100 a share in 2013

Charles Bobrinskoy at Ariel Investments said people like the idea of a Fed put, the idea the Fed will stand behind the economy and step in to intervene.

Hayes Miller at Baring Asset Mgmt says equity gains have gone too far too fast, and stocks will fall once investors realize profit margins have peaked and the Fed’s stimulus has driven most of the rally. Miller said QE3 is more artificial stimulation that kicks the can further down the road – we still have to work through excess debt that needs to be restructured, the fiscal cliff, and the fact that we have been on peak profits.

US stock mutual funds posted net outflows for a fifth year through 2011, the longest streak in data going back to 1984. Withdrawals have exceeded $80 billion this year.

Andrew Slimmon at Morgan Stanley Smith Barney sees capitulation buying by many investors with too much cash.

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