Haven't been posting in a long time and today is a lousy day here in Chicago. (it is supposed to snow all day) So...rather than going out and buy xmas presents I figured I put some of my thoughts down.
Stock market looks good. We closed at new multi months highs on Friday, Volatility is at its lowest level since May this year...all in all everything looks like a perfect set up for a year end rally.
Needless to say...being my usual self I see a whole bunch of potential problems which might derail the happy ending for the year.
Just to name a few...
- Chinese Inflation numbers ticking up with the consequence that additional tightening in Chinese monetary policy will raise the fear gauge and lead to selling pressure.
- failure by Congress to pass the extension of Bush tax cuts which would almost certainly lead to some sort of correction in stock prices.
- Problems originating out of the Euro area (Portugal should be next on the shoot down list) with all the negative consequences associated with it
- Continued rise in long term interest rates here in the US which might open up the debate why we have seen one of the fastest rise in longer term rates seen during more recent history.
These are just the main ones...which to some extent have been priced into the market.
Despite the potential problems lurking in the background I actually feel that stock market should go up and expect Volatility to remain in a sideways pattern.
I doubt that market participants can muster the energy to really focus on any major issue and aggressively force the market down.
Of course...one always has to expect the unexpected.
Happy Holidays.
Steve Benger
Sunday, December 12, 2010
Wednesday, July 22, 2009
The Birds Eye View On The Market...
I have been out of commission for the past 2 weeks but I felt that today is a good day to comment on a couple of recent developments.
Including today the Nasdaq is now up 11 (!) days in a row. During the same period European stock markets managed to put in the greatest advance since 2004. The broader based US stock market indices managed to gain between 10 % (S&P 500) and 13 % (Russel 2000 Small Cap index) over the last 8 trading days alone.
The current rally has many fathers but its roots can clearly be found in better than expected earnings for the majority of the S&P 500 companies.
About 25 % of the companies making up the index have reported 2nd quarter earnings thus far and as of right now 70 % of the companies have exceeded expectations.
Analysts had been looking for quarterly earnings of about 12 $ for the index but it now looks like we might scratch $ 14 for the quarter.
The market has been taking the better than expected earnings with excitement and took of with a vengeance.
As always the big questions is what happens next. As such I feel it is important to offer some perspective.
Most of the companies which reported better than expected earnings managed to do so not because of increases in revenues but rather because aggressive cost cutting measures boosted profits.
The problem with that is that one companies cost cutting effort is another persons job loss or another companies loss of earnings.
As such the overall macro picture is of great significance. Simply put...companies might be able to save themselves to better earnings for one,two or even three quarters but at one point the top line (revenues) have to start to increase in order to boost earnings in a sustainable manner.
In this context it seems rather significant the type of comments Fed Chef Ben Bernanke offered over the last two days as part of the semi annual economic review in front of the House and Senate Committee.
Bernanke was basically downbeat on the prospects of an accelerated or speedy recovery of the US economy. On the contrary, he forecasts sustained high unemployment rates with no significant improvement until 2011. He also stated clearly that the recovery will be slower and burdened by more significant headwinds then prior recoveries.
To top it all off...he made repeated comments that the current size of the Federal Deficit is unsustainable and needs to be addressed sooner rather than later.
So...what does it all mean ?
As I like to say...tomorrow is mystery but a couple of things seem clear to me today.
The next economic recovery will be slower than any economy recovery we have seen post World War II. It will also be burdened with some very big risks which might cause significant headwinds to the recovery.
I am sure we will see positive GDP growth...as such I am not forecasting a dooms day scenario.
However...I believe it is entirely possible that real GDP growth will be between only 1 % to 2 % on average for the next 4 to 5 years. (think Japanese economy post real estate bubble).
The reason why I mention all of the above is to offer some perspective for stocks. After some of the greatest runs in stocks of almost a decade it seems to me that the longer term scenario is somewhat disregarded right now.
As is always the case with stocks...the sun always shines until the next thunderstorm.
It is difficult right now to say what might cause it but I believe there is a good chance that the current party ends one day and we end up heading lower and/or sideways for a prolonged period.
One thing seems for sure....stocks will not be able to continue like they have done since March of this year. Average monthly gains are now over 10 % since the bottom in March and there is no historical example which could suggest that this will continue.
Current trends are clearly up so I am not sounding the alarm bells to get out of stocks. I would just like to suffest to keep the above in mind so that you have an idea why stocks might stall one day and not make progress for quite some time.
Until the next time,
Steve Benger
Including today the Nasdaq is now up 11 (!) days in a row. During the same period European stock markets managed to put in the greatest advance since 2004. The broader based US stock market indices managed to gain between 10 % (S&P 500) and 13 % (Russel 2000 Small Cap index) over the last 8 trading days alone.
The current rally has many fathers but its roots can clearly be found in better than expected earnings for the majority of the S&P 500 companies.
About 25 % of the companies making up the index have reported 2nd quarter earnings thus far and as of right now 70 % of the companies have exceeded expectations.
Analysts had been looking for quarterly earnings of about 12 $ for the index but it now looks like we might scratch $ 14 for the quarter.
The market has been taking the better than expected earnings with excitement and took of with a vengeance.
As always the big questions is what happens next. As such I feel it is important to offer some perspective.
Most of the companies which reported better than expected earnings managed to do so not because of increases in revenues but rather because aggressive cost cutting measures boosted profits.
The problem with that is that one companies cost cutting effort is another persons job loss or another companies loss of earnings.
As such the overall macro picture is of great significance. Simply put...companies might be able to save themselves to better earnings for one,two or even three quarters but at one point the top line (revenues) have to start to increase in order to boost earnings in a sustainable manner.
In this context it seems rather significant the type of comments Fed Chef Ben Bernanke offered over the last two days as part of the semi annual economic review in front of the House and Senate Committee.
Bernanke was basically downbeat on the prospects of an accelerated or speedy recovery of the US economy. On the contrary, he forecasts sustained high unemployment rates with no significant improvement until 2011. He also stated clearly that the recovery will be slower and burdened by more significant headwinds then prior recoveries.
To top it all off...he made repeated comments that the current size of the Federal Deficit is unsustainable and needs to be addressed sooner rather than later.
So...what does it all mean ?
As I like to say...tomorrow is mystery but a couple of things seem clear to me today.
The next economic recovery will be slower than any economy recovery we have seen post World War II. It will also be burdened with some very big risks which might cause significant headwinds to the recovery.
I am sure we will see positive GDP growth...as such I am not forecasting a dooms day scenario.
However...I believe it is entirely possible that real GDP growth will be between only 1 % to 2 % on average for the next 4 to 5 years. (think Japanese economy post real estate bubble).
The reason why I mention all of the above is to offer some perspective for stocks. After some of the greatest runs in stocks of almost a decade it seems to me that the longer term scenario is somewhat disregarded right now.
As is always the case with stocks...the sun always shines until the next thunderstorm.
It is difficult right now to say what might cause it but I believe there is a good chance that the current party ends one day and we end up heading lower and/or sideways for a prolonged period.
One thing seems for sure....stocks will not be able to continue like they have done since March of this year. Average monthly gains are now over 10 % since the bottom in March and there is no historical example which could suggest that this will continue.
Current trends are clearly up so I am not sounding the alarm bells to get out of stocks. I would just like to suffest to keep the above in mind so that you have an idea why stocks might stall one day and not make progress for quite some time.
Until the next time,
Steve Benger
Monday, July 6, 2009
It started out bad but we ended up OK...
Stocks opened sharply lower and the major indices were down more than 1 % within the first 60 minutes of the day. The down move ran out of momentum though and we started a slow but gradual climb towards the highs of the session which were made during the last hour of the day.
Some aggressive buying pushed all of the major indices to new highs within the last minutes of the day. The Dow closed + 44.28 points (+0.53 %) and the S&P was up 2.27 points (+ 0.25 %)
Today's only economic number was the June reading of the Institute of Supply Management's service sector index. The index is used to gauge the economic health of the US economy within the service sector only.
The index came in at 47.0 for June, a slight improvement over the May number which was 44.0. Analyst had expected a reading of 46.0...as such the number was slightly better than expected.
The one problem of course is that for the index to signify an expansion in business activities a reading of greater than 50 is needed.
Since the 47.0 is still below 50 the news is pretty simple...it is still bad (i.e. shrinking activity) but we are shrinking less than feared.
Not really great news.
It was actually a rather interesting day. Stock added to the heavy losses from Thursday right away but due to a lack of follow though the market never really "collapsed" as was initially feared.
It looked initially as if the market was going to just trade sideways but the last hour of the day had the buyers come out and we did manage a pretty good close. The one issue which raise some warning lights is the relative underperformance of the Nasdaq versus the Dow and the S&P. (the Nasdaq was actually down 0.5 %)
This kind of divergence is ordinarily not a good sign. It usually signals the shift of big money from one asset class into another and it does on occasion preempt a bigger move.
Since the Nasdaq seems to be falling out of favor (at least for today) my best guess is that some big money funds are preparing for another leg down in stocks.
Of course...one day of relative under performance does not mean that we will see a brake down in stock prices but at the very least it does raise a warning flag for me.
The Dow has broken its 30 day low today but managed to recover from it.
A renewed sell off leading to new 30 day lows would serve as a strong signal that short term trends are down.
On the other hand...if we are able to build on the 30 day lows stocks might use it is a base to rally from.
Either way, we might have an interesting week ahead of us.
Until tomorrow,
Steve Benger
Some aggressive buying pushed all of the major indices to new highs within the last minutes of the day. The Dow closed + 44.28 points (+0.53 %) and the S&P was up 2.27 points (+ 0.25 %)
Today's only economic number was the June reading of the Institute of Supply Management's service sector index. The index is used to gauge the economic health of the US economy within the service sector only.
The index came in at 47.0 for June, a slight improvement over the May number which was 44.0. Analyst had expected a reading of 46.0...as such the number was slightly better than expected.
The one problem of course is that for the index to signify an expansion in business activities a reading of greater than 50 is needed.
Since the 47.0 is still below 50 the news is pretty simple...it is still bad (i.e. shrinking activity) but we are shrinking less than feared.
Not really great news.
It was actually a rather interesting day. Stock added to the heavy losses from Thursday right away but due to a lack of follow though the market never really "collapsed" as was initially feared.
It looked initially as if the market was going to just trade sideways but the last hour of the day had the buyers come out and we did manage a pretty good close. The one issue which raise some warning lights is the relative underperformance of the Nasdaq versus the Dow and the S&P. (the Nasdaq was actually down 0.5 %)
This kind of divergence is ordinarily not a good sign. It usually signals the shift of big money from one asset class into another and it does on occasion preempt a bigger move.
Since the Nasdaq seems to be falling out of favor (at least for today) my best guess is that some big money funds are preparing for another leg down in stocks.
Of course...one day of relative under performance does not mean that we will see a brake down in stock prices but at the very least it does raise a warning flag for me.
The Dow has broken its 30 day low today but managed to recover from it.
A renewed sell off leading to new 30 day lows would serve as a strong signal that short term trends are down.
On the other hand...if we are able to build on the 30 day lows stocks might use it is a base to rally from.
Either way, we might have an interesting week ahead of us.
Until tomorrow,
Steve Benger
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