U.S. Equity Market Radar (April 30, 2012)

Sunday, April 29th, 2012

U.S. Equity Market Radar (April 30, 2012)

The S&P 500 Index rose 1.80 percent this week continuing the bounce-back that began last week. Telecom services was the best-performing sector this week along with consumer discretion and information technology. It was a very busy week for quarterly earnings reports and so far this earnings season results have been strong.

Strengths

• AT&T and Verizon powered the telecom service sector higher as both were strong this week on the back of better-than-expected earnings, driven by an increase in wireless data sales.
• The consumer discretion sector was driven by online retailers, Expedia, Amazon.com and Priceline.com. Homebuilders such as PulteGroup, Lennar and DR Horton were all up more than 7 percent this week.
• Apple was also a notable performer this week, jumping by more than five percent on very strong first quarter results.

Weaknesses

• The consumer staples sector was the worst performer and the only sector to close lower for the week. Kellogg, Safeway and Wal-Mart were all down more than five percent.
• Netflix was the worst performer in the S&P 500 this week as the company projected a slowdown in U.S. subscriber growth.
• Other weak performers for the week included Big Lots, Republic Services and MetroPCS.

Opportunity

• We are still in the middle of earnings season with key reports due from numerous benchmark heavyweights, including Pfizer, Mastercard and Allstate. Results have been generally better than expected and, once established, this trend is likely to continue.

Threat

• The U.S. remains a bright spot in the global economy but external shocks can’t be ruled out.

Tags: Amazon, Big Lots, Bounce Back, Consumer Staples, Dr Horton, Earnings Season, External Shocks, Global Economy, Heavyweights, Homebuilders, Lennar, Market Radar, Netflix, Priceline, Quarterly Earnings Reports, Republic Services, Subscriber Growth, Telecom Service, Telecom Services, Wal Mart
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U.S. Equity Market Radar (April 16, 2012)

Sunday, April 15th, 2012

U.S. Equity Market Radar (April 16, 2012)

The S&P 500 Index fell 1.99 percent this week, the biggest weekly drop this year as concerns mounted over a global economic slowdown and financial imbalances in southern Europe.

Strengths

• Supervalu was the best performer within the S&P 500, rising 25 percent. The company reported earnings that are more or less even with expectations, but the stock appears to have benefited from a significant short squeeze.
• Consumer discretion was the best performing sector, as the homebuilders bounced back from last week’s weakness to be the top industry group this week.
• Other strong performers for the week include Hewlett-Packard, Starbucks and Safeway.

Weaknesses

• The financial sector was the worst performer this week as European concerns resurfaced and initial earnings reports within the sector met expectations.
• The energy sector was also weak on concerns of global economic weakness.
• F5 Networks was the worst performer this week, falling by more than 10 percent as a sell side-analyst raised concerns that the company may have had to push really hard to close deals at the end of the quarter, potentially increasing the odds of an earnings miss.

Opportunity

• The market didn’t respond positively to early earnings reports and suffered its worst week of the year. This may set a precedent for next week as earnings releases are set to pick up.

Threat

• The S&P 500 is arguably still overbought in the short term and could be vulnerable to profit taking after the rally in the first quarter.

Tags: Amp, Discretion, Earnings Releases, Earnings Reports, Economic Weakness, energy sector, European Concerns, Financial Sector, First Quarter, Global Economic Slowdown, Hewlett Packard, Homebuilders, Industry Group, Market Radar, Miss Opportunity, Safeway, Short squeeze, Southern Europe, Starbucks, Supervalu
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Does the Stock Market Rally Have Legs?

Monday, November 7th, 2011

The past five weeks have witnessed stock market rallies of breathtaking proportions. At this juncture, the pressing question is whether the recovery would be sustainable, i.e. are we back in a cyclical bull market.  Let’s turn to Arthur Hill of StockCharts.com to cast light on this issue.

Hill said: “It is of our opinion, that it [the stock market rally] does have ‘legs’, and it does so given the Financials (XLF) are rallying … but more importantly – the Homebuilders (XHB) are leading the rally. And, we think the XHB shall continue leading and actually do better than anyone anticipates at this juncture.

“The ‘head & shoulders’ bottom on the weekly chart is very clear; although it is not yet confirmed. However, the 30-week moving average is on the verge of being given, with the 20-week stochastic turning higher through it’s trigger point. Again, in the past, this has resulted in a sustained rally – and if neckline resistance is violated as we believe it shall be – then targets in the range of $27.50 to $37.50 come into view. This is certainly not the consensus view, but as they say – ‘every dog has its day’.

“Therefore, any weakness broader market in the days ahead can be used to consider long positions.”

Source: Arthur Hill, Stockcharts.com, November 5, 2011.

Tags: Amp, Arthur Hill, Consensus View, Head Shoulders, Homebuilders, Juncture, Legs, Market Rallies, Market Rally, Moving Average, Neckline, Proportions, Resistance, Stock Market, Stockcharts, Stocks, Targets, Trigger Point, Verge, Xhb, Xlf
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What Asset Allocation Now? (Bob Doll and David Darst)

Friday, June 24th, 2011

Two top investment pros. BlackRock’s Chief Equity Strategist and respected mutual fund manager, Bob Doll, and Morgan Stanley’s Chief Investment Strategist and asset allocation master, David Darst will discuss where to diversify your portfolios globally.

Consuelo Mack WealthTrack – June 17, 2011

CONSUELO MACK: This week on WealthTrack, two top investment pros defy the naysayers and present the positive case for the U.S. economy and markets. BlackRock’s Chief Equity Strategist and respected fund manager Bob Doll and Morgan Stanley’s Chief Investment Strategist and asset allocation master David Darst take on the pessimists, next on Consuelo Mack WealthTrack.

Hello and welcome to this edition of WealthTrack. I’m Consuelo Mack. The stock market is famously known to climb a wall of worry, but in recent weeks a wall of worries has dragged the markets down to one of the longest losing streaks of the last ten years. The list of woes grew again this week. Industrial production figures for May showed almost no growth for the second month in a row. Retail sales for the month weakened as consumers cut spending for the first time in 11 months. Confidence among homebuilders fell to the lowest level since last September. But housing starts surprised on the upside, as home building jumped in the west as other parts of the country languished. Some economists are now lowering their estimates of GDP growth for the second quarter from 3 to two percent. That after the first quarter came in at an anemic 1.8%, following better than 3% growth in the final three months of last year.

A major concern is the health of the American consumer who accounts for about 70% of economic activity. Continuing high unemployment, falling home prices and high oil prices have taken their toll. Oil is off its highs but the outlook for jobs and housing remains weak.

Meanwhile, the high stakes political battle over raising the federal debt ceiling, so the Treasury can borrow money and the government can pay its bills, is coming down to the wire. The deadline for an agreement is August 2nd with no compromise yet in sight.

Overseas the prospects of a default in Greece has added to concerns about Europe’s financial stability, while powerhouse emerging markets such as China and Brazil are putting on the brakes to fight domestic inflation.

How serious is the global slowdown we are experiencing? It depends upon whom you talk to. We decided to consult two top investment strategists for their take. Both are familiar faces to WealthTrack viewers. Bob Doll is BlackRock’s Chief Equity Strategist and a respected fund manager who runs three large-cap mutual funds- BlackRock Large Cap Value, Growth and Core. David Darst is Morgan Stanley’s Chief Investment Strategist, a celebrated master of asset allocation and author of several excellent books on the subject. In an interview earlier this week, I asked them how nervous they are about the economy.

BOB DOLL: Well, I’d feel better if things were getting stronger rather than weaker. There’s no question about that, Consuelo, but we know economies never go in a straight line. We had a slowdown last summer, and we all got a little jittery, but at the end of the day, that was ill-founded, and we came back to a reasonable rate of growth. I think the same thing will happen here. The debate is how much of the slowdown is related to temporary things like Japan and the supply line disruptions, China and its slowdown, some unusual weather in the U.S., and how much is related to things that are going to last longer, a slowdown in demand. That’s the debate, and we don’t know the answer to that question yet, but as sure as we’re talking here, I think things will turn around in the second half and do a little bit better. We’re not going to set any records. We haven’t so far this cycle, and unfortunately when you slow down from a slow number, it’s a little too close to zero for comfort, so people get jittery.

CONSUELO MACK: David Darst?

DAVID DARST: The Federal Reserve, Consuelo, as you know, back on June the 9th reported their Beige Book survey of the 12 Federal Reserve regions. Four indicated they were slowing mainly in the Northeast, in the Mid Atlantic. One is increasing, that’s Dallas, and seven of them indicated that they look like they’re holding steady gains. So we are of the belief automobile production will pick up in the second half pretty strongly. We expect the trade component of the United States GDP to kick in very strongly in the fourth quarter. By the way this thing works, most of your trade effect does happen in the fourth quarter, so Morgan Stanley’s economists have shaved their full year estimates somewhat, but they think the second half will resume a reasonably robust growth of about 3.6% annualized for the third quarter, and for the fourth quarter, 4.3%.

CONSUELO MACK: Whoa. Where’s the growth coming from? I mean, this is a consumer economy.

DAVID DARST: The fourth quarter is one and a half– One and a half points of the 4.3 is this trade effect, the export contribution. For us to be really worried, we would want to see valuations stretched. They don’t seem stretched right now.

CONSUELO MACK: In the stock markets.

DAVID DARST: In the stock market. The market’s trading for about 14 times next year’s earnings. Earnings are holding up pretty well. They actually, many of the analysts, are raising their estimates. We would want to see too much investor euphoria.

CONSUELO MACK: Right, in the markets, right. In the stock market again, right.

DAVID DARST: In individual investor mentality and psychology, and finally, the Federal Reserve raising interest rates, we don’t see that. We see right now that they’re actually going to push it out into late 2012 for their first raise, and so interest rates are very, very stimulative. For that reason, we agree with Bob Doll. We do not see this being much more than a slowdown, but people are worried. Confidence, housing, jobs.

CONSUELO MACK: Employment.

DAVID DARST: Yes.

CONSUELO MACK: Right, so I mean, this is, you know, all of your points well taken but this is a consumer-driven economy. Consumers are still de-leveraging. I mean, they’re borrowing a little bit more, so I mean, what do you do about the fact that 70% of the economy is still not robust? Manufacturing is, corporations are, but the consumer is not.

BOB DOLL: Consumer’s not robust, but the consumer is participating in the economic recovery, and as David has articulated, neither of us are looking for strong growth, because in part the consumer is retrenching and paying down some debt, but we got all hung up on the most recent monthly jobs report. I think a lot of people have forgotten the three prior to it which were as strong as we’ve seen in months and months and months, and so when you look at a three-month moving average, I still think you get we’re doing better. We’re not going to set any records, but we’re improving, and I think there’s just so much skittishness out there, every bad number gets accentuated in the marketplace, and the good ones are kind of forgotten about, and that’s usually a good time to invest.

DAVID DARST: There’s a swing factor to it, but corporations are basically sitting on tons and tons of cash. You’ve talked about it many weeks on your show, $1.4 trillion on their balance sheet, about 7% of their total assets. It’s near the all-time record. They need to put this to work. We’ve seen the Fed play the monetary card. We’ve seen the administration and the Congress play the fiscal card and still we haven’t got that jobs. We think the card that must be played is the structural reform card, and the worse things get, the more people are going to concentrate on the fact that no President has ever been re-elected when unemployment is above 7.4% and it’s right now 9.1%, Consuelo. The next job report is July the 8th, not July 1st. The first Friday in July; because of technical reasons, it will be reported the 8th of July. So you want to see those numbers as Bob Doll just said, 150,000 or more. That’s a very important number for your viewers to look for as the July 8th number.

Tags: Asset Allocation, Bob Doll, Brazil, Canadian, Chief Investment Strategist, Commodities, Consuelo Mack, David Darst, Economic Activity, Federal Debt Ceiling, Final Three Months, GDP Growth, Homebuilders, India, Investment Pros, Last September, Last Ten Years, Longest Losing Streaks, Morgan Stanley, Mutual Fund Manager, Naysayers, Oil Prices, Pessimists, Wealthtrack
Posted in Brazil, Canadian Market, Commodities, India, Markets | Comments Off

Avery Shenfeld: Outlook/Perspective for Economy, Oil, Housing, Labour

Friday, April 29th, 2011

CIBC World Markets’ Avery Shenfeld shares his views on the U.S. economy, oil prices, housing, and employment with Bloomberg’s Tom Keene and Ken Prewitt.

APRIL 19, 2011

TOM KEENE, HOST, BLOOMBERG SURVEILLANCE: Avery Shenfeld joins us, CIBC World Markets. Avery, good morning.

AVERY SHENFELD, MANAGING DIRECTOR, CIBC WORLD MARKETS: Good morning.

KEENE: Is there a housing recovery in sight?

SHENFELD: Not really. You have to look – I mean we did see a bounce in housing starts today. But if you saw the Homebuilders Index earlier, you could see that there is a lot of pessimism. There is still lots of inventory of newly built houses, and, of course, a huge inventory of existing homes waiting to be cleared out.

If you go back to 2008, the housing starts numbers are basically bouncing aimlessly in a range between 475,000 and 675,000. So these latest numbers are really just part of that very bouncy, but still sideways trend.

KEENE: Where is your first quarter GDP? Michael Moran and Daiwa sub- two percent. Have you gone sub-two percent?

SHENFELD: We haven’t gone quite so low. We’re sitting at about 2.5 percent. And the reason is that if you look at the industrial production numbers, they still looked quite strong for the first quarter, which is telling you that the good sector – at least in production – was fairly healthy.

Our suspicion is that a good deal of that must have ended up in inventories because we are seeing the demand side numbers, which is what others I think are reacting to pushing their forecasts so low, are, in fact, responding to.

So it looks to me like we are at 2.5 percent, but that’s still – you know, it’s still a pretty big disappointment. Remember this was the quarter we were supposed to get the big benefits of the tax cuts announced in December, and they basically got eaten up in part by high gasoline prices and some disappointments elsewhere.

KEN PREWITT, BLOOMBERG NEWS: Well, what happens – this is sort of a moratorium so to speak on foreclosures while banks try to get their paperwork straightened out. Where are we in that process?

SHENFELD: Well, there are still some details being ironed out. The way this story is talking about dealing with some of the foreclosures that had, in fact, taken place under procedures that are now being accused of being unfair. But eventually we’re going to get that whole process unstuck and going again.

In my mind, that is actually a bit of a healthy development. You know, while we need to get this cloud lifted, we need to get the houses into the hands of people who are paying their mortgages, in terms of sort of start the process of the righting the ship.

But in terms of actually getting a big pick up in construction, I think the only good news here is that we are at such low levels that even if in 2012, for example, we are running at 700,000 or 800,000 starts, that is still an abysmal level by historical standards. But it would represent a nice percentage increase. So the irony is it is hard to go lower, and that’s I guess the best news.

KEENE: Avery, your team has been way out in front on oil. You called for higher oil prices before anywhere else. Oil, okay, a little bit of a respite – Brent $119.85; NYMEX $105.97. Will this be a stochastic surge, a pointy surge up and then down in hydrocarbons and commodities in general? Or is there a new persistency here at higher prices?

SHENFELD: You know, I think there is a bit of both. There may well be a secular trend that we are in where troughs in commodity prices at the lows of cycles are not as low as they used to be and peaks are generally somewhat higher than they used to be, which really reflects the growth we are seeing in emerging markets, their heavy use of commodities as part of that, and, at least for awhile, some need to invest again, to rebuild supply. So I think we are in for some cycles where peaks are a little higher than they used to be.

That said, if we look at the current situation, in my mind there may be – the next move might be actually a bit lower. We have those emerging markets that I talked about raising interest rates, trying to deal with inflation by effectively slowing economic growth. And so we may lose a bit of the juice that we are now seeing in commodity markets over the next six months or so.

PREWITT: Well, given that prices are down so much, and mortgage rates are the lowest pretty much they’ve ever been, what are people waiting for? I mean is it just uncertainty over the labor market?

SHENFELD: I think that it is not that there aren’t buyers. I mean we do see people out kicking the tires at these very low prices. But if there was simply – you know, the scale of the shock wave that hit and the overhang of houses to be cleared out just means that even when buyers do return, even when they recognize that these are very low prices, even with mortgage rates that are quite low, it is simply going to take time to clear out all that inventory.

And that is somewhat true in the – in the new home market it is getting a little bit better because we are not building, we are not completing very many houses now. There are only about 500,000 houses being completed a month; that is half of what we would normally see at the bottom of a deep recession. So that is helping, but, you know, I think the existing home market also needs to be repaired before builders gain the confidence. So it is just simply a matter of time.

PREWITT: Well, have we seen kind of a shift in attitude on a national basis, that people were scared by the price decline in housing and decided – you know, just like people got turned off by the stock market?

SHENFELD: That may be part of it. And, of course, for awhile it was also – and for some still, it was difficult to get mortgage credit. Not just the buyers were scared, but the financiers were scared, too, about lending – you know, having been burned by lending too much to the household sector, the financial system doesn’t tend to make the same mistake twice.

So we suddenly became a market that was erring on the side of caution, the mortgage insurers were really the only game in town. So I think part of it was on the credit side as well. But it was a mutual feeling, the borrowers didn’t want to borrow and the lenders didn’t really want to lend.

So for awhile, the pace of clearing out this inventory was stalled. It also takes awhile before the sellers recognize what their house is really worth and agree to cut the price enough to really get the market moving, and that’s where we are now. But prices have still been edging lower and so we may well be still another five percent or so for the bottom of house prices.

KEENE: Avery, your colleague, Benjamin Tal, has just been brilliant on the self-employed in the United States. Give us an update. Are our self- employed recovering?

SHENFELD: You know, I think we are starting to see a bit of a recovery there. It is part of a general recovery in the overall business conditions.

You know, we do have the labor market recovering. If you really want to know the key to the housing market, it is that we need people without jobs to get jobs again.

But it, again, goes back to the scale of the original decline. We’ve never seen recession that wasn’t called a depression, where we lost six percent of total employment. And if you go back since the post-war period, we’ve never had that deep a recession that then didn’t have an equally quick rebound in job creation.

So until we make more progress on the labor market as a whole, I think both the self-employed and the people who have pay jobs are still going to feel a little bit cautious. Remember, we see that in the wage numbers, which are climbing at an extremely slow pace these days.

KEENE: Let’s leave it there. Avery Shenfeld, thank you so much for that update. CIBC World Markets, this as housing permits and starts bounce along, a little better statistic today.

08:44

***END OF TRANSCRIPT***

2011 Roll Call, Inc.
Provided by ProQuest Information and Learning Company. All rights Reserved

Tags: Avery, Bloomberg, CIBC World Markets, Daiwa, Disappointment, Disappointments, Economy Oil, First Quarter, Gasoline Prices, GDP, Homebuilders, Inventories, Managing Director, Michael Moran, Oil Prices, Pessimism, Prewitt, Production Numbers, Quarter Gdp, Tom Keene
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