Archive for category: Investing

This chart, courtesy of my anarchistic friends at ZeroHedge, shows that speculative net longs are negative in S&P 500 futures, proving just how skeptical investors are of this rally.

One of the “reasons” for Monday’s sell-off was a “bearish” research note on stocks from Goldman Sachs.  While that did make for attention-grabbing headlines, the research note itself wasn’t really bearish.  After all, it’s hard to be bearish on stocks when you reiterate a year-end price target in the S&P 500 of 1,900, more than 3% higher from here. But, the note was cautious, which is what we said in Monday’s Report, as that was the prevailing mood in the market on the eve of earnings season. In particular, Goldman’s Chief Strategist David Kostin pointed out the well-known fact that stocks aren’t cheap on a forward P/E basis (15.1X 120 ’14 EPS).  But, rather than imply the market is wildly overvalued, he instead took issue with the fact that there seems to be a consensus expectation for multiple expansion to simply lead the market higher again in 2014, as it did in 2013. Read More

This Week Economic data last week was disappointing, highlighted by the big jobs report miss on Friday.  But, the important takeaway is that the soft economic data did not change the general expectation that GDP in 2014 should be 3% or higher. Starting with the jobs report, the right way to look at Friday’s big miss (74K vs. estimates of 205K) is more confusing than outright negative.  The miss was so big, and so divergent from all other recent economic data and employment indicators, that the market (rightly or not) is dismissing the jobs report as a statistical anomaly based on weather, seasonality, holiday hiring, etc. The bulls will say that’s the right way to look at the number, while the bears will view it as a classic example of investors “whistling past the graveyard” and simply dismissing numbers they don’t like. Time will tell who is right, and we’ll get a good idea over the next few weeks as more data comes out, but for now the benefit of the doubt goes with the bulls. (The number is so far off that it makes more sense on the surface that this is an anomaly.) Read More

As we approach the jobs report later in the week, we need to be mindful that the greatest risk from an economic data standpoint isn’t of weakness, but instead inordinate strength, which could then sow the seeds of the market doubting “ZIRP.”  It wouldn’t mean that stocks would sell off immediately, but as we look out over the coming weeks and months, the risk of the market losing confidence in ZIRP is the biggest threat to the stock market, and the better the economy gets, the higher the chances. Luckily, though, we have a bit of a leading indicator for what might happen if and when the market does begin to lose confidence in the Fed’s ZIRP.  The UK is somewhat of a “blueprint” for what we can expect here in the US, now that the Fed has started tapering QE and is relying more on “Forward Guidance” as a policy tool.  The UK shifted its policies away from QE to “Forward Guidance” over the past year, and that has resulted in higher stock prices as the economy improves, higher bond yields and a stronger Pound (sound familiar?). Read More