Archive for March, 2014

• The First Quarter Is On the Books
  Eddy Elfenbein, March 31st, 2014 at 4:22 pm

  The S&P 500 rose 1.30% for the first three months of 2014, and our Buy List gained 2.08%. Adjusted for dividends, the S&P 500 is up 1.81% for the quarter. Including dividends, our Buy List is up 2.42% for the year.

  Stock	Symbol	31-Mar	31-Dec	Gain/Loss
  DirecTV	DTV	$76.42	$69.06	10.66%
  CR Bard	BCR	$147.98	$133.94	10.48%
  Microsoft	MSFT	$40.99	$37.41	9.57%
  Wells Fargo	WFC	$49.74	$45.40	9.56%
  Stryker	SYK	$81.47	$75.14	8.42%
  Medtronic	MDT	$61.54	$57.39	7.23%
  Oracle	ORCL	$40.91	$38.26	6.93%
  Express Scripts	ESRX	$75.09	$70.24	6.90%
  Qualcomm	QCOM	$78.86	$74.25	6.21%
  International Business Machines	IBM	$192.49	$187.57	2.62%
  Ford Motor Company	F	$15.60	$15.43	1.10%
  McDonald’s	MCD	$98.03	$97.03	1.03%
  eBay	EBAY	$55.24	$54.87	0.67%
  Cognizant Technology Solutions	CTSH	$50.60	$50.49	0.22%
  Moog	MOG-A	$65.51	$67.94	-3.58%
  Fiserv	FISV	$56.69	$59.05	-4.00%
  Ross Stores	ROST	$71.57	$74.93	-4.48%
  AFLAC	AFL	$63.04	$66.80	-5.63%
  CA Technologies	CA	$30.98	$33.65	-7.93%
  Bed Bath & Beyond	BBBY	$68.80	$80.30	-14.32%
  Total				2.08%

• Fifty Years Ago Volatility Dried Up
  Eddy Elfenbein, March 31st, 2014 at 1:21 pm

  We’re currently celebrating the 50th anniversary of the stock market’s historic low for volatility. It’s almost difficult to describe how little stock prices changed each day half a century ago.

  From the aftermath of the Kennedy Assassination to mid-1965, the stock market reached its happy calm state. Between December 1, 1963 and June 29, 1965, the biggest daily gain came on May 1, 1964 when the S&P 500 gained just 0.89%. Nowadays, that’s a fairly average move for one day. It’s hard to imagine it was the biggest move for over a year and a half. From December 1, 1963 to June 14, 1965, the biggest daily loss was a 1.25% drop after the Gulf of Tonkin incident.

  But if we break down that low volatility period further, the really low part of the low came in early 1964, exactly 50 years ago. For the entire months of February and March, the S&P 500 didn’t have a single daily move, plus or minus, of more than 0.5%. That’s the longest-such stretch in history—43 trading days in a row. The streak was finally broken by an advance of 0.58% on April 2, 1964.

  We haven’t even come close to that record. There hasn’t been a 10-day run in 18 years. In late 2002, there was a 37-day run where we always rose or fell by more than 0.5%.

  Here’s the S&P 500’s performance over an eight-day period in February 1964:

  February 13: -0.06%
  February 14: -0.05%
  February 17: -0.03%
  February 18: +0.01%
  February 19: +0.10%
  February 20: +0.09%
  February 24: +0.08%
  February 25: 0.00%

  Here are the daily changes for the first quarter of this year:

  

  Here are the daily changes for the first quarter of 1964, but I used the same scale as above.

  

  I’d also say that current volatility isn’t that high. We’ve only had a few 1.5% or more days in the last year.

• Fifth Straight Quarterly Gain
  Eddy Elfenbein, March 31st, 2014 at 12:23 pm

  Today is the last day of the first quarter. The S&P 500 looks very likely to close up about 1.3% for the quarter. This will be the fifth quarter in a row of gains.

  

  In the last ten quarters, the biggest quarterly loss was 3.3%. (Note that the last data point in the chart above was based on the noon value for the S&P 500.)

• Morning News: March 31, 2014
  Eddy Elfenbein, March 31st, 2014 at 6:34 am

  Draghi Sifts Data on Slack as Inflation Cements Low-Rate Vow

  Swiss Competition Body Opens Probe into Possible Forex Manipulation

  Germany Best of European Union With BMWs of Reunification

  Abe Bets He Can Break Japan Sales Tax Jinx With April 1 Rise

  Mitsubishi Motors Buys Ford’s Philippines Auto Plant

  Spot Gold in a Rut Ahead of US Policy Clues

  Chinese Telecommunications Equipment Giant Huawei Vows Security After Alleged US Hacks

  Alibaba to Pay $692 Million for 35% Stake in Intime Retail

  Apple’s War on Samsung Has Google in Crossfire

  Delphi Told Panel GM Approved Ignition Switches Below Specifications

  Robots Scamming the Little Investors

  Raiders-Turned-Activists Prove Boon for Stocks Beating S&P 500

  ’This American Life’ Considers Self-Distribution on Radio

  Credit Writedowns: Eurozone Credit Contraction Continues

  Joshua Brown: “The Stock Market is Rigged!”

  Be sure to follow me on Twitter.

• 60 Minutes: “Is the U.S. Stock Market Rigged?”
  Eddy Elfenbein, March 30th, 2014 at 8:13 pm

• V.S. Ramachandran: Adventures In Behavioral Neurology—Or—What Neurology Can Tell Us About Human Nature
  Eddy Elfenbein, March 28th, 2014 at 2:54 pm

• Here’s this One Weird Chart that Predicts NFP
  Eddy Elfenbein, March 28th, 2014 at 10:52 am

  Next Friday morning, the investment world will be focused on the March jobs report. Guessing the correct NFP number has become a popular game on Wall Street.

  However, trying to guess the number ignores an important point — nonfarm payrolls have grown in a nearly perfect trend over the last two-and-a-half years.

  Here’s a look at NFP over the last 30 months. I’ve included a trend
  line in black that has grown at 1.67% per year. It aligns with NFP growth almost perfectly.

  

  Naturally, this is after-the-fact trend fitting, but the trend is very real. In fact, the blue line’s deviations have grown less pronounced in the last year. The trend is getting trendier.

• CWS Market Review – March 28, 2014
  Eddy Elfenbein, March 28th, 2014 at 8:28 am

  “Time is your friend; impulse is your enemy.” – Jack Bogle

  On the surface, the stock market was fairly subdued this week. The S&P 500 meandered lower, but the overall loss wasn’t so bad. On Thursday, the index closed a hair below 1,850, but let’s not forget that one week ago, we touched an all-time intra-day high.

  Beneath the surface, however, there’s been a big shake-up in the market. Specifically, momentum names have faltered while value stocks have taken the lead. This is an important development, and investors need to understand what’s happening. High-profile sectors like biotech have gotten hammered, and former market darlings have been in a world of hurt lately.

  Anyone remember a company called Netflix? That stock dropped 14 times in a 15-day span. Since March 4, NFLX is off by 20%. Stocks like Tesla and Priceline are getting dinged as well. Bespoke Investment Group recently noted that the best-performing stocks from last year are the worst performers this year.

  In this week’s CWS Market Review, I’ll break down the market’s change of leadership and tell you what it means for our stocks. Speaking of our stocks, we had more good news for our Buy List stocks. DirecTV soared 8% on Wednesday after news of a possible merger with DISH. I’ll have more on that in a bit. Also on Wednesday, the stress testers at the Fed said they have no objections to Wells Fargo’s capital plan, which includes a hefty 16.7% dividend increase.

  I’m pleased to see that our Buy List tech stocks are doing well. Oracle and Qualcomm are near new long-time highs, and even slumbering IBM has perked up. Big Blue just touched its highest point in six months, and I think we’ll get a dividend increase next month. But first, let’s look at the big internal shakeup on Wall Street.

  The Market’s Big Shift towards Value

  An important lesson with investing is that the stock market swings in cycles, and this is not just the overall market, but also within the market. For example, economically cyclical stocks will lead for a few years and then lag for a few more. Financial stocks will blossom, and then another year it will be dividend stocks that blossom. There’s a loose relationship between these cycles, and it’s always dangerous to read too much into the market’s notoriously fickle mood.

  In the last month, value stocks have started to lead the market, and growth stocks have been the big losers. What’s interesting is that this has happened during a mostly bullish time for stocks. Typically, we would expect value stocks to do well when the overall market is suffering. Then, as the bull market starts to age, we would expect growth stocks to come into their own. If you recall, that’s what happened during the late 1990s. What was so arresting about that market wasn’t that value stocks merely lagged—it’s that they got crushed even though growth stocks soared. Back then, the Growth/Value divergence was a yawning chasm.

  Another interesting aspect about this recent shift to value has been how sharp it’s been. For my Growth proxy, I like to follow the Vanguard Growth ETF ($VUG), and for Value, I look at the Vanguard Value ETF ($VTV). They’re like twin brothers always fighting over mom’s attention. VUG is flashier and has more popular names, while VTV is the quiet, dutiful student. The typical Value/Growth cycle has been distorted in the last few years because the value indexes have been filled with so many toxic financial stocks. (Here’s a chart of the VTV divided by VUG.)

  

  The last Value cycle topped out in mid-2006, and Growth has been in the driver’s seat ever since (with a few false starts for Value). This means that Value underperformed during both the bear market and the bull market. That’s quite a feat. A lot of people have anticipated a Value resurgence, but each attempt has failed. Or I should say each attempt so far.

  Since February 27, VTV is up 1.08%, while VUG is down 2.73%. That may not sound like much, but within the ongoing battle between Value and Growth, that’s a major short-term move, and it may continue for some time. VTV has beaten VUG for the last seven days in a row, and 10 of the last 11.

  So What Does This Value Shift Mean?

  When the market moves towards Value, it typically means that investors are nervous and seeking safety in cheaper names. This time around, it’s not so much that investors want Value. No, it’s that they’re fleeing Growth. An orderly exit is turning into a mad dash. Probably the best example of this has been with biotech stocks. The main Biotech ETF ($IBB) has dropped sharply over the past month. Since February 25, the IBB is off by 13.6%, and a lot of biotech names are down much more than that. Of course, we have to remember that biotech had been in an astounding rally over the past two years.

  “So the last shall be first, and the first last” is a quote from the Bible, but it also could serve as a recent stock market report. Look at Tesla ($TSLA), a high-flyer which could do no wrong. The stock went from $35 one year ago to as high as $265 last month. But the past few days have been a different story. Tesla is currently 22% off its high. On the flip side, look at boring Long-Term Treasuries ($TLT). They’re supposed to be dead money, right? But the TLT is at its highest level in eight months. When the current shifts, it can be rough.

  I also think the market’s shift towards Value is a reflection of what I talked about last week—investors are getting prepared for the probability of higher short-term interest rates. Last week, the bond market woke up to this idea, and the shift to Value is the stock market’s turn.

  Overall, the renewed emphasis on Value is a benefit for our Buy List. In the short term, some of the prominent growth stocks like Cognizant Technology ($CTSH) have suffered in the backlash. I don’t expect that to last. Now let’s take a look at some recent Buy List news.

  Wells Fargo Raises Dividend 16.7%

  Last week, the Federal Reserve said that Wells Fargo ($WFC) aced its most recent stress test. I had no doubts they’d pass. It’s hardly a secret that WFC is one of the best-run big banks around.

  The second part of the Fed’s test came this week to see if they’d approve their capital plans. Once again, Wells Fargo easily passed. The Federal Reserve said they had no objections to WFC’s capital plans. That includes a 16.7% increase in their dividend. The quarterly payout will rise from 30 to 35 cents per share. Last week, I said that I was expecting an increase but only of two cents. Shows what I know!

  The shares jumped after the announcement. Using the new dividend and going by Thursday’s close, Wells now yields 2.85%. The board also approved a 350 million-share increase in their buyback plan.

  By the way, this stress test wasn’t a cakewalk. Zion’s failed, and Citigroup’s dividend request was shot down. Six years after Bear Stearns collapsed, Citi still pays a quarterly dividend of one penny per share even though Wall Street expects them to earn $5.78 per share next year. Citigroup is still a mess, and I’m glad we have a top-tier name like Wells Fargo. Look for another good earnings report in two weeks. WFC remains a very good buy up to $54 per share.

  Will DirecTV Merge with Dish?

  On Wednesday afternoon, news broke that the CEO of Dish Network ($DISH) had spoken to the CEO of DirecTV ($DTV) to talk about a possible merger. Honestly, this isn’t a big surprise. Folks have talked about a merger between the two for years. In fact, they tried to merge 12 years ago, but the Federales blocked it. Today, I think DTV is the stronger company, but I have to give credit to Dish for holding its own.

  Clearly, the recent merger announcement between Time Warner Cable and Comcast has changed the game, and the two satellite guys have to start thinking seriously about their future. A merger makes sense, but at what price? That’s hard to say. I think DirecTV holds the upper hand here, and it’s interesting to note that Dish’s CEO made the call. Still, DirecTV would be wise to consider an offer. DirecTV has 20 million subscribers, while DISH has 14 million (check out the amazing growth of DTV below).

  

  A lot of this will depend on how regulators rule on the Comcast/TWC deal. If the Feds say yes to that, it will be hard for them to say no to the Direct/Dish deal. DirecTV’s CEO, Mike White, has seemed hesitant about a deal, but he hasn’t ruled it out. I think that’s the right attitude. Frankly, I think these two will get together at some point. I just don’t know when.

  The immediate benefit of the merger talk is that shares of DTV jumped as much as 8% on Wednesday, although the stock pulled back as the excitement wore off. DirecTV remains an excellent buy up to $84 per share.

  New Buy Below Prices

  I want to update a few of our Buy Below Prices. IBM ($IBM) has been doing well lately. This week, the shares got above $195 for the first time since September. I’m expecting a dividend increase from Big Blue sometime next month. I’m raising my Buy Below to $197 per share.

  On Thursday, Qualcomm ($QCOM) closed at another multi-year high. The company raised their dividend by 20% just a few weeks ago. This week, I’m bumping up my Buy Below to $83 per share.

  CR Bard ($BCR) has been one of our top performers this year. I’ve already raised my Buy Below on BCR a few times, and I’ve purposely held off in the past few weeks. With the Q1 earnings season just around the bend, I feel more confident in BCR’s outlook. Bard has beaten earnings for the last six quarters, and I think they’ll do it again. I’m raising my Buy Below on BCR to $147 per share.

  I’m keeping my Buy Below for Microsoft ($MSFT) at $43 per share, but I wanted to highlight the CEO’s plans for the company. For the first time in years, investors are optimistic for MSFT. Keep watching this story – it’s going to get better.

  Two of our tech stocks have had a rough month: CA Technologies ($CA) and Cognizant Technology Solutions ($CTSH). I still like both stocks, but I want my Buy Below to better reflect the market’s current judgment. I’m lowering my Buy Below on CA to $34 per share, and I’m lowering Cognizant to $52 per share. Going by Thursday’s close, CA’s dividend works out to 3.28%. Both stocks are very good buys.

  That’s all for now. The first quarter ends on Monday; after that, we’ll get our regular beginning-of-the-month reports. ISM comes out on Tuesday. The ADP jobs report comes out on Wednesday. Then on Friday, the government releases the big jobs report for March. With the Fed committed to tapering, I actually think the monthly jobs reports aren’t quite as important as they were last year. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy

• Morning News: March 28, 2014
  Eddy Elfenbein, March 28th, 2014 at 6:37 am

  U.S. House Poised to Clear Sanctions Called Putin Warning

  Spanish CIP Shock Flags Euro Deflation Risks

  Frankfurt Sets Sights on Yuan Trade as Xi Visits Merkel

  China’s Baidu Defeats U.S. Lawsuit Over Censored Search Results

  Tokyo Investors Eye Data, Central Bank Meet Next Week

  Evans Sees Fed Raising Interest Rates in Second Half of 2015

  Firms’ Profits Rise to Record High, Outpacing GDP Growth

  We Have A New SBA Administrator: Senate Confirms Maria Contreras Sweet

  Disabled Borrowers Trade Loan Debt for a Tax Bill From the I.R.S.

  Failing Stress Test Is Another Stumble for Citigroup

  Wal-Mart Sues Visa Over ‘Swipe Fees’

  Microsoft CEO Signals New Course With Office for iPad

  I.P.O. to Cut Ill=Fitting Ad Business From CBS

  Jeff Carter: How Is Your Head?

  Cullen Roche: Let’s Talk About Seigniorage

  Be sure to follow me on Twitter.

• Markets Up on Good Data
  Eddy Elfenbein, March 27th, 2014 at 10:54 am

  The stock indexes are just barely in the green today. We had some good economic news this morning. Initial jobless claims fell to 311,000. That’s one of the lowest numbers in the last six-and-a-half years.

  Also, Q3 GDP was revised higher, from 2.4% to 2.6%. Remember that this is rather dated info; Q4 began six months ago and ended three months ago.

  Wells Fargo ($WFC) got off to a good start today. The shares came close to hitting $50 but have since backed off. The bank announced a big 16.7% dividend hike yesterday.