Archive for August, 2015

• The Dow Jumps 619 Points
  Eddy Elfenbein, August 26th, 2015 at 4:41 pm

  The Dow rose 619 points today for its third-largest point gain in history. The other two came days apart in October 2008. In percentage terms, today’s 3.95% gain was the 131st largest since 1900.

  The S&P 500 rose 72.90 points to close at 1940.51. That’s a gain of 3.90%. The S&P 500’s point gain today was greater than what the entire index was going for in January 1975.

  

  Today was very much a “high beta” day. Tech and energy stocks were the strongest. Growth also led value. Less than 30% of the stocks in the S&P 500 outperformed the S&P 500 today.

  Bespoke Investment Group noted that the S&P 500 closed four standard deviations below its 50-day moving average for three straight sessions. That’s only happened twice since May 1940, when France fell to the Germans. Ironically, the S&P 500 closed today at 1,940.51.

  Our Buy List gained 3.38% today which trailed the market, but our stocks are generally more conservative. Fiserv, Microsoft, Cognizant and Qualcomm all rose more than 5% today.

  Today was a very good day, but the market is still very unsettled. You can expect more volatility. I don’t think we’ll be in the clear until the VIX closes below 20.

• Dudley: September Hike Less Compelling
  Eddy Elfenbein, August 26th, 2015 at 11:40 am

  William Dudley, the head of the NY Fed, said this morning that a rate hike next month is less compelling. I think the market is reading too much into this news.

  The last few days have been a market event, not an economic one. I don’t believe the Fed is any less persuaded that it will raise rates soon. I’ve given up on predicting exactly when this will happen, but we know it will happen soon.

  If you look at Dudley’s full remarks he clearly says that the data is getting better, not worse. This is not the kind of mini-panic where the Fed can rescue us.

  Here’s a look at the six-month Treasury, which is one of the better charts to get a sense of higher rates.

  

  The yield has climbed this year as the Fed has hinted that a rate hike is coming. The yield has dipped a little in the past few months, but not that much.

• Durable Goods Rise 2%
  Eddy Elfenbein, August 26th, 2015 at 10:54 am

  It’s hard to provide meaningful updates in this market. Everything is moving so quickly as we saw in the final hour of yesterday.

  The market is up again this morning. But the rally seems more cautious and we’ve already slipped back a bit.

  So far, the financial rout seems unrelated to the economy. This morning, in fact, we got news that durable goods rose 2% last month. That comes after a 4.1% increase in June.

  Orders in a category that serves as a proxy for business investment expanded 2.2 percent in July following a 1.4 percent rise in June. These orders had fallen in four of the previous five months, reflecting the soft patch that manufacturing has faced this year.

  Ian Shepherdson, chief economist at Pantheon Macroeconomics, called the 2.2 percent gain in the business investment category “really good news.” He said the strong gain was a solid indication that the big cutbacks in investment spending by oil companies were starting to taper off.

  While the July increase is encouraging, U.S. manufacturers still face a host of problems from a stronger dollar to falling oil prices and turbulence in China, the world’s second biggest economy.

  The higher value of the dollar against foreign currencies makes U.S. goods more expensive and less competitive in major export markets. The lower oil prices have led energy companies to scale back their investment plans.

• Morning News: August 26, 2015
  Eddy Elfenbein, August 26th, 2015 at 6:46 am

  Chinese Authorities Escalate Blame Game

  Many Chinese Investors Nonchalant About Stock Market Plunge

  Emerging Market Assets Weaken Again Despite China’s Rate Cut

  European Shares Fall Back, Banks and Commodities Underperform

  Currency Volatility Upsets Asian Growth Plans

  Why Market Turmoil Won’t Prevent the Federal Reserve From Raising Interest Rates

  Oil Futures Crash No Help to Sellers of the Real Thing

  Puerto Rico Turmoil Sinks Sewer Bond

  Schlumberger to Buy Cameron in $14.8 Billion Deal

  E.ON Targets United States in Solar Push

  Under Armour Seeks to Do For Maryland What Nike Did For Oregon

  The One-Man, $1.2 Billion ETF Shop

  How Wall Street Is Losing Talent to Cleveland

  Jeff Miller: What Investors Must Know About China

  Jeff Carter: Who Understands the Market?

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• The Rally Collapses
  Eddy Elfenbein, August 25th, 2015 at 4:58 pm

  Another tough day. The stock market appeared to be getting better. In fact, the S&P 500 got as high as 1,948. As late as 3 pm, it was at 1,927.

  But things fell apart in the last hour. The S&P 500 plunged 60 points in the last 60 minutes to close at 1,867.61. The index is now just above yesterday’s low. As ugly as yesterday’s open was, we’re basically right back there.

  

  For the day, the S&P 500 lost 1.35%. That’s actually the best day in the last four. Our Buy List fell 1.40%.

• After the Storm
  Eddy Elfenbein, August 25th, 2015 at 12:53 pm

  The stock market has calmed down considerably today. The Dow has been up as much as 441 points. The S&P 500 is currently up 2.32%.

  The rally today is different from yesterday’s selloff in that the “high beta” areas, tech in particular, are doing quite well. The Utility ETF (XLU) is down while the Tech ETF (XLK) is up more than 3%. Growth is well ahead of Value. Yesterday’s selloff was much broader.

  While the market is calmer today, I urge investors to expect more volatility in the days ahead. There’s the reaction, then the counter-reaction, then the reaction to that. The big low often comes a little bit after the worst of the panic passes.

• Remembrances of Jackson Holes Past
  Eddy Elfenbein, August 25th, 2015 at 9:54 am

  On Thursday, the Federal Reserve will be holding another big meeting in Jackson Hole, Wyoming. Janet Yellen will be skipping this year’s meeting, but it’s still going to get a lot of attention.

  Gary Alexander of Naveller Marketmail points out that the market has often reacted well after Jackson Hole.

  Jackson Hole has become an annual rallying point for the stock market over the last few years. Since 2009, the market has responded favorably whenever some real news comes out of Jackson Hole. From 2010 to 2013, Federal Reserve Chairman Ben Bernanke made monetary history at Jackson Hole. He often announced (or paved the way for) a major Fed policy change at this time. Here’s a brief summary:

  The 2010 Jackson Hole conference was held August 26-28. In his August 27 talk, Mr. Bernanke said that the pace of economic growth had been “less vigorous” than the Fed was expecting and the pace of the U.S. job growth was “painfully” slow. He also acknowledged that the Fed was surprised by the “sharp deterioration” in the U.S. trade balance. His solution was to revive the Fed’s late-2008 “quantitative easing” (QE) scheme. The market loved QE2: The S&P rose from 1040 on the day of Bernanke’s Jackson Hole talk to 1363.6 the following April – up 31%.

  The 2011 Jackson Hole conference was held August 25-27, during an especially volatile month in market history. At Jackson Hole, Chairman Bernanke laid out the groundwork for another new Fed monetary strategy called “Operation Twist.” The detailed plan was not officially announced until September 21, but over the next month or so, various Fed governors hit the road to explain and defend their $400 billion operation to artificially flatten the yield curve. The stock market loved Operation Twist. The S&P 500 rose over 26% from August 2011 to April of 2012.

  The 2012 Jackson Hole conference, held August 30 to September 1, laid the groundwork for QE3, which was officially launched on September 13. Bernanke’s Jackson Hole remarks were more frank than usual. First, he said that the stagnant job market was a “grave concern” to the Fed. He also called current economic growth “far from satisfactory” and “tepid.” Because of this slow growth, Bernanke said that the Fed will “provide additional policy accommodation as needed.” This was a broad hint that more easing (dubbed QE3) would soon follow. The market seemed to love QE3, as the S&P 500 rose by over 17% from its August lows to April of 2013.

  The 2013 Jackson Hole conference was held August 22-24. By then, Chairman Bernanke was a lame duck, so he let his replacement (Janet Yellen) speak in his place. Strangely, she did not say much, except as part of a panel. Since the skies were smoky around Jackson Hole, due to all of the fires in Idaho, the inside joke was that Jackson Hole’s skies reflected the foggy future of the Fed, especially since Bernanke’s hints of “tapering” (uttered in May) were spooking the markets. In the end, tapering failed to faze the market, with the S&P 500 rising 16% by April of 2014.

  Last August (2014), as noted above, Ms. Yellen tried to reassure investors that the Fed might not raise rates as soon as they expect and the market managed to eke out an 11.6% gain by May 2015.

• Futures Point Higher
  Eddy Elfenbein, August 25th, 2015 at 8:24 am

  We’re not out of the woods just yet, but the futures are indicating that today will be a very good day for stocks. The Dow futures are up 530 points. The S&P 500 futures are up 61.75 to 1,933 from a gain of 3.3%.

• Morning News: August 25, 2015
  Eddy Elfenbein, August 25th, 2015 at 7:01 am

  Global Markets Rebound Despite Continued Selloff in China

  China Cuts Interest Rates for Fifth Time In Bid to Stem Rout

  For All Its Heft, China’s Economy Is A Black Box

  German Business Confidence Rises With China Fears Subdued

  Fed’s Lockhart Sees 2015 Rate Hike, But Reading Inflation ‘Tricky’

  Oil Expert Daniel Yergin: ‘Hard Times’ Ahead For Producers

  Tim Cook Finally Steps Up For Apple

  Toll Profit Drops as Luxury Homebuilder Hurt By Lower Prices

  BHP Billiton Profit plunges 86% in Commodity Downturn

  This Fund Manager Picks Stocks by Watching Bonds, Beating 99% of Peers

  How Mexico’s Ricardo Salinas Lost Half of His Wealth This Year

  Joshua Brown: 解围

  Cullen Roche: Three Things I Think I Think – What The Hell is Going on Edition

  Roger Nusbaum: Time to Panic? Not Now, Not Ever

  Howard Lindzon: Some Perspectives on Panic

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• CWS Market Review – August 24, 2015
  Eddy Elfenbein, August 24th, 2015 at 5:41 pm

  Today was one of the more dramatic days in recent Wall Street history. I wanted to send you an update to fill you in on today’s market action.

  At the opening bell, the stock market was flooded with sell orders. This is a good reminder to never place market orders at the open (here’s a guide to the different types of orders). Within six minutes, the Dow was down 1,089 points. The S&P 500 got as low as 1,867.01 for a drop of 5.27%.

  

  The prices were chaotic and confused, and many were probably incorrect. A number of ETFs widely diverged from their underlying stocks. At one point, Ford Motor (F) traded as low as $10.44 per share.

  The best example of how crazy this morning was is Kroger (KR), the grocery chain. In 12 minutes, the stock dropped 20% and rallied 25%. We’re talking about a grocery store! The Low Vol ETF (SPLV) was down 45%. The whole reason for this ETF is so that it has low volatility.

  After hitting bottom, the S&P 500 put on a furious rally. By 1:10 pm, the index got to 1,954.09 for a gain of 4.66% off the morning’s low. Several major stocks turned positive for the day.

  But the fun times didn’t last. Stocks turned south again, and by 3:34 pm, the S&P 500 stood at 1,879.98. That was 3.8% drop—not for the day—but merely from the post-lunch high of two hours before. These swings are big for one week, and they all happened in one day!

  The S&P 500 eventually closed at 1893.21, perhaps an homage to the Panic of 1893. The index lost 3.94% on the day for its worst loss since August 18, 2011. This was the lowest close since October 17, 2014. The S&P 500 is now down 11.15% from its all-time high close reached on May 21. This breached the 10% barrier meaning this is now an official “correction” in Wall Street parlance. This is the 28th correction since 1945. In the last three days, the Nasdaq Composite has lost 9.8%. That’s not too far from the 11.3% it lost on October 19, 1987.

  Ryan Detrick points out that the S&P 500 has fallen 3% in the last two days. We haven’t hit three in a row since 1933. In the last three days, the Dow has lost 1,477 points which is an all-time record.

  There wasn’t a strong sector component to today’s selling. Everything was down. The Energy Sector ETF (XLE) closed at $60.13. It’s lower than where it was in late 2006.

  Today, our Buy List held up slightly better than the market, meaning we did a little less bad. Our Buy List lost 3.81% for the day. Wells Fargo (WFC) and AFLAC (AFL) were our biggest losers. Ford recovered from its morning debacle but is still only at $13.19. Assuming the current dividend, Ford now yields over 4.5%. Microsoft (MSFT) yields close to 3%.

  I’m sure you know what I’m going to say: Don’t panic. Don’t sell. Take a step back and don’t get caught up in this mess. The volatility will pass.

  

  What’s interesting is that there wasn’t one single company-specific news item for any of our Buy List stocks today. Not one. This is purely a market event, not an economic one. The market is impacting the market. Kroger did not magically become less profitable and then more profitable within a few minutes this morning.

  I’m sure many investors are asking, “What caused today’s action?” This is a difficult point to make, but that question often can’t be answered. At least not comprehensively. Finance isn’t a science like chemistry where one event causes another. Sometimes things just happen and we really can’t say why.

  Sure, we can give generalized answers, like the slowdown in China and chaos in some Asian markets. The oil rout is weakening some economies, and the Fed seems determined to raise interest rates. The Canadian dollar, for example, is at an 11-year low. West Texas crude fell below $40 per barrel for the first time since 2009. China’s market sank 8.5%. But that’s only the background noise.

  The real issue is that people got scared and they sold all at once. I don’t know when the volatility will end but there are a lot of good stocks going for good prices. Make sure you have a well-diversified portfolio of stocks from our Buy List. Pay attention to our Buy Below prices and never chase stocks. I’ll have more market analysis for you in the next issue of CWS Market Review!