Archive for February, 2016

• CWS Market Review – February 12, 2016
  Eddy Elfenbein, February 12th, 2016 at 7:08 am

  “Know what you own, and know why you own it.” – Peter Lynch

  This was another dramatic week on Wall Street. On Thursday, the S&P 500 first tested, and later broke below, the “Tchaikovsky Low” of 1,812. At its lowest point, the index touched 1,810 which it hasn’t seen in two years.

  Financial stocks were hit particularly hard. Big banks like Citigroup are now going for around six times next year’s earnings estimate. The price of oil also fell to $27.39 per barrel which is a 12-year low.

  

  In this week’s CWS Market Review, I’ll try to make sense of the chaos. Basically, there are several factors that are converging all at once, and some of them seem to make little sense. For example, in Japan, the central bank has cut interest rates to negative territory, yet the yen is rallying. That’s not what the textbooks said will happen, but confounding conventional wisdom has pretty much been the theme of 2016.

  Later on, I’ll cover this week’s earnings report from Cognizant Technology Solutions. I’ll also preview four more earnings reports coming our way next week. But first, let’s take a step back and look at the macro picture.

  The Macro View

  Since this has been such an unusual time for the markets, I want to list a number of different trends that are shaping the financial world.

  Negative Interest Rates. In an effort to get their economies moving again, a number of central banks have cut interest rates to less than 0%. So far, the market response has not been very positive. As I mentioned before, in Japan, the yen has actually strengthened under negative rates (which is good for AFLAC).

  At the European Central Bank, Mario Draghi seems especially frustrated. On top of that, there’s an emerging banking crisis in Europe. A number of banks got burned by bad loans to the energy sector. This has particularly impacted Deutsche Bank, but they’re not alone. Shares of Credit Suisse just slid to a 27-year low. With the economy still fragile there, Draghi may have to come up with some more magic tricks.

  Back in the U.S.A., Janet Yellen testified before Congress this week and was asked about the possibility of negative interest rates. She didn’t say she was for it, but she didn’t rule it out. Of course, that’s what central bankers say about most anything. Frankly, I think the negative-rates talk for the Fed is very premature. Things would have to get a lot worse before that becomes a serious possibility. There’s also the question of whether that policy is even legal or feasible, given our financial system. My view is that they could do it if they wanted to, but that possibility is a long way off.

  No Fed Rate Increases. A big change this year has been the outlook for interest rates. Not that long ago, the market had been expecting three or four rate increases this year. Now, almost no one believes that will happen though the Fed has so far stuck to its forecasts. The futures market sees the Fed largely standing pat.

  You can see the impact of this revised outlook on certain sectors of the stock market. For example, utility stocks have rallied this year. That makes sense if rates stay low for longer. Conversely, financial stocks have done quite poorly. Those banks would have liked higher rates.

  Many big banks are down by 20% or 30% in the last few weeks. That explains a lot of the weakness we’ve seen at Wells Fargo (WFC) and Signature Bank (SBNY). Bear in mind that those two banks are much stronger than many other banks. The S&P Bank Index is currently about where it was in August 1996. That’s nearly 20 years of no gains.

  The Flattening Yield Curve. The new outlook for interest rates has also had a big impact on the yield curve. The middle part of that curve has become much flatter in recent weeks. For example, the yield on the five-year Treasury is down to 1.11%. That’s down from 1.80% on the second-to-last day of 2015. That’s a pretty stunning turnaround.

  

  The spread between the two- and five-year Treasuries is now 47 basis points. That’s down from 70 basis points at the start of the year. Again, this reflects a belief that rates will stay low for longer. Interestingly, the spread at the longer end of the curve is largely unchanged. So I don’t think the flattening of the middle of the curve is a warning of a recession. When you see the 10-year above the 30-year, then it’s time to worry. We’re a long way from that.

  Plunging Oil. The oil market continues to be in free fall. This is stunning. Every prediction of a bottom has failed. What’s interesting is that since late October, oil and the stock market have been strongly correlated. It used to be accepted wisdom that lower oil was good for our economy because it put more money in consumers’ pockets. That’s still true, but it overlooks the unpleasant side effects. For example, energy companies have cut back on hiring. Also, the junk-bond market got beaten up by some bad energy loans. In fact, that was also a factor Wells Fargo (WFC) discussed in its last earnings report. Although it’s not a major factor for Wells, it will be for other banks.

  Valuation. The drop in medium-term rates has been a strong signal for prudent investors to focus on stocks with generous dividends. Let’s work some simple math. A five-year Treasury currently pays you 1.11%. That’s above half the dividend yield for the S&P 500. For the return of stocks to match the return of the five-year, stocks would have to decline by 1.11%, on average, for the next five years (this assumes dividends remain the same). That would bring the S&P 500 about 100 points lower by February 2021.

  Obviously, this is a very basic analysis, but my point is to highlight the gap between the stock and bond market. The yield curve is demanding that investors buy dividend-friendly stocks. Microsoft, for example, currently yields 2.9%. They’re in little danger of cutting their dividend. The software giant generates $2 billion every month of cash flow. Wells Fargo yields 3.3%, and they’re in far better shape than they were a few years ago. In fact, it’s possible Wells will increase their dividend payout in April.

  The Carry Trade. With negative interest rates, investors have crowded into the carry trade. This involves borrowing money in a currency with a low rate and investing in a currency with a high rate. You “carry” the investment across the border. This trade works up to the point where it stops working, and that’s what happened recently. A lot of traders got squeezed on their shorts of the Japanese yen, so they had to cover their trades, which pushed the yen even higher.

  The Gold Rally. One surprise this year has been the strength in gold. Late last year, the yellow metal fell to around $1,050 per ounce and seemed to stay there. Lately, however, it’s caught fire. On Thursday, gold closed at $1,247 per ounce, which is an 18% gain the year. So is this a turn for gold? Possibly, but I’m a doubter. Lower real rates are good for gold, but the trade is also impacted by geopolitical events. Several tension spots around the world have flared up recently. Russia and Turkey are exchanging unpleasant looks, and North Korea is up to its usual antics. Gold tends to be the opposite of the stock market—it moves up very quickly, and slides downward very slowly.

  Emerging Markets. A lot of emerging stock markets have not done well lately. This is really the effect of the U.S. dollar. This is an important point investors should understand. Since emerging markets are considered riskier, they have to offer more to draw overseas capital. When the dollar rallies, that pulls the rug out from the emerging markets. Furthermore, the money doesn’t leave slowly. It leaves very suddenly. The Emerging Markets ETF (EEM) has been battered for the last year.

  Cognizant Technology Solutions Earned 80 Cents per Share

  On Monday, Cognizant Technology Solutions (CTSH) reported Q4 earnings of 80 cents per share, which was two cents more than expectations. That’s a pretty good number. The company had previously said it expected earnings of at least 77 cents per share. Quarterly revenue rose 17.9% to $3.23 billion.

  “We are pleased with our strong performance in 2015,” said Francisco D’Souza, CEO. “At a time when major technology shifts are disrupting all industries, clients are looking to a partner like Cognizant to work with them to create the winning business models of tomorrow at the intersection of the physical and digital worlds. Our investments in disruptive technologies, new business models and best-in-class delivery uniquely position us to enable clients to drive digital transformation at enterprise scale.”

  For the year, Cognizant made $3.07 per share. Revenue rose 21.0% to $12.42 billion. Let me add some context. A year ago, their initial guidance for 2015 was for earnings of at least $2.91 per share and revenue of at least $12.21 billion. In other words, they outperformed their expectations.

  

  Now for guidance. Cognizant sees Q1 earnings between 78 and 80 cents per share. In last week’s issue, I said I was expecting full-year guidance around $3.45 per share. The company, however, was more conservative. Cognizant expects 2016 earnings to range between $3.32 and $3.44 per share.

  Wall Street did not like that. Shares of CTSH fell 7.7% on Monday. There’s no need to panic. I think the company is low-balling expectations so they can raise them later on. For now, I’m lowering my Buy Below on Cognizant to $58 per share.

  Four Buy List Earnings Reports Next Week

  Next week, three of our Buy List stocks will report Q4 earnings. We also have one stock, Hormel Foods (HRL), which is due to report, but they’re actually an early bird from the next cycle, as their fiscal quarter ended at the end of January.

  On February 16, Cerner, Express Scripts and Hormel are due to report. Shares of Cerner (CERN) are still hurting from the unexpectedly weak outlook they gave late last year. But I think the selling is overdone. Wall Street expects Q4 earnings of 57 cents per share, which is a healthy increase over the 47 cents per share they made in Q4 of 2014.

  In October, Express Scripts (ESRX) said they expect full-year 2015 earnings of $5.51 to $5.55 per share. That implies Q4 earnings of $1.54 to $1.58 per share. The shares dropped sharply last month after the company got into a public spat with Anthem (ANTM). I think these companies can work out their differences.

  Not only was Hormel our best stock in 2015, but it’s also been our best stock so far in 2016. Through Thursday, the Spam stock is up 5.44% YTD. Wall Street expects fiscal Q1 earnings of 73 cents per share. That sounds about right.

  Hormel also split 2-for-1 this week. That means shareholders now have twice as many shares. For track-record purposes, I assume the Buy List is a $1 million portfolio that starts the year with $50,000 in each stock. For Hormel, that was 632.2711 shares bought at $79.08. With the split, that’s now 1,264.5422 shares at $39.54. Hormel’s new Buy Below is $41 per share.

  Lastly, Wabtec will report earnings on February 18. Their Q3 report was not good, and the shares have been punished ever since. The company sees Q4 earnings of $1.05. On Wednesday, the shares got a nice bounce after the board authorized a new $350 million share-buyback plan.

  That’s all for now. The stock market will be closed on Monday in honor of George Washington’s birthday. (The NYSE, rightly, does not call it President’s Day.) In addition to the earnings reports, we can look forward to the industrial-production report on Wednesday. The latest Fed minutes will come out Wednesday afternoon. Then the CPI report comes out on Friday. 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: February 12, 2016
  Eddy Elfenbein, February 12th, 2016 at 7:02 am

  Nikkei Plunges Again in Worst Week Since Financial Crisis

  Eurozone Economy Grows, but Total Output Still Lags Behind 2008

  Greek Farmers Clash With Riot Police in Pensions Protest

  Oil Rebounds From Lowest Close in 12 Years to Pare Weekly Loss

  The Oil Industry Got Together and Agreed Things May Never Get Better

  Federal Reserve Won’t Backpedal on Interest Rates, Janet Yellen Says

  Have Millennials Made Quitting More Common?

  Deutsche Bank CoCo Ratings Cut by S&P on Earnings Concerns

  AIG: A Win-Win?

  `Flash Boys’ Market Loses Support From Bats as Opposition Mounts

  Pimco Says No Need to Be Greedy as It Bets on Battered Bank Debt

  Joshua Brown: What We’re Telling Clients Today

  Cullen Roche: Why Would Anyone Buy a Negative Interest Bearing Bond?

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• Morning News: February 11, 2016
  Eddy Elfenbein, February 11th, 2016 at 7:10 am

  Sweden Cuts Rates Deeper Into Negative Territory, Says May Go Further

  Indian Gold Demand to Climb in 2016 as Buyers Seek Safe Haven

  Oil Is the Cheap Date From Hell

  Treasury Yield at 3 1/2-Year Low as Yellen Suggests Rate Delay

  Twitter User Growth Stalls, and the Chief Pledges to Make Fixes

  SocGen Slumps as Quarterly Profit Hurt by Securities Drop

  Rio Tinto CEO Sees Mining Distress Spreading to Majors

  Tesla: Talk Is Cheap, Results Are Everything

  PepsiCo Profit Up 31% to Top Estimates

  The Nokia-Ericsson Two-Step

  Cisco Forecast Shows Spending Holding Up, Easing Concerns

  The Bizarre Money Triangle at the Top of Viacom

  U.S. Payday Lending Crackdown Brings Race Car Driver’s Arrest

  Bear Markets Without Recessions – It’s a Thing

  Jeff Carter: Free Enterprise Lifts People Up Better Than Government Socialism

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• Hormel Foods Split 2-for-1
  Eddy Elfenbein, February 10th, 2016 at 11:43 am

  Please note that Hormel Foods (HRL) split 2-for-1 this morning. That means shareholders now have twice as many shares.

  For track record purposes, I assume the Buy List is a $1 million portfolio that starts the year with $50,000 in each stock. For Hormel, that was 632.2711 shares bought at $79.08. With the split, that’s now 1,264.5422 shares at $39.54.

• Janet Yellen’s Testimony
  Eddy Elfenbein, February 10th, 2016 at 9:32 am

  Here’s the text of what Janet Yellen will be saying later this morning on Capitol Hill:

  Chairman Hensarling, Ranking Member Waters, and other members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress. In my remarks today, I will discuss the current economic situation and outlook before turning to monetary policy.

  Current Economic Situation and Outlook

  Since my appearance before this Committee last July, the economy has made further progress toward the Federal Reserve’s objective of maximum employment. And while inflation is expected to remain low in the near term, in part because of the further declines in energy prices, the Federal Open Market Committee (FOMC) expects that inflation will rise to its 2 percent objective over the medium term.

  In the labor market, the number of nonfarm payroll jobs rose 2.7 million in 2015, and posted a further gain of 150,000 in January of this year. The cumulative increase in employment since its trough in early 2010, is now more than 13 million jobs. Meanwhile, the unemployment rate fell to 4.9 percent in January, 0.8 percentage point below its level a year ago and in line with the median of FOMC participants’ most recent estimates of its longer-run normal level. Other measures of labor market conditions have also shown solid improvement, with noticeable declines over the past year in the number of individuals who want and are available to work but have not actively searched recently, and in the number of people who are working part time but would rather work full time. However, these measures remain above the levels seen prior to the recession, suggesting that some slack in labor markets remains. Thus, while labor market conditions have improved substantially, there is still room for further sustainable improvement.

  The strong gains in the job market last year were accompanied by a continued moderate expansion in economic activity. U.S. real gross domestic product is estimated to have increased about 1-3/4 percent in 2015. Over the course of the year, subdued foreign growth and the appreciation of the dollar restrained net exports. In the fourth quarter of last year, growth in the gross domestic product is reported to have slowed more sharply, to an annual rate of just 3/4 percent; again, growth was held back by weak net exports as well as by a negative contribution from inventory investment. Although private domestic final demand appears to have slowed somewhat in the fourth quarter, it has continued to advance. Household spending has been supported by steady job gains and solid growth in real disposable income–aided in part by the declines in oil prices. One area of particular strength has been purchases of cars and light trucks; sales of these vehicles in 2015, reached their highest level ever. In the drilling and mining sector, lower oil prices have caused companies to slash jobs and sharply cut capital outlays, but in most other sectors, business investment rose over the second half of last year. And homebuilding activity has continued to move up, on balance, although the level of new construction remains well below the longer-run levels implied by demographic trends.

  Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset. Still, ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending, and global economic growth should pick up over time, supported by highly accommodative monetary policies abroad. Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.

  As is always the case, the economic outlook is uncertain. Foreign economic developments, in particular, pose risks to U.S. economic growth. Most notably, although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the foreign exchange value of the renminbi have intensified uncertainty about China’s exchange rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth. These growth concerns, along with strong supply conditions and high inventories, contributed to the recent fall in the prices of oil and other commodities. In turn, low commodity prices could trigger financial stresses in commodity-exporting economies, particularly in vulnerable emerging market economies, and for commodity-producing firms in many countries. Should any of these downside risks materialize, foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further.

  Of course, economic growth could also exceed our projections for a number of reasons, including the possibility that low oil prices will boost U.S. economic growth more than we expect. At present, the Committee is closely monitoring global economic and financial developments, as well as assessing their implications for the labor market and inflation and the balance of risks to the outlook.

  As I noted earlier, inflation continues to run below the Committee’s 2 percent objective. Overall consumer prices, as measured by the price index for personal consumption expenditures, increased just 1/2 percent over the 12 months of 2015. To a large extent, the low average pace of inflation last year can be traced to the earlier steep declines in oil prices and in the prices of other imported goods. And, given the recent further declines in the prices of oil and other commodities, as well as the further appreciation of the dollar, the Committee expects inflation to remain low in the near term. However, once oil and import prices stop falling, the downward pressure on domestic inflation from those sources should wane, and as the labor market strengthens further, inflation is expected to rise gradually to 2 percent over the medium term. In light of the current shortfall of inflation from 2 percent, the Committee is carefully monitoring actual and expected progress toward its inflation goal.

  Of course, inflation expectations play an important role in the inflation process, and the Committee’s confidence in the inflation outlook depends importantly on the degree to which longer-run inflation expectations remain well anchored. It is worth noting, in this regard, that market-based measures of inflation compensation have moved down to historically low levels; our analysis suggests that changes in risk and liquidity premiums over the past year and a half contributed significantly to these declines. Some survey measures of longer-run inflation expectations are also at the low end of their recent ranges; overall, however, they have been reasonably stable.

  Monetary Policy

  Turning to monetary policy, the FOMC conducts policy to promote maximum employment and price stability, as required by our statutory mandate from the Congress. Last March, the Committee stated that it would be appropriate to raise the target range for the federal funds rate when it had seen further improvement in the labor market and was reasonably confident that inflation would move back to its 2 percent objective over the medium term. In December, the Committee judged that these two criteria had been satisfied and decided to raise the target range for the federal funds rate 1/4 percentage point, to between 1/4 and 1/2 percent. This increase marked the end of a seven-year period during which the federal funds rate was held near zero. The Committee did not adjust the target range in January.

  The decision in December to raise the federal funds rate reflected the Committee’s assessment that, even after a modest reduction in policy accommodation, economic activity would continue to expand at a moderate pace and labor market indicators would continue to strengthen. Although inflation was running below the Committee’s longer-run objective, the FOMC judged that much of the softness in inflation was attributable to transitory factors that are likely to abate over time, and that diminishing slack in labor and product markets would help move inflation toward 2 percent. In addition, the Committee recognized that it takes time for monetary policy actions to affect economic conditions. If the FOMC delayed the start of policy normalization for too long, it might have to tighten policy relatively abruptly in the future to keep the economy from overheating and inflation from significantly overshooting its objective. Such an abrupt tightening could increase the risk of pushing the economy into recession.

  It is important to note that even after this increase, the stance of monetary policy remains accommodative. The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run. This expectation is consistent with the view that the neutral nominal federal funds rate–defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy was operating near potential–is currently low by historical standards and is likely to rise only gradually over time. The low level of the neutral federal funds rate may be partially attributable to a range of persistent economic headwinds–such as limited access to credit for some borrowers, weak growth abroad, and a significant appreciation of the dollar–that have weighed on aggregate demand.

  Of course, monetary policy is by no means on a preset course. The actual path of the federal funds rate will depend on what incoming data tell us about the economic outlook, and we will regularly reassess what level of the federal funds rate is consistent with achieving and maintaining maximum employment and 2 percent inflation. In doing so, we will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In particular, stronger growth or a more rapid increase in inflation than the Committee currently anticipates would suggest that the neutral federal funds rate was rising more quickly than expected, making it appropriate to raise the federal funds rate more quickly as well. Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. We are committed to our dual objectives, and we will adjust policy as appropriate to foster financial conditions consistent with the attainment of our objectives over time.

  Consistent with its previous communications, the Federal Reserve used interest on excess reserves (IOER) and overnight reverse repurchase (RRP) operations to move the federal funds rate into the new target range. The adjustment to the IOER rate has been particularly important in raising the federal funds rate and short-term interest rates more generally in an environment of abundant bank reserves. Meanwhile, overnight RRP operations complement the IOER rate by establishing a soft floor on money market interest rates. The IOER rate and the overnight RRP operations allowed the FOMC to control the federal funds rate effectively without having to first shrink its balance sheet by selling a large part of its holdings of longer-term securities. The Committee judged that removing monetary policy accommodation by the traditional approach of raising short-term interest rates is preferable to selling longer-term assets because such sales could be difficult to calibrate and could generate unexpected financial market reactions.

  The Committee is continuing its policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities. As highlighted in the December statement, the FOMC anticipates continuing this policy “until normalization of the level of the federal funds rate is well under way.” Maintaining our sizable holdings of longer-term securities should help maintain accommodative financial conditions and reduce the risk that we might need to return the federal funds rate target to the effective lower bound in response to future adverse shocks.

  Thank you. I would be pleased to take your questions.

• Morning News: February 10, 2016
  Eddy Elfenbein, February 10th, 2016 at 7:10 am

  Lagarde Says Ukraine Must Reform or Risk IMF Program Failing

  Banks Lead European Stock Gains as Credit Risk Eases, Oil Rises

  Iran to Purchase Sukhoi-30 Fighter Jets From Russia

  U.S. Stocks Fight to a Draw, Look to Yellen Testimony

  Deutsche Bank’s CoCo Payments Hinge on Obscure Accounting Metric

  SoftBank Operating Profit Rises as Son Sees Sprint Revival

  Chinese Group Bids $1.2 Billion for Company Behind Opera Web Browser

  BP CEO `Very Bearish’ on Oil as Storage Tanks Are Filling Up

  ’Star Wars’ Sales Propel Disney Earnings, But ESPN Slips

  Goodyear Reports 4Q on Hefty Charge

  Asahi Is Bidding to Buy Peroni and Grolsch Beers From SABMiller

  Taming Drug Prices by Pulling Back the Curtain Online

  Monsanto to Pay $80 Million to Settle Charge of Improper Accounting

  Cullen Roche: Fiscal Policy Has Failed the U.S. Economy

  Roger Nusbaum: A Mostly Positive (?) Jobs Report Can’t Help Markets

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• Sinking Small Caps
  Eddy Elfenbein, February 9th, 2016 at 11:52 am

  Here’s a look at the relative strength of the small-cap sector. This is an interesting sector to watch for a few reasons.

  For one, the sector is skewed toward domestic manufacturers. As a result, it’s a good way to see the impact of the U.S. dollar on equities.

  Also, small-caps had a long 15-year run of outperforming the market (1999 to 2014). That’s quite impressive. Of course, you don’t know when the cycle is over until after the fact.

  I’m sure many investors thought the relative strength line would make a run at its February 2014 high. It hasn’t yet. Instead, the line has gone down, down and down. It really started to crumble after last June. I think it’s safe to say that this is a new cycle of small-cap underperformance.

  The little stocks just ain’t popular.

  

• Spotting a Bear
  Eddy Elfenbein, February 9th, 2016 at 11:17 am

  At U.S. News and World Report, Simon Constable writes on how to spot a bear market:

  If stocks are in a bear market, the last thing investors need is to hear about it after the fact. It’s as unhelpful as being told, “You should have been here yesterday.”

  The pullback in the Standard & Poor’s 500 index hasn’t yet reached the classic definition of a bear market, which is a decline of 20 percent or more. But by that measure, the drop is nearly here.

  Are we headed for a bear market, and what should investors do? The answers are tricky.

  Watch the bond market. “They just don’t announce bear markets,” says Eddy Elfenbein, who writes the Crossing Wall Street financial blog. But there are methods of detection.

  Elfenbein says it’s a harbinger of a bear market when interest rates on two-year government securities are higher than those on 10-year Treasuries. That differential in interest rates encourages investors to pull their money from long-term investments, such as 10-year Treasuries and stocks, and instead earn better yields for a short-term investment in the two-year bonds.

  “We are nowhere near that now,” he says. Two-year treasuries yield around 0.74 percent, versus 10-year notes that yield 1.87 percent. Longer-term investments, like stocks, still make sense.

  While he doesn’t see a bear market now, Elfenbein says he likes to keep a famous and sobering investing quote from ace stock picker Peter Lynch in mind: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

• Morning News: February 9, 2016
  Eddy Elfenbein, February 9th, 2016 at 7:05 am

  Britain’s Global Banking Hub Is Mostly Leery of an E.U. Exit

  Global Bond Rally Near `Panic’ Level With Japan Yield Below Zero

  Bonds Follow Bank of Japan Into Negative Territory

  Russian Companies Rush to Return to Post-Sanctions Iran

  Oil Supply Seen Outpacing Demand, Capping Price

  Gold Weekly: Should You Join The Party?

  Amazon Is Building Global Delivery Business to Take On Alibaba

  Google CEO Pichai Receives Record $199 Million Stock Grant

  Viacom To Sell Snapchat Ads In Multiyear Deal

  CVS Health Meets 4Q Profit Forecasts

  Geithner Gets JPMorgan Credit Line to Invest With Warburg Pincus

  Sears Hometown Indicates That Sears Brand Name Could Be Worthless

  Zenefits CEO Parker Conrad Resigns Amid Scandal

  Howard Lindzon: Cash is King…and What Were The Signs of the Top?

  Joshua Brown: Now We Separate the Pros From the Pretenders

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• The S&P 500 Drops 1.42%
  Eddy Elfenbein, February 8th, 2016 at 9:49 pm

  Today was a rotten day for the stock market, and an afternoon rally saved it from being even more rotten. The S&P 500 lost 1.42% on the day although at its lowest, the index was off by 2.74%.

  

  The Energy sector was the only sector to close in the green but that was by just 0.07%. Oil crossed above $30p per barrel. The big loser was the Materials sector which lost 2.71%. The Financials lost 2.64%. Many of the big banks did especially poorly today as a number of them hit their lowest point in more than two years. Citigroup and Bank of America were both off by more than 5%, and Morgan Stanley lost nearly 7%.

  The pain in the big banks is being caused by an emerging banking mess in Europe. Several banks there have some bum energy loans so they need to ditch assets to raise capital. Deutsche Bank is going for about 30% of its book value.

  The recent low for the S&P 500 came on January 20. Today’s low is still above that low, but the small-cap Russell 2000 did make a new two-and-a-half-year low.

  The bond market did very well today. The 10-year yield dropped below 1.75%. The yield is near its low from almost exactly one year ago. The bond market has been creaming stocks over the last six weeks.