Forecasters Turn Bullish on the Economy
Posted by Eddy Elfenbein on May 24th, 2010 at 9:57 am

There’s a new story this morning saying that the National Association for Business Economics is more optimistic on the economy.

The panel of forecasters boosted its expectations for growth in 2010 to 3.2 percent real gross domestic product, up from 3.1 percent in its February outlook. It also pegged the 2011 growth rate at 3.2 percent.
Household spending, while still lagging the overall economy, is still expected to grow significantly this year. The forecasters attribute part of that to consumers being less thrifty, with the saving rate for 2010 seen dropping to 3.4 percent from the 4.6 percent they predicted just three months ago.
Business investment also is expected to fuel the recovery. The economists expect higher operating rates and rising corporate profits boosting companies’ spending on equipment and software, while retailers restock inventory.

That may sound good, but if the forecast is correct it means the jobs market still has a long way to go. For the unemployment rate to start dropping in a serious way, the economy will have to grow faster than 3% for several quarters. In fact, it would be much better if it grew by 4% to 5%.
The only silver lining is that these forecasts have a notoriously poor track record.

S&P 500: 123 Dividend Increases to Just Two Decreases
Posted by Eddy Elfenbein on May 20th, 2010 at 3:30 pm

At the end of last year, I was asked to participate in Bespoke’s Roundtable Q&A. This was one of the questions:

What do you believe will be the dominant investing themes of 2010? What will be the biggest surprises of 2010?
Not a major theme, but I expect a new-found love for dividends. A company like GE could easily raise its dividend by 50%. I doubt many money managers will beat the SDY in 2010.

Dow Jones reports today:

Standard & Poor’s analyst Howard Silverblatt said that, in total, there have been 123 increases this year for S&P 500 companies, and just two decreases, compared with last year’s dismal environment when there were 79 increases and 63 decreases. Total dividend payments have grown by more than $9.2 billion this year, compared with a $37 billion drop last year.
“We are seeing a lot of increases,” Silverblatt said. The moves include “a lot of companies that normally increase and those that increase every couple of years, which is a good sign,” he noted.
But Silverblatt also said there are many companies that are still hesitant, in the face of economic uncertainty, to part with precious cash. European concerns have plagued the stock market in recent weeks and were managing to keep every one of the companies that raised their payouts in the past two days in the red on Thursday, likely making some wary.
And the tax rates on dividends are scheduled to climb sharply starting in 2011, making share buybacks or other alternative cash uses more attractive for some companies.
“They are waiting for actual, in-my-pocket, decent orders of my widgets,” Silverblatt said, “as opposed to just reading how great everything is in the newspaper.”

A Little Perspective
Posted by Eddy Elfenbein on May 20th, 2010 at 2:57 pm

You know how the markets are crashing today? Well, let’s take a small step back:

Sector Groups This Afternoon
Posted by Eddy Elfenbein on May 20th, 2010 at 2:23 pm

Here’s how the different industry group ETFs are performing as of this afternoon:
Healthcare -2.33%
Staples -2.34%
Utilities -2.35%
Technology -2.68%
Discretionaires -3.21%
Financials -3.48%
Materials -3.57%
Industrials -3.76%
Energy -3.92%
Notice how closely bunched the three major defensive groups are (utes, healthcare and staples). Also, the bottom three are the major cyclical groups (materials, industrials and energy).

Attention Income Investors
Posted by Eddy Elfenbein on May 20th, 2010 at 2:21 pm

Reynolds American (RAI) now yield 6.9%. I know Europeans like to smoke, but sheesh! Remember this is a company that recently beat expectations. There’s no value trap here.

The VIX Spikes Over 42
Posted by Eddy Elfenbein on May 20th, 2010 at 10:30 am

The Volatility Index (^VIX) is currently over 42 which is close to where it was two weeks ago during the Flash Crash. Two items are coming tomorrow. One is that it’s options expiration. The other is that the Germans are due to vote on the EU bailout. The good news is that the Buy List is holding up much better than the rest of the market.

Hold on Tight!
Posted by Eddy Elfenbein on May 20th, 2010 at 9:42 am

We’re getting very close to our Flash Crash low of 1065. Of the 500 stocks in the S&P 500, 490 are lower today. Once again, it’s the cyclicals that are doing the worst.

Yesterday’s Strategy Session
Posted by Eddy Elfenbein on May 19th, 2010 at 1:43 pm

I want to thank Charles Kirk for bringing me on yesterday’s Strategy Session. In case you missed it, here it is. I also wanted to thank all the participants. It was a lot of fun!

Core Inflation at 44-Year Low
Posted by Eddy Elfenbein on May 19th, 2010 at 12:12 pm

Today’s consumer inflation report showed that year-over-year core inflation (which excludes food and energy prices) reached a 44-year low. Over the past 12 months, core prices rose by just 0.92%.

This report also broke a string of 171 straight months where the core CPI came in between 1% and 3%.

S&P 500 Nears 200-DMA
Posted by Eddy Elfenbein on May 19th, 2010 at 11:50 am

The S&P 500 is close to its 200-day moving average. This is simply the average of the last 200 trading days.

I’ve mentioned that I’m not a terribly big fan of technical analysis. One exception is the 200DMA because it has a pretty decent track record. Here’s what I wrote last year.

So does the 200DMA work? The evidence suggests that it’s a pretty good indicator of future price performance. When the S&P 500 has been below the 200DMA, it’s dropped a total of about 20% over the equivalent of 27 years. In other words, the S&P 500 has been below its 200DMA about one-third of the time.
Historically, the best time to invest has been when the S&P is less than 1.7% below the 200DMA.
When the index is above the 200DMA, well, then everything looks much brighter. All of the market’s gain and then some have happen when we’re above the 200DMA which occurs about two-thirds of the time.
The market seems to like nearly every point of being above the 200DMA. Danger only clicks in when the S&P 500 is over 17.5% above the 200DMA which is a very high reading.

I think the 200DMA moving average is a good example of a dumb rule that works for smart reasons. The key is that it understands that the market is a trend-friendly data series. Once things start moving in one direction, they tend to keep moving.