Some traders see the makings of a ‘melt-up,’ or surge from record levels
Analysts see a shift in how investors are valuing stocks that supports the case for further gains from current market levels. Above, the New York Stock Exchange.Photo: Victor J. Blue/Bloomberg News
A troika of stock indexes hit records in tandem for the first time since 1999. The question is whether the party is just getting started.
On Thursday, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all rose to highs on the same day, an alignment that hasn’t occurred since Dec. 31, 1999. The records punctuate a march that defies stocks’ sharp downdraft at the year’s start. The ratio of stocks that trade on the New York Stock Exchange and the Nasdaq hitting 52-week highs versus 52-week lows recently surged to its highest level in years.
“The last time we’ve seen levels like this consistently was in 2013, which went on to be one of the best years for stocks,” said Frank Cappelleri, executive director of institutional equities at Instinet LLC. In 2013, the S&P 500 rose 30%.
After breaking all-time highs, the stock market has been on a bit of a losing streak lately.
The Dow Jones Industrial Average has declined in eight of the past nine days, including the past seven days straight. The index has only given back 1.5% in that time, but the consistent downward moves do not portend good things on the horizon.
According to Tom Leveroni of Nautilus Investment Research, this is the 10th time since the start of the 20th century that the Dow has had such a downward streak, and it historically has had negative connotations.
“Asterisk aside, this pattern has not been good historically,” Leveroni wrote in a note to clients Wednesday morning. “The Dow closed lower 1 month and 1 year later in 6 of the 9 occurrences since 1900 with 5 signals precisely marking cyclical tops (1901, 1919, 1966, 1976 and 1987).”
The historical average loss for the Dow after an eight-for-nine-day losing streak over the last nine times was 0.94% in the next week, a loss of 4.42% over the next three months, and a 6.39% loss over the next six months. The worst such loss was a 31.06% drop after a signal on November 14, 1919.
Leveroni, however, also believes in the contrarian’s constant refrain: This time it’s different.
After the stock market crash of 2008, Bollen analyzed nearly 10 million tweets from that year. He found that when the level of panic rose on Twitter, the Dow would drop three or four days later.
The fate of the global economy is in doubt today following the United Kingdom’s decision to exit the European Union. Last night the British pound fell to a 30-year low. Prime Minister David Cameron is resigning. Mark Carney, governor of the Bank of England, called the referendum “the most significant, near-term domestic risk to financial stability.” This morning, within the first five minutes of trading, the Dow fell more than 500 points.
But long before all the votes were tallied—and years before officials finish negotiating the terms of the UK’s departure—Twitter had reached a consenus on the Brexit: This is a disaster.
And the consequences may well be that bad. Uncertainty has never been a friend to global markets, and uncertainty is just what Brexit creates in heaps, particularly for the British economy. But like never before, social media has the ability to amplify the angst that uncertainty creates. And the markets may well be responding to that enhanced anxiety.
There is a very real phenomenon of so-called ‘mood contagion’ that happens online.
To be clear, the social media masses aren’t the only ones predicting economic doom as a result of the Brexit. In an op-ed unsubtly headlined “The Brexit crash will make all of you poorer—be warned,” billionaire George Soros argued that a plunging British pound would make the country far more vulnerable to an economic crash than it was at the time of the global recession in 2008.
The markets are certainly responding to such admonitions. But mounting research shows that a feedback loop does exist between social media and the stock markets, in which online anxieties about the market’s response may feed into the response itself.
Market participants await U.S. jobs report
Global stocks followed Japan lower at the start of the second quarter, as investors looked ahead to the U.S. jobs report due later in the day.
The Stoxx Europe 600 fell 1.3% in morning trade on Friday after stocks in Japan suffered their steepest drop in a month.
Futures pointed to a 0.2% opening loss for the S&P 500. Changes in futures do not necessarily reflect market moves after the opening bell.
A Bank of Japan survey published on Friday showed business confidence fell to its lowest in three years, amid soft external demand and a stronger yen, despite aggressive easing measures by the country’s central bank.
Tokyo stocks fell sharply after a closely watched survey of Japanese businesses showed that confidence had declined.. Photo: Associated Press
Japan’s Nikkei Stock Average ended 3.6% lower, spurring losses in Asia and overseas. Some investors compared the soft start to the quarter to the first trading day of the year, when soft economic data from China sparked steep losses in global markets.
“It’s a bit like coming in at the start of January and seeing the selloff all over again,” said William Hamlyn, investment analyst at Manulife Asset Management. What’s different this time, however, is that there’s been quite a good rally recently, the tone from emerging markets has improved, and the Federal Reserve has signalled a much slower path for raising U.S. interest rates, he said.
Investors were also looking ahead to the U.S. jobs report due later in the day. Economists expect a rise in nonfarm payrolls of 213,000 and the unemployment rate to hold at 4.9%.
Analysts said the report would have to come in significantly above expectations to lift the dollar, following Federal Reserve Chairwoman Janet Yellen’s soft tone on U.S. interest rates this week.
A Public Service Enterprise Group plant outside Trenton, New Jersey. The utility’s stock is up almost 10% so far this year. PHOTO: ROBERT BARNES/GETTY IMAGES
Suddenly, boring is beautiful in the stock market.
As investors lick their wounds from early-year troubles and search for some stability in their portfolios, they are dumping shares in fast-expanding industries such as technology and turning to companies paying hefty dividends.
This year, stocks in the S&P High Yield Dividend Aristocrats Index—companies in the S&P Composite 1500 that have increased their dividends every year for at least 20 years—are up 1.91%, including dividends, compared with a negative total return of 4.3% for the S&P 500 index. The total return on the Dow Jones U.S. Dividend 100 Index, composed of stocks that offer consistent, high payouts, is negative 0.8%.
It is the latest sign of changing times in the markets, with income-generating investments suddenly warranting a premium, in contrast with the trend that held from 2009 to last year, when dividend stocks lagged behind a broad market rally.
Global market turmoil has upended Japan’s finely tuned plan for recovery, sending the country’s top economic advisers scrambling for ways to cope.
Source: Market Meltdown Threatens Japan’s Economic-Revival Plan – WSJ
Investors around the world fled stocks and piled into havens Thursday as a cautious tone from the Federal Reserve, a resumption of the slide in bank shares and a fresh fall in oil prices fueled anxiety about the global economy.
The Dow Jones Industrial Average declined 250 points, or 1.6%, to 15665 shortly after the open. The S&P 500 dropped 1.5%, and the Nasdaq Composite slipped 1.3%.
As investors sought safety, U.S. government bonds, the yen and gold surged. The yield on the 10-year Treasury note dropped to 1.588% from 1.706% on Wednesday. The record closing low is 1.404% in July 2012. Gold futures gained 3.6% to $1237.90 an ounce, and the dollar fell 0.7% against the yen to ¥112.60.
U.S. crude oil declined 2.2% to $26.84.
The Stoxx Europe 600 fell 2.9%. Banking and mining shares dropped, while the U.K.’s FTSE 100 index was on track for its lowest close since 2012. Investors also shed stocks in Asia.
U.S. stock-futures trading volumes were high but haven’t yet surged to levels hit last summer. “We just haven’t seen the panic…’get me out at any price’ trading,” said John Brady, managing director at futures brokerage RJ O’Brien. “That says to us that we have further to go.”
Investors were nervous after Federal Reserve Chairwoman Janet Yellen on Wednesday highlighted risks to growth and inflation, but delivered a less dovish tone on interest rates than many investors had hoped for. Ultralow interest rates boosted asset prices for several years.
Bloomberg TV — David Bianco.
“We expect the next 5%+ S&P price move to be up and soon.”
That’s the gutsy call Deutsche Bank’s chief US equity strategist, David Bianco, made in a note to clients on Monday. It follows what’s been the worst-ever start to the year for the stock market, which has seen the S&P 500 plunge 8% in just two weeks.
“We are not panicked by this correction because we understand it,” he said. “It’s driven by a profit recession centered at certain industries caused by factors that we’ve long flagged as risks with detailed research and quantified sensitivities.”
Bianco’s no stranger to making contrarian buy calls when stock prices are tumbling. As the market was correcting during fall 2011, he cranked up his target for stocks and told clients to buy, drawing all sorts of nasty criticism. His call was later proved right.
In recent years, he’s been one of the most cautious strategists on Wall Street. He’s been vocal about the problems with corporate profits. And he’s been outright bearishabout the market’s near-term expectations for energy-sector profits. With his note on Monday, he joins his peers who have been slashing their outlooks for earnings.
Xiao Gang blames volatility on immature market, inexperienced investors, flawed mechanisms and inappropriate supervision
China Securities Regulatory Commission Chairman Xiao Gang in Hong Kong in January 2015. Photo: Reuters
What’s wrong with China’s stock market?
Just about everything, according to a statement from Xiao Gang, the country’s chief securities regulator, delivered at a national meeting of Chinese securities officials and posted on his agency’s website Saturday.
In the statement, Mr. Xiao defended his handling of successive market meltdowns, blaming the “abnormal volatility” on “an immature market, inexperienced investors, imperfect trading system, flawed market mechanisms and inappropriate supervision systems.”
The turmoil in China’s stock market—which on Friday entered “bear” territory of 20% below its recent peak—has cast a harsh light on the performance of Mr. Xiao, 57, a former central banker and chairman of the Bank of China before he was appointed chairman of the China Securities Regulatory Commission in 2013.
During the summer, when Chinese stocks tumbled more than 40%, Mr. Xiao oversaw a slew of measures to prop up the market that many investors criticized as heavy-handed and interventionist. Those ranged from banning certain kinds of short selling and share sales to approving the purchase of hundreds of billions of yuan in equities by government-affiliated funds.
Two weeks ago, Mr. Xiao was forced to abandon a circuit-breaker mechanism he’d championed as a way to halt big trading swings, when it instead ended up fanning panic selling.
Oil prices fall again as investors remain nervous over Chinese regulators’ plans
China’s benchmark Shanghai stock index closed down 5.3% as investors continued to worry over the state of the world’s second-largest economy. Photo: Agence France-Presse/Getty Images
Global stocks were off to a shaky start Monday as intensifying fears about the Chinese economy continued to hit risky assets, building on a bruising first week of the year.
The Shanghai Composite Index fell 5.3% amid deepening concerns that Chinese authorities would be unable to stem the turmoil in its financial markets and broader economy.
Nervousness around China also sent markets in Asia lower across the board as the price of oil tumbled anew. European stocks were little changed.
Chinese officials haven’t adequately explained to investors the reasons behind the decisions to allow their currency to decline in recent days, said Dirk Thiels, head of investment strategy at KBC Asset Management. “It only increases suspicion that maybe something worse is going on [in China’s economy] than people are expecting,” he said, adding that, personally, he doesn’t believe this to be the case.
The Stoxx Europe 600 was flat in early trade after falling 6.7% last week.
Despite a strong U.S. jobs report and relatively upbeat economic releases from Europe last week, “It is difficult to envision a bright outlook for the global economy amid a steeper deceleration in China and lack of aggressive policy response,” strategists at Barclays wrote in a note.
Rapid weakening of China’s currency and volatility in its stock markets last week sparked turmoil in global markets, sending the Dow Industrials down over 1,000 points in the worst-ever opening week for U.S. stocks.
While a weaker currency should support Chinese exports, investors worry that rapid downward adjustments to the yuan could spark a global currency war. More volatility could hit financial markets if investors take the news as a sign that the world’s second-largest economy is slowing faster than expected.