Recoveries Don't Get Much Weaker Than This

While some investors and economists were surprised by this morning's weaker than expected GDP report for Q4 2011, it was really just par for the course.  Since the recession ended in June 2009, we have consistently seen growth rates that were weaker than estimated.  What's even more noteworthy is that for each of the ten quarters so far in this recovery, quarterly GDP growth for the US economy has been below the median post WWII growth rate every single quarter.  Historically speaking, the US economy has typically shown growth of 3.0% during the 10th quarter of a recovery/expansion.  Based on this morning's Q4 GDP report, though, growth in the most recent quarter was only 2.8%.

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Key Earnings Reports Next Week

From our Interactive Earnings Season Calendar over at Bespoke Premium, below is a list of the key companies set to report next week.  While most of the big names are out of the way, there are actual a higher number of companies reporting next week than we saw this week.  For each of the companies below, along with its report date, we also highlight the percentage of the time it has beaten earnings estimates since 2004 as well as its average one-day change in response to its reports.

2012 Country Stock Market Performance

Below is a table highlighting the year to date stock market returns for 78 countries around the world.  Of the 78 countries shown, 59 (75%) are in the black for the year, while 19 are in the red.  Twelve countries have posted double digit gains already in 2012, with Argentina leading the way at 18.11%.  Russia ranks second with a gain of 13.70%, followed by Hungary in third and Greece (yes, Greece) in fourth. 

The US currently ranks 33rd on the list with a gain of 4.73% year to date.  The US ranks fourth among G7 countries behind Germany (10.88%), Italy (6.77%) and France (6.44%).  The UK has been the worst performing G7 country so far in 2012 with a gain of 4%.

Last year the BRICs were significant underperformers versus the rest of the world, but they've bounced back so far in 2012.  As mentioned above, Russia is up 13.70% year to date, which is the best of the BRICs.  Brazil ranks second with a gain of 10.92%, India isn't far behind at 10.50%, and China ranks fourth with a gain of 5.44%. 

 

Sector Earnings Season Analysis

On Monday, we highlighted fourth quarter earnings season stats as they stood two weeks into the reporting period.  We didn’t break the stats out by sector in that report, so that’s what we have done in this report.  Since Monday’s report, an additional 250+ companies have reported, so there is a much larger sample size to analyze.

Of the 373 companies that have now reported, just 56.6% have beaten earnings estimates, which is two full percentage points lower than the already very low number that was in place earlier this week.  We haven’t had a beat rate below 55% since the first quarter of 2001, but it looks like there’s a real shot for that to happen this quarter.  The average stock that has reported has averaged...

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The $2 Billion Man: Ron Johnson

With a gain of 17.3% so far today, shares of JC Penney (JCP) are currently on pace to have their third best day since at least 1980.  The best day since 1980 for the company was in October 2000, while the second best day was on 6/14/11, when the company announced that Ron Johnson would become the company's CEO.  If the stock closes above $40.32, today will go down as the best day for the stock since 1980.

Looking at the performance of JCP since last June, one could argue that making Ron Johnson CEO was one of the best moves the company has ever made.  Since he was announced as the new CEO, the stock has rallied by more than 30% (S&P 500 up 4%).  In terms of market cap, this translates to more than $2 billion.

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Bearish Sentiment Drops Below 20%

The weekly sentiment survey from the American Association of Individual Investors (AAII) showed that bullish sentiment rose to 48.4% from 47.2%.  On the other end of the spectrum, bearish sentiment dropped to 18.9% from 23.6%.  While this week's drop in bearish sentiment looks like a large shift, we would note that it doesn't even erase the 6.4 percentage point rise we saw in the prior week.  That being said, there have only been four other weeks since the start of 2006 where bearish sentiment was lower than it is now.  Two of them were this month, and the other two were in December 2010 and January 2011.

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After Hours vs. the Trading Day

Over the last 50 days, the S&P 500 tracking SPY ETF is up more than 6%.  But traders don't have the trading day to thank for that.  It's outside of normal trading hours where all of the gains have occurred. 

The SPY has averaged a gain of 0.20% in after hours trading (from the prior close to the next morning's open) over the last 50 days.  Over this same time period, the ETF has averaged a decline of 0.06% during regular trading hours (from the open to the close).

Below is a chart showing the rolling 50-day average gap (prior close to next morning's open) for SPY as well as its rolling 50-day average open to close change since the start of 2011.  From January through October of last year, the market was mostly moving in the same direction outside of regular trading hours as it was during regular trading hours.  Since then we've seen some big shifts in these performance numbers.  Over the last couple of months, the market has averaged gains in after hours trading and losses during the trading day.  Who knows how much we'd be up if the market was actually gaining when it was open for trading.

Gold Breaks Downtrend

Yesterday, it was the 50-day moving average, and now today the price of gold is on pace to break the downtrend that has been in place since its record highs late last Summer.  If the price of gold closes up more than 1% today, it will be the first time it has had back to back 1% increases since early November.

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S&P 500 Sector Percentage of Stocks Above 50-Day Moving Average

As shown in the chart below, 86% of the stocks in the S&P 500 are currently trading above their 50-day moving averages.  While high, this reading isn't quite to the level it got up to back in late October, even though the index itself has since surpassed its October highs.

Financials, Industrials and Materials have the highest breadth readings of the ten S&P 500 sectors.  At least 95% of the stocks in all three sectors are above their 50-days.  Technology and both consumer sectors are in the middle of the pack with readings in the 80s, while Energy, Utilities and Telecom have the weakest readings. 

Is the Superbowl the Biggest Obstacle Now Facing the Market?

While the above title is only in jest, we'll take any excuse to talk about football.  The winner of this year's Super Bowl match-up between the New York Giants and the New England Patriots will move into a tie for fourth place with the Green Bay Packers for the most Super Bowl victories at four.  Unfortunately for bulls, based on prior years when the Giants or Pats won the Super Bowl, the average performance of the S&P 500 from the day of the Super Bowl through year end is nothing to write home about.

The table below highlights the percent change of the S&P 500 from the Super Bowl (SB) through year end in years when the Giants won the Super Bowl and years when the Patriots won the game.  In the three years when the Giants won it all, the S&P 500 averaged a decline of 6.6% from the day of the game through year end with two years of declines (1987 and 2008) and one year of gains (1991).  When the Patriots have won the Super Bowl, the results are not much better.  Of their three victories, the S&P 500 declined through year end once and rose twice for an average decline of 3.6%.

While neither the Giants nor the Patriots give bulls much to get excited about in terms of how the stock market performs, based on their respective conferences, bulls should be rooting for the Giants.  As shown at the bottom of the table, in the 24 years when the NFC won the Super Bowl, the S&P 500 has averaged a gain of 10.64% with positive returns 79% of the time.  In the 21 years when the AFC has won, though, the S&P 500 has averaged a gain of only 3.44% with positive returns 62% of the time.

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Analysts Start Out The Year on the Wrong Side of the Bed

While stocks are off to their best start to a year in 25 years, don't tell the analysts that.  While investors and analysts usually start out the year with an optimistic attitude, this year it seems that analysts have gotten up on the wrong side of the bed.  The chart below shows the net number of analyst upgrades (upgrades minus downgrades) for each trading day of 2012.  So far this year, there hasn't been a single day where analysts collectively upgraded more stocks than they downgraded.  Somebody get these people some ice cream, or whatever else it will take to cheer them up.

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The Most Overbought S&P 500 Stocks and the 50 Best Year to Date

Below are the 36 S&P 500 stocks that are currently trading more than 15% above their 50-day moving averages.  That's a very high number and is indicative of how overbought the market has become.  Based on how stocks are trading after hours following the Apple news, it looks like even more stocks could become overbought at the open of trading tomorrow. 

As shown, Micron (MU) is the farthest above its 50-day of any stock in the S&P 500 at +26.69%.  Bank of America (BAC) is the second most overbought at 25.74% above its 50-day, followed by Genworth Financial (GNW), JDS Uniphase (JDSU) and Novellus (NVLS). 

The average stock in the S&P 500 is currently up 5.5% year to date.  Below are the 50 best performing S&P 500 stocks so far in 2012.  As shown, Sears Holdings (SHLD) ranks first with a gain of 44.24% followed by Netflix (NFLX) in second at 33.74%.  Bank of America (BAC) and JDS Uniphase (JDSU) rank third and fourth and are the only other two stocks that are up more than 30% year to date.  Other notables on the list of 2012's winners include Pulte (PHM), Goldman Sachs (GS), Morgan Stanley (MS) and Ford (F).

We have also included each stock's 2011 change as well.  As shown, just two of the fifty best performing stocks so far this year were also up in 2011.  In fact, the average stock on the list below was down 25.5% in 2011.  At this point in the year, 2011's pain has been 2012's gain!

Zynga (ZNGA) Nearing IPO Price

Don't look now but shares of Zynga (ZNGA) just traded to their highest levels since the day the company went public.  After pricing at $10 per share, shares of ZNGA reached as high as $11.50 per share on the day it went public (12/16) but then quickly gave up all of its gains and traded as low as $7.97 in early January.  While the IPO of ZNGA was originally thought of as a lousy deal for investors, anyone who bought the stock the day after it opened for trading is showing a profit on the position, which is more than investors in a lot of other social networking IPOs like GRPN and LNKD can say.

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Bespoke's 2012 Market Outlook Piece -- The Bespoke Report

Last Friday, we published our 5th annual 2012 market outlook piece -- The Bespoke Report.  No market topics are left uncovered.  To read the Introduction to the report, click the image below.  To gain access to the full report, simply sign up for any of our Bespoke memberships today.  The Bespoke Basic monthly subscription for just $40 will give you access to the Bespoke Report as well as our daily Trade of the Day and Week in Review newsletter that is published each Friday.  

Fourth Quarter Earnings and Revenue Beat Rates

While the current earnings season is still young, numbers versus expectations have been weak for both the bottom and top line. 

As shown in the charts below, 58.5% of companies have beaten earnings estimates so far this season, while 57% have beaten revenue estimates.  The earnings beat rate had picked up on a quarter-over-quarter basis in the prior two reporting periods, but this season it has dropped back down to a new bull market low.  The revenue beat rate saw its lowest reading of the bull market last earnings season, but it is making a lower low once again this season. 

There's still a lot of time left, but these numbers actually tend to drift lower and not higher as earnings season progresses.

So why has the market done so well this earnings season even though "beat rates" have been weak?  We just published a B.I.G. Tips report over at Bespoke Premium that answers this question.  Click here to view the report if you're already a member.  Or click here to become a member today!