Friday
Sep122014

S&P 500 Higher or Lower from Here?

The S&P 500 pulled back from all-time highs this week and failed to hold above the 2,000 level.  But which way will the market head from here?   Please take part in our Bespoke Market Poll below by letting us know whether you think the S&P 500 will be higher or lower one month from now.  We'll report back with the results on Monday before the open.  Thanks for participating and have a great weekend!

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Will the S&P 500 be higher or lower than its current level one month from now?
Higher
Lower
  
Free polls from Pollhost.com

Friday
Sep122014

Most Heavily Shorted Stocks Getting Hit Hard

Short interest figures for the end of August were released after the close on Wednesday, and with that release we sent out our semi-monthly update of short interest trends for the S&P 1500 to clients yesterday.  One table in the report looked at stocks in the index that have more than 25% of their float sold short and how they have performed so far this month.  One useful aspect of this list is that the performance of these stocks usually provides a good barometer of investor sentiment.  When the most heavily shorted stocks rally, it is a sign that investors are more willing to hold riskier stocks which is good for the overall market.  Meanwhile, when these stocks are underperforming the overall market by a wide margin, it is a sign that investors are increasingly risk averse, which at the margin is negative for equities.

So far this month, the most heavily shorted stocks are doing poorly on both an absolute and relative basis.  While the S&P 1500 is down 0.98% the average return of these 29 stocks is nearly two and a half times worse at negative 2.41%.  Furthermore, while there are some big losers that have dragged the average return lower, the breadth of this list is extremely negative.  Of the 29 stocks listed, just ten are up so far in September.  The biggest loser on the list by far this month is GT Advanced Technologies (GTAT).  Following news that the new iPhone screens will not have the company's Sapphire glass, the stock has been in a free fall and is down 28% this month.  After GTAT, the two next worst performing stocks listed are AK Steel (AKS) and Penn Virginia (PVA), which are down 16% and 10%, respectively.

While this list has more than its fair share of losers, there have also been some big winners.  The biggest winner on the list is Conversant (CNVR), which is up big today on news that it will be bought by Alliance Data Systems (ADS) for $35 per share in cash and stock.  Regular readers may remember that we highlighted this stock in a recent CNBC Fast Money interview where we said it was an attractive takeover candidate.  So far in September shares of CNVR are up over 26%.  The next best performing stock on the list of most heavily shorted stocks is Albany Molecular Research (AMRI), which is up just under 10% in September (and coincidentally was positively mentioned in that same interview).  Outside of those two companies, only one other stock (Tuesday Morning: TUES) on the list is up more than 5% this month.

Friday
Sep122014

Prices at the Pump Drop to Lowest Level Since February

In today's retail sales report for the month of August, only two of the thirteen sectors tracked (Gas Stations and General Merchandise) saw month over month declines in sales.  The largest decline was in Gas Stations where sales fell by 0.8%.  When it comes to retail sales, if there is a category where sales declines are a good thing, it is at gas stations.  That is because any sales decline is typically the result of lower gas prices, which leaves more money in the pockets of consumers for other items.

As the chart below shows, the recent drop in retail sales is all due to lower gas prices.  Since its peak in April, the national average price of a gallon of gas (according to AAA) has fallen by nearly 8% from $3.70 down to $3.41.  This is the lowest price since February 22nd.  Additionally, the last time a gallon of gas was less than it is now on this day of the year was in 2010.

To illustrate just how low gas prices currently are for this time of a year.  The chart below compares the YTD percentage change in the national average price of a gallon of gas in 2014 (red line) to a composite of the average YTD change for all years since 2005 (blue line).  Following the recent declines we have seen, prices at the pump are up 2.7% so far in 2014 compared to an average of 25.33% at this point in the year for all years since 2005.  The only other year where the average price was up less at this point in the year was 2010.  As long as this trend continues, you can bet that consumers will be feeling a bit more flush heading into the fourth quarter.

Thursday
Sep112014

Jobless Claims Rise More Than Expected

Initial jobless claims rose more than expected this week, rising to 315K versus expectations of 300K, and up 11K from last week's revised reading of 304K.  Jobless claims have been an optimistic data series for the last several months, but after this week's increase they are suddenly up 36K from their July low of 279K.  This isn't necessarily a major move to the upside, but it is moving in the wrong direction.

Although this week's jobless claims reading was the highest weekly reading since June, the four-week moving average rose by less than one thousand, rising from 303.25K up to 304K.  For the next two weeks, we will be dropping sub 300K readings from the four-week moving average, so unless the weekly numbers improve the rate of increase in this indicator will pick up.

On a non-seasonally adjusted basis (NSA), initial jobless claims dropped by 15.4K to 234.4K.  While this was the lowest NSA weekly reading of the year, we typically see relatively low levels of claims at this time of year as schools are back in session.  For the current week of the year, however, NSA claims were actually lower last year (229.6K) than they were this year, so even on this front claims are showing some deterioration.  Relative to the longer term average since 2000 (305.9K), though, NSA claims are still well below average.

Thursday
Sep112014

Bullish Sentiment Retreats

After a few shaky days for equities, the sentiment of individual investors took a slight turn for the worse this week.  According to the weekly survey of sentiment from the American Association of Individual Investors (AAII), bullish sentiment dropped from 44.67% down to 40.38%, while bearish sentiment ticked just under three percentage points higher, rising from 23.96% up to 26.6%.  Perhaps the most notable aspect of this week's survey, though, was the fact that even after the decline in bullish sentiment, it still remains above its average of 38.3% for the current bull market.  This is the fifth straight week that bullish sentiment has been above average, which is the longest streak since the week ending March 13th.

Wednesday
Sep102014

GoPro (GPRO) Powers Bloomberg IPO Index to 2014 Highs

In case you haven't noticed, the high-def, indestructible camera maker GoPro (GPRO) has been on fire since it IPOd back on June 25th, and it has gone parabolic since late August.  The stock gained another $4.28 today to push it up to $68.47/share, which is up 185% from its IPO price of $24.

The move for GoPro (GPRO) has helped the Bloomberg IPO index (which is an index containing companies that have gone public over the last year) break out to 2014 highs after really struggling during the March to May pullback in momentum/growth names.  As shown below, the Bloomberg IPO index dipped a bit in the first month after GPRO's late June IPO, but it has surged since August and is now up just under 5% year-to-date.  It's still underperforming the S&P 500 this year, but if GPRO and other recent IPOs continue their runs, it won't be long before it surpasses the S&P.  That's a big if, though.  Runs like GPRO's don't last forever.  The stock will slow down this parabolic pace at some point in the near term.

For those interested, below is a look at the top performing stocks in the Bloomberg IPO index over the last month.  GoPro (GPRO) tops the list with a one-month gain of 81.86%, followed by ARGS, TRUE and AGRX.  You'll notice Twitter (TWTR) is also on the list of big winners over the last month with a gain of 22.63%.

Wednesday
Sep102014

Apple (AAPL) Back Above the $600 Billion Mark; Two Tech Stocks Creep Up on Exxon Mobil

Below is an updated look at the rankings for the largest public companies in the US.  After moving back above the $100/share level today, Apple (AAPL) is back over the $600 billion mark as well.  This puts it nearly $180 billion larger than Exxon Mobil (XOM), the next largest company in the US.  The difference in market cap between Apple and Exxon is equivalent to the size of AT&T, the 19th largest company in the country!  

Exxon is still valued at more than $400 billion, but it's getting close to losing its number 2 status to two Tech behemoths.  As shown below, Google (GOOGL) is now valued at $397 billion, just $15 billion less than XOM.  And don't sleep on Microsoft (MSFT) either.  MSFT has surged in 2014, adding $74 billion in market cap to put it at $386.4 billion.  

Berkshire Hathaway (BRK/B) rounds out the top five with a market cap of $339.5 billion.  No other companies are worth more than $300 billion, but Johnson & Johnson (JNJ) is close at $296 bln.  

Along with Microsoft (MSFT), other companies that have added significantly to their market caps this year include Facebook (FB) -- up $62 billion, Verizon (VZ) -- up $60 billion, Gilead Sciences (GILD) -- up $47.5 billion, and Intel (INTC) -- up $44 billion.  Some of the big losers along with XOM include General Electric (GE) -- down $22.7 billion, and Amazon.com (AMZN) -- down $29 billion.  Coming into the year, Amazon.com was the 16th largest company in the US, but declines in the stock have left it outside the top 25.

Wednesday
Sep102014

Average Stock Declines From 52-Week Highs

The S&P 500 may have closed at an all-time high just three days ago, but some may be surprised by the fact that the average stock in the S&P 500 is down 7.5% from its own 52-week high.  While that may sound startling at first, keep in mind that the index is made up of 500 stocks, and while most stocks typically move in the same direction, different areas of the market fall in and out of favor at different times, even as the overall trend is higher.

The table at right breaks down the average percentage that stocks are trading from their 52-week highs by size.  While large cap stocks in the S&P 500 are down 7.5%, mid and small cap stocks are having an even rougher go of things.  In the S&P 400 Mid Cap index, the average stock is down 11.1%, while the average small cap stock in the S&P 600 is down 17.3%.  For this area of the market, the average stock isn't far from bear market territory!  Overall, the average stock in the S&P 1500 is down 12.4%.

Looking at average declines by sector also shows a varied picture.  For the entire S&P 1500 (large, mid, and small cap), Utilities (-6.6%) and Financials (-8.6%) are the only sectors where the average stock is not down more than 10% from its 52-week high.  We mentioned that certain areas of the market tend to fall in and out of favor, and one sector that has definitely fallen out of favor is Energy.  Stocks in the Energy sector are currently down an average of 19.7% from their 52-week highs.  The only other sector that is even close is Telecom Services (-17.3%), but with only 15 stocks in the sector (compared to 96 in the Energy sector) it has little overall impact on the market.  With both small caps and Energy stocks trading the furthest below their 52-week highs, you can imagine that small cap stocks in the Energy sector would be underperforming, and that would be an understatement as stocks that fit this criteria are down just under 30% (29.4%) from their 52-week highs.  Bull market?  Not if you're overweight Energy.


Wednesday
Sep102014

Long Term Economic Growth

While it's not always the best indicator of what's going to happen in the future, it can be helpful to look at what long-term trends in growth tell us about how the global economy has developed over time.  Using a data set put together by the Maddison Project, we are able to see some interesting trends over the long arc of economic history and across countries.  The chart below shows the per capita GDP for a variety of countries over time, experessed in 1990 dollars.

Towards the end of the 19th century, the political power of the British empire started to decline, and with it the advantages for British subjects in the UK and Australia; these two started as the two most productive nations but had to play defense over the intervening period as other nations' growth rates caught up.  Central American countries have also had an interesting path.  While Venezuela started at a very low level of GDP, it was able to move up the ranks to number two in this sample by the late 1950s.  But since then, political decisions have hampered growth, and the nation now trails significantly.  Argentina was also a very productive society in the 1910s; unscathed by World War I, Argentines were the 4th most productive in the above sample by the time the Roaring Twenties kicked off.  But the Great Depression destroyed Argentina's open economy, and political issues in the 1970s again trashed growth.  Overall, the most glaring country on this chart is the United States, which has been able to grow from a relatively high base in 1870 to a drastically more productive economy than its peers.  Most of that outperformance accrued around World War II, but it's continued throughout the last 70 years.

Overall, prosperity today is relatively dependent on where prosperity sat in 1870.  The chart below compares 1870 and 2010 per capita GDP (again, constant 1990 dollars) for an even broader set of countries than the first chart.  While the US has grown faster than its initial starting point would suggest (as have Nordic countries and Canada), many of today's emerging markets have underperformed versus their starting base, as has New Zealand and to an extent the UK.

Interested in international markets or unique economic analysis like this? For actionable insights, try out Bespoke Premium today.  Every subscription includes a five day free trial.

 

Wednesday
Sep102014

25% of Bespoke Readers Plan to Buy the Apple Watch

Yesterday afternoon after the unveiling of the new Apple Watch, we asked readers whether they plan to purchase one or not within the next year.  As shown below, 25% of respondents answered "Yes", which seems like a pretty high number considering that the question was asked to all consumers, not just iPhone owners (the Apple Watch needs to be used alongside an iPhone).  It looks like Apple will have a pretty large baseline number of Watch buyers when the product is released early next year given that a quarter of our respondents plan to buy one.

Tuesday
Sep092014

Will You Buy the Apple Watch?

Apple unveiled its first new product since the iPad today with the Apple Watch.  Have a look at the product to get an idea of the various models and what it does.  (With text message pop-ups on the Watch, maybe parents will finally be able to get the phones off the table at dinner!)

The Apple Watch isn't set for release until early 2015, but we want to know if you plan to buy one or not.  Please let us know in our poll below.  We'll report back with the results shortly.  Thanks for participating!

Will you purchase the new Apple Watch within the next year?
Yes
No
Not Sure
  
Free polls from Pollhost.com

Tuesday
Sep092014

New iPhone Unveils and Apple (AAPL) Stock

After trading up as much as 4% earlier, shares of Apple (AAPL) have dipped into negative territory following the conclusion of its unveiling of the iPhone 6 and new Apple Watch.  AAPL's decline seems to be following the typical script it has followed in prior product launches, where the stock tends to sell off following the unveiling of new models of the iPhone. 

The table below summarizes the performance of AAPL, the S&P 500 Technology sector, and the S&P 500 following the unveiling of new versions of the iPhone.  For each time period, we color coded the returns from worst (red) to best (green).  For the most part, the further you get away from AAPL, the better your returns.  Over the following day, week, and month, the average return of AAPL trails the average return of the S&P 500 Technology sector, which itself underperforms the S&P 500.  The only time frame where AAPL does not have the worst return of the group is three months out, when AAPL's average return outperforms the average return of the S&P 500 Technology sector by 51 bps (2.61% vs. 2.10%).  Even still, the S&P 500's average return (+4.45%) still outperforms both.

Tuesday
Sep092014

Little Change In JOLTS

Today's Job Openings and Labor Market Turnover Survey (JOLTS), released monthly by the Bureau of Labor Statistics, showed little progress in key indicators of labor market demand since last month.  While we didn't see a noticeable deterioration for the July statistics versus June, there wasn't much to get excited about either.  Fed Chair Janet Yellen has pointed to indicators within the JOLTS report as key signals in the Federal Open Markets Committee (FOMC) assessment of labor market tightness.  The FOMC continues to stress that labor market tightness - especially indicators like long-term unemployment, the labor force participation rate, wage growth, and a variety of JOLTS statistics - is the last remaining condition for a hike in rates.  Today's report did not show any significant progress towards a best estimate of that condition.

The headline "Job Openings" number fell by a minute amount month-over-month, below Wall Street economists' expectations for a slight increase to 4.7 million.

The quit rate for private employees was unchanged versus June's report; this suggests there was no incremental improvement in terms of demand for labor that could entice current employees from quitting their jobs.  While the quit rate did not fall sequentially, it did fall versus June's print of 2.1%, which was revised down to 2.0% itself.  Excluding a "blip" move down to a 1.9% quit rate in January, the private quits have been stuck at 2.0% since August of last year; hardly a dramatic improvement.

Joining the private quit rate data in mildly disappointing territory was a tick up in the private layoffs rate from 1.3% to 1.4%.  While this data is within the sideways trend in place since December, and is still very depressed relative to recession highs, it's no reason to get incrementally more excited about the labor market.

One positive indicator we saw in the report was another tick up in the private openings rate; due to rounding, this didn't change the total openings rate, illustrating that it was a very small improvement.  The government openings rate was also unchanged month-over-month.  Excluding Census-driven distortions from 2010, the private, government and total openings rates are at highs matching the previous economic expansion; demand for labor is therefore healthy, even if that didn't lead to an increase in turnover this month.

The bottom line on today's JOLTS report: steady as she goes...the labor market continues to improve but whether it is doing so fast enough to appease the Fed's doves for a rate hike next year is still unclear.

Tuesday
Sep092014

NFIB Small Business Optimism Exceeds Forecasts

This morning's release of the NFIB's Small Business Optimism Index for August showed a modest increase from July (96.1 from 95.7) and just barely exceeded the consensus forecast of 96.0.  What makes August's reading notable is that for just the second time since the last recession, the headline index rose above its average monthly reading since 2000 (96.03).  Given that, there is still a lot of room on the upside for this index before we can say small businesses are overly optimistic.

In each month's NFIB survey, small businesses are asked what issue is their single most important problem.  The table to the right shows the breakdown of this month's responses and compares them to the last month.  Topping the list all by itself this month is Taxes.  At a level of 24%, nearly one in four small business owners cite taxes as their biggest problem, which is up from 22% last month.  After Taxes, Government Red Tape is the next biggest problem for small business owners as 19% cited this as their number one problem, which was down from 22% in July.

On the inflation front, it was encouraging to see that just 4% of small business owners cited Cost of Labor as their biggest problem, which was down from 5% last month.  With so few small business owners seeing wage pressures, it will be hard for inflation levels to tick higher.  With respect to inflation overall, just 4% cited this issue as their biggest problem which was unchanged from July.

As we do each month, the chart below compares the percentage of small business owners who cite government issues as their biggest problem (Taxes and Red Tape) with the percentage citing Poor Sales.  In this month's report, the spread between the two came in at 30 percentage points.  Going back to 2007, this is only the fifth time that the spread has been 30 or more.

Monday
Sep082014

How It Works: The ECB QE Program

Last Thursday, the ECB announced a new program of quantitative easing through commitments to buy asset backed securities (ABS) and covered bonds.  The central bank also announced further rate cuts, which caught most of the market by surprise.  These programs, in addition to the first round of rate cuts and expanded Long Term Refinancing Operations (LTROs) announced in June, are designed to get money flowing through the Eurozone economy faster and expand access to credit.  The markets loved the measures as they were announced: European equities had a monster day, while the EUR declined by over 1.5% versus the USD.  

When combined with LTROs, the long-term lending to Eurozone banks backed by collateral posted to the ECB due to start in the next few weeks, the ECB is hoping to kick-start lending from the financial sector to the rest of the European economy by providing an end market for European loan production.  This is a much more direct approach than the Fed’s multiple rounds of QE in the US.  The ECB is trying to turn banks into pass-through conduits for loans by giving them an end market for covered bond and ABS sales.  Whether this will open up the credit taps or not is unclear, but it’s desperately needed: Household Credit has been shrinking since 2008, and since 2012 for corporate debt.

Below is a flow chart of how the ECB’s new programs for funding (LTROs, announced in June) and asset purchases (ABS/covered bond purchase programs, announced Thursday) are intended to work.  Whether this program will be effective is anyone’s guess for now.  Much will depend on how much the ECB is willing to buy.  ABS will probably be more stimulative than covered bonds.  This is because buying ABS takes loans off of the balance sheets of banks, while covered bonds stay on-balance sheet, limiting how much purchases can stimulate new lending given the low capital levels of Euro area banks.  The covered bond market is quite large, while the ABS market is more modest.  In our view, ABS purchases will be the most effective if they can incentivize banks to make new loans for packing into ABS, then sell them to the ECB.  Much like QE in the United States, which has had uncertain, but probably positive, effects on the economy, there is a big question over whether this will work.

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