Top Global Stocks of 2007

Below we highlight the 25 best performing stocks of the Bloomberg World index in 2007.  The Bloomberg World index contains 5,175 global stocks from 85 countries.  As shown, Romanian company CMCM is up the most this year at 8,965%.  CMCM is followed by Mongolia Energy and Nority International.  One US company was able to crack the top 25.  First Solar (FSLR) is up 811% on the year.

Want to know how to invest in 2008?  Receive our in-depth, 90-page outlook piece, The Bespoke Report 2008, when you become a Bespoke Premium member.

Q4 S&P 500 Earnings Growth Now at -6.3%

Below we highlight estimates for quarterly S&P 500 earnings growth for Q4 '07, Q1 '08 and Q2 '08.  The estimates are weekly since early August, and as shown by the chart, Q4 '07 earnings estimates have fallen off a cliff.  Back in August, Q4 growth was expected to be 12.3%.  It is currently expected to decline by 6.3%.  This decline is primarily due to the collapse of earnings in the Financial sector.  Q4 '08 estimates for Financials are now expected to decline 57%.  All other sectors are actually expected to be flat or show significant gains.

Want to know how to invest in 2008?  Receive our in-depth, 90-page outlook piece, The Bespoke Report 2008, when you become a Bespoke Premium member.

Final '08 Strategist Forecasts of the Year

Credit Suisse included their 2008 S&P 500 forecast in this week's strategist survey done by Bloomberg.  The company is looking for a year-end S&P 500 price level of 1,650.  This is the last survey of the year, and all 12 strategists are looking for gains from current levels in 2008.  Bear Stearns and HSBC are looking for the biggest gains, each with price targets of 1,700.  Morgan Stanley is looking for the smallest gains, with a price target of 1,525.  Morgan Stanley currently has the best call of all the 2007 estimates made at the end of '06.

2008 Bespoke Reader Questionnaire

Be sure to check out our Bespoke in the News page to see recent articles mentioning Bespoke.  Today, we were mentioned in the WSJ, USA Today, and Barron's.

As 2007 comes to an end and 2008 approaches, we want to get a consensus on a number of topics from Bespoke readers.  If you have some time over the next couple of days, please respond to the questions below, and we'll provide the results by the end of the year.  If you don't wish to provide your email address, simply enter email@bespokeinvest.com in the email address question below.  Thank you for your continued support of this site as well as Bespoke Premium.  Happy Holidays!

Will the S&P 500 be higher or lower by the end of 2008? Higher Lower Will the price of oil be higher or lower by the end of 2008? Higher Lower Will the US Dollar index be higher or lower by the end of 2008? Higher Lower Will the US economy go into a recession in 2008? Yes No Will the US housing market bottom in 2008? Yes No Will a Democrat or Republican win the 2008 Presidential election? Democrat Republican Which sector will go up the most in 2008? What is your #1 stock pick for 2008? E-mail Address: * * Required

Nasdaq Up Five Days in a Row

The Nasdaq closed up today for the fifth straight day for the first time since October 10th and the twelfth time since the start of 2006.  Following prior streaks, the Nasdaq's average return has been a decline of 0.21%, with positive returns in only five out of twelve days.

Merrill Lynch: We're Practically Giving It Away

If you lived in the Northeast in the early 1980s, you may remember the commercials for electronics retailer Crazy Eddie, where the actor would say their prices are so insane that 'they're giving it away.'  After reading the terms of Merrill Lynch's (MER) deal with Singapore's Sovereign Wealth Fund, Temasek, some investors think someone at MER is doing their own Crazy Eddie impersonation.

As news surfaced this morning that MER had closed on the $4.4 bln cash infusion, shares traded up over $2 to more than $58 per share.  However, in the initial press release, MER never mentioned the terms of the deal, and now we know why.  Under the disclosed terms, MER is selling the shares at a price of $48 per share, a full 17% below where the stock was trading earlier this morning.

High Yield Spreads

As the Santa Claus rally continues, spreads in the high yield credit market remain at elevated levels.  Through Friday, the Merrill Lynch High Yield Index was at 568 basis points versus its high of 592 on 11/26.  Since bottoming on 6/1, the index has risen by as much as 145% in less than a six month span.  Below we have updated our chart of prior spikes in high yield credit spreads.

   

While rising high yield spreads are generally associated with increased levels of risk aversion in the markets, we have found that spikes in credit spreads do not necessarily have a negative impact on the stock market.  For example, in 1998, spreads widened by a similar margin, and while the market didn't perform great during the period while spreads spiked, once they stabilized, equities ended up performing very well.

   

NYSE Short Interest Data -- Stocks with the Highest Short Interest

The NYSE recently released its mid-month short interest data, and below we highlight the stocks in the index with the highest short interest as a percentage of equity float.  As shown, 98.95% of NFI's float is short.  The stock is down 96.95% year to date.  The top of the list is mostly made up of homebuilders and mortgage related companies.  Non-credit crunch related companies on the list include LNY, HZO, CMG, BBI, HW, VMW and BIG.

Want to know where to invest in 2008?  Receive our in-depth, 90-page outlook piece, The Bespoke Report 2008, when you become a Bespoke Premium member.

S&P 500 On the Last Trading Day Before Christmas

Since 1940, the S&P 500 has averaged a gain of 0.23% on the last trading day before the Christmas holiday, with gains 67% of the time.  This compares to an average one-day gain of 0.032% on all trading days since 1940.  Below we highlight the S&P 500's performance on the last trading day before Christmas since 1980.  As shown, the numbers have been much weaker than average since 2001.

 

Recent ETF Performance

Since today is going to be a slow trading day, we figured we would provide readers with our table of recent ETF performance.  As shown, there is a lot of green on the screen, as equities have generally gone higher over the last week and month.  The gains have been about the same regardless of size (largecap, midcap, smallcap) or style (value/growth).  Even the US Dollar has risen, as highlighted by the declining values of the currency ETFs shown. 

On a sector basis, Energy (XLE) and Materials (XLB) are up the most over the past 30 days, while Consumer Discretionary (XLY) is the only sector that is down. 

On the international front, Hong Kong (EWH), India (INP) and Russia (RSX) are up the most on a monthly basis, and China (FXI) and Russia (RSX) are up the most over the past week.

The two asset classes that have seen declines over the past 30 days are commodities and fixed income.  Commodities did have a strong day on Friday, although fixed income did not.

2008 GDP vs CPI Estimates

The International section of our 2008 outlook, The Bespoke Report, highlights key quantitative statistics of 22 countries that US investors can invest in with ETFs.  Below we provide one piece of the International section as a sample of the research we provide in the 90-page report.

The chart below includes the consensus 2008 GDP and CPI estimates for 22 countries.  China, India, Russia and Singapore are forecast to have the strongest GDP growth, while Singapore, Taiwan and a number of European countries are expected to have the lowest inflation rates.  Italy is expected to have the slowest GDP growth at 1.4%, while Russia is expected to have the highest inflation rate at 8.4% (which is higher than its expected GDP growth).  The scatter chart below compares GDP and CPI so that readers can find high growth/low inflation areas.  China, Singapore, Malaysia and Taiwan look the best based on this criteria.  For those wondering, the US is expected to see GDP growth of 2.3% with an inflation rate of 2.7%.

Want to know how to invest in 2008?  Receive our in-depth, 90-page outlook piece, The Bespoke Report 2008, when you become a Bespoke Premium member.

S&P 500's 50-Day Crosses Below 200-Day

The S&P 500's 50-day moving average crossed below its 200-day moving average today.  Earlier this week, we highlighted that the index has typically performed poorly in the month and quarter following a similar 50/200-day cross.  Click here to view our prior post.

   

2 Barrys in 3 Way Tie

For some reason, Business Week decided to do away with their Fearless Forecasts outlook piece this year.  Instead, they narrowed down the number of strategists from 80 to less than 15.  Last year's consensus price targets for the major indices did pretty well.  Strategists expected a gain in the S&P 500 of 5.85%, and the current YTD gain stands at 4.13%.  They expected a gain in the Nasdaq of 9.62%, and the current YTD gain stands at 10.71%.

Below we highlight the strategists who made the closest year-end S&P 500 calls as of 12/21.  Two Barry's (Barry Hyman and Barry Ritholtz) and Doug Bermingham are within a mere 7 bps of the actual price level of the S&P 500.  (And we have to give props to Barry Ritholtz for making the best individual stock call in the survey with MOS - up over 300%.) 

Not taking anything away from the forecasters this year, but you would think that Business Week would ask some of the better prognosticators in '07 to make predictions for '08.  Tom McManus is the only analyst in the list above that gave forecasts in this year's publication. 

Below we highlight Business Week's strategist predictions for 2008.  As shown, Elaine Garzarelli, Laszlo Birinyi, Bernie Schaeffer and David Bianco are looking for the biggest gains in the S&P 500.  Only two strategists are expecting declines in '08 -- Ben Inker and Robert Arnott.  Tom McManus, who made the best prediction last year of this year's strategists, is looking for the S&P 500 to close '08 at 1,625.  The consensus forecast from all 13 strategists is for a 2008 gain of about 9%.

We also provide each strategist's 2007 S&P 500 calls where applicable.  As far as individual stocks go, AIG, ORCL, FCSX, PEP and SBUX were mentioned as favorites.

Want to know how to invest in 2008?  Receive our in-depth, 90-page outlook piece, The Bespoke Report 2008, when you become a Bespoke Premium member.

Michigan Confidence Slightly Better Than Expected

Today's Michigan Confidence report for December came in a little better than expected (75.5 actual vs. 74.5 forecast), but it is still at relatively low levels.  As we did yesterday with the initial jobless claims report and the Philly Fed, below we highlight the historical trend of the Michigan Confidence report with recessions highlighted in red.  As the chart illustrates, at the start of the four recessions since 1978, Michigan Confidence was higher than the current levels in two periods and lower in the other two.  Bottom line?  Using the Michigan Confidence as a barometer of recession risks is not very useful.

S&P 500 Snapshot

Below we highlight some key charts for the S&P 500.  The first one is our trading range chart that highlights if the index is overbought, oversold or neutral.  As shown, the S&P 500 is right at the bottom of its normal range, which means it is currently one standard deviation below its 50-day moving average.  While this isn't a flashing buy signal, it does mean that the risk/reward tradeoff favors the reward side much more than it does when the index is well into overbought territory.

The S&P 500 10-day advance/decline line measures the average daily number of advancers minus decliners over the last 10 days.  The A/D line is a breadth measure that shows underlying strength or weakness in the movement of the market.  Readers will notice that the A/D line recently moved to its highest levels of the year, even as the index just barely moved above its 50-day.  While the extreme overbought reading is negative in the very short term, the underlying strength it shows is a positive when looking at a longer time horizon.  Since the A/D line peaked a couple of weeks ago, it has moved back below zero and is close to oversold territory.

Currently, 34% of stocks in the S&P 500 are above their 50-day moving averages.  While the 34% number is not telling us much at the moment, the fact that it failed to match its August lows after the most recent declines is a positive sign.

Finally, the current trailing 12-month P/E ratio of the S&P 500 is at 18.32.  Unfortunately, this number is just as high now as it was when the market was making new highs a couple of months ago.  This highlights that earnings have definitely slowed. 

Want to know how to invest in 2008?  Receive our in-depth, 90-page outlook piece, The Bespoke Report 2008, when you become a Bespoke Premium member.