Below we update our trading range charts of the long-term interest rates for major countries or regions. As the charts illustrate, with the exception of Australia, global interest rates have recently been following a similar path. Following the recent rallies in global treasuries, interest rates are sitting at the low end of their historical range and are also retesting their lows from mid-September. If that period serves as any guide, investors should be on the look out for a short-term selloff (rise in yields) in these markets.
Below we highlight actual and expected year over year earnings growth for the S&P 500 on a quarterly basis. As shown, with almost all reports in, third quarter earnings are looking to decline 5.45% versus the third quarter of '06. This will mark the first time that growth has been negative since the fourth quarter of 2001. After this quarter, however, earnings growth is expected to pick back up once again, with Q3 '08 and Q4 '08 now expected to grow 20% year over year.
Below we highlight actual and estimated earnings growth by sector. Tech and Consumer Staples are doing the best this quarter, while Consumer Discretionary and Financials are doing the worst. Next quarter, Financials are expected to once again see negative growth along with Materials. Health Care, Tech and Telecom are currently expected to see the strongest year over year earnings growth in the fourth quarter. By next year, everything is expected to rebound, with Financials, Materials and Consumer Discretionary expected to bounce back the most in the second half of '08.
Bloomberg recently released their monthly survey of economists (about 75 of them), and as shown in the first chart below, fourth quarter GDP growth estimates continue to decline. In April, the median economist forecast for Q4 YoY GDP growth was 2.8%. Currently the median estimate is at 1.5%. This negativity sets the market up nicely if the number comes in better than expected.
Below is a table of the median estimates for the 12 indicators included in the survey from Q4 '07 to Q4 '08. We also provide charts of the median estimates for each indicator. The consensus paints a rosy picture of the US economy going forward. GDP and Consumer Spending are expected to increase, while CPI is expected to decrease. Unemployment is expected to remain low, and the Fed Funds Rate is expected to decrease to 4.25%.
Below we highlight a part of our daily ETF Trends report available to Bespoke Premium subscribers (we are excluding the Bespoke Trend and Timing scores for each ETF that accompany the actual report). Many investors have been waiting for a pullback, and after declines from recent overbought levels, most country ETFs are now trading within their normal trading ranges. Over the past 5 days, all but Malaysia (EWM) and Spain (EWP) are lower, with Canada (EWC), China (FXI, PGJ and GXC) and India (INP) declining the most. Brazil (EWZ), Malaysia (EWM), South Africa (EZA) and Spain (EWP) are the only country ETFs currently overbought, and Belgium (EWK), Japan (EWJ) and Mexico (EWW) are the only ones oversold.
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The S&P 500 had its best day in almost two months today rising 2.91%. However, of the ten sectors in the S&P 500, Financials and Technology were the only two that outperformed the overall index. The table below (click graphic for larger view) shows the daily percent change of each sector in the S&P 500 over the last month. Boxes shaded in green indicate that the sector outperformed the S&P 500, while red shading shows days where the sector underperformed the market. Interestingly, while the Financial sector has been all but written off for dead, the sector has actually risen and outperformed the market each of the last four days.
With Oil down $4 today to nearly $90/barrel, below we highlight our one-year trading area charts of 8 commodities. The green area below represents 2 standard deviations above and below the commodity's 50-day moving average. When the price moves above or below this area, it is considered overbought or oversold. As shown, even though Oil has declined to $90 from recent highs, it still remains near the top end of its trading range. The commodity still has a long way to go before it becomes oversold (near $73). Gold has also declined in recent days, but like Oil, it still has a ways to go before reaching even neutral price levels. Of the 8 commodities analyzed, Copper is the only one currently oversold, while Coffee seems to have held its uptrend after coming off highs reached in October.
The Financial sector is leading the gains today, rallying 3.75% as of 2:15 PM ET. Technology is up 2.68%, while Energy and Utilities are down. The individual stocks that are up the most today are the ones that have been down the most since the October 9th highs. As shown in the table below, ETFC (down 75% since 10/9) is the Russell 1,000 stock up the most on the day at 31.55%. There is some clear bottom fishing taking place.
While the S&P 500 is down nearly 8.7% from its intraday high in October, the average stock investor is likely feeling far worse. The average stock in the S&P 1500 is down 24% from its 52-week high. Large cap stocks have held up the best with an average distance of 20.35% below its highs, while small cap stocks have been hardest hit with an average distance of 28.5% below.
On a sector basis, utility stocks have held up the best. Currently, the average stock in that sector is trading about 12% from its 52-week high. Even with oil trading near all-time highs, energy stocks haven't fared as well, with the average stock trading nearly 17% from its 52-week high. Not surprisingly, financial and consumer discretionary stocks have been hit the hardest. The average financial stock is currently down 28% from its 52-week high, while consumer discretionary stocks have lost nearly a third of their value (-31.79%).
Below we summarize the performance of the S&P 500 during options expiration weeks since the start of 2006. Tuesday is typically the most volatile day of the week, as the S&P 500 has had a move of at least 1% (up or down) in 10 out of the last 22 days (45%). In terms of average return, Wednesday is the best day for the bulls with an average gain of 0.27% and gains in 17 out of 22 days.
Currently, 25% of stocks in the S&P 500 are trading above their 50-day moving averages. Even though the Dow is down more during this correction than it was during the August correction on a closing basis, this indicator hasn't gotten nearly as bad. On August 16th, just 8% of the stocks in the S&P 500 were above their 50-days. Let's hope we don't get back to those levels again.
On a sector basis, Telecom, Consumer Discretionary and Technology have the lowest percentage of stocks trading above their 50-day moving averages. Surprisingly, Financials don't rank in the bottom three. Flight to quality sectors are holding up the best. Utilities have 52% trading above their 50-days, followed by Consumer Staples (41%) and Health Care (37%).
Below we highlight the best performing stocks in the Russell 3,000 year to date. As shown, FSLR leads the list at +495%, followed by ONXX (437%), TBSI (383%), RCCC (237%) and CF (211%). These are the only stocks in the index that are up more than 200% year to date.
Back on October 16th, we highlighted the same list of best performers. At the time, 12 stocks were up more than 200% on the year, with TBSI up the most at 629%. Below we provide the list of best performers as it stood on October 16th, and include each stock's percentage change since then. There has clearly been some profit taking in the best performing names as investors try to lock in gains. CROX has declined the most since 10/16 at -49%, followed by VDSI (-47.6%) and BNVI (-45%).
On a closing basis, the Dow 30 has now corrected more than it did during early August. Since the index peaked at 14,164.53 on 10/9, it is down 8.31%. The Dow was down 8.25% on a closing basis from 7/19 to 8/16.
The VIX volatility index also closed at its highest level (31.09) since March 19, 2003 and above its 52-week closing high of 30.83 reached on 8/16.
General Electric (GE) has now been down 8 days in a row. This is the fifth time this has happened to the stock since 1980. While some might think the stock is due for a quick reversal, chances for a gain tomorrow are 50/50 based on what it has done in the past. Back in '85, the stock went down 11 days in a row, and in '88 it went down 9 consecutive days. However, things should turn positive a week from now. Of the four prior 8-day losing streaks, GE has been flat or up over the next 5 trading days.
Sixty-four of the 1,002 stocks in the Russell 1,000 broke below their 50-day moving averages today. Many stocks that have had huge rallies this year were unable to hold the 50-day support level. Apple (AAPL) is the biggest name on this list and is now trading 4.91% below its 50-day. The stock has had 3 consecutive declines of $10 or more. Once a stock breaks below its 50-day, the moving average then becomes resistance, so for those looking to trade these names, make sure they move above these levels and hold before entering a position.
Two other noteworthy stocks that aren't in the Russell 1,000 that broke below their 50-days today are BIDU and RIMM.
The S&P 500 is down 6.47% since earnings season began with Alcoa's (AA) quarterly report on October 9th. This is very comparable to the market's performance during earnings season last quarter when it declined 6.87%. (Our earnings season runs from AA's report date through WMT's report date.) We went back and looked at the index's performance throughout earnings season and the following off-season during the current bull market to see what the typical pattern has been. As shown in the table at right, the average performance of the S&P 500 during earnings season has been 0.20%, with gains 57% of the time. On the other hand, the index has averaged a gain of 2.88% during the earnings off-season, with gains 80% of the time. Last earnings season's decline of 6.87% was the worst since Q4 '02, when the index was down 7.78%. Fortunately, the market snapped back significantly and was up 9.72% from WMT's report date on 8/14 through the start of this earnings season on 10/9. Hopefully the index can do the same after WMT's report tomorrow.
Below we highlight a scatter chart of the S&P 500's performance during earnings season and during the following off-season. As shown, there has only been one quarter where the index declined during consecutive periods (Q1 '06), with minimal declines throughout both.