Think BIG

A So-So Week for Earnings

2013-05-24T16:42:00Z

Even though earnings season unofficially ended last week with Wal-Mart's (WMT) report, there were still plenty of key reports this week. In the S&P 500 alone, 25 companies (5%) reported. Of those 25, 15 (60%) beat EPS forecasts, while only five (20%) missed, and five (20%) were inline. On the top line, the results were a lot less positive as just ten (40%) beat on the top line and fifteen missed (60%). Finally, with respect to guidance, six companies lowered guidance and only one (HPQ) raised guidance. While economic data was positive this week, earnings results were not nearly as good.

AAII Bullish Sentiment Approaches 50%

2013-05-23T13:51:03Z

Investors sure picked a bad time to turn increasingly bullish this week. According to the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment increased by more than ten percentage points rising from 38.49% to 48.97%. This is the largest weekly increase since 3/14, and it represents the highest weekly reading since 1/24.

Jobless Claims Better Than Expected

2013-05-23T13:15:04Z

Following yesterday's testimony from Fed Chairman Ben Bernanke, if there was a week where investors may have wanted a weaker than expected jobless claims report, it was probably this one. While claims did not come in higher than expected this week, they were only modestly better than expected, so those investors will have to take what they can get. While economists were looking for weekly claims to come in at 345K, the actual level came in at 340K, representing a 23K drop from last week.

With this week's decline, the four-week moving average saw a slight drop of 0.5K. At a level of 339.5K, it is within 1.5K of a new post-recession low. Next week, we will be dropping 327K from the four-week rolling total, so unless claims come in well below 330K, look for this reading to see a modest increase.

On a non-seasonally adjusted basis, first time claims declined by nearly 20K to 301.1K. For the current week of the year, this represents the lowest reading since 2007, and it is well below the average for the current week going back to 2000 (342.7K).

US, Japan Gain on Rest of World in 2013

2013-05-23T02:25:35Z

Earlier today we looked at US sector weightings, and below we take a look at the percentage of total world stock market cap that the largest countries make up. As shown below, the US and Japan, which were the two largest stock markets at the start of the year, have added to their percentage of world market cap so far this year at the expense of pretty much everyone else.

The US has already gained more than two full percentage points in 2013, jumping from 32.14% of total world stock market cap up to 34.17%. Japan is a distant second at a current level of 7.90%, but the country has seen its share jump 0.96 percentage points on the back of huge stock market gains.

The countries that have lost the biggest share of world market cap so far this year include Hong Kong, Canada, India, South Korea, Russia and the UK.

Wall Street Strategist Year-End S&P 500 Price Targets

2013-05-22T21:33:25Z

While the S&P 500 had a big downside reversal lower today, it's still more than 8% ABOVE the average year-end price target that Wall Street strategists placed on the index at the start of 2013. Below is a table highlighting these price targets (collected by Bloomberg), including where they are now and where they were on January 1st. Price targets shaded in green have been increased since the start of the year.

As shown, even with increases from 8 strategists, the average year-end S&P 500 price target is currently at 1,612, which is actually 2.49% below the index's current level. Only 5 of the 14 strategists are bullish on the index for the remainder of the year, while 9 are bearish. Goldman Sachs has the most bullish year-end target at 1,750, followed by Oppenheimer (1,730), JP Morgan (1,715) and Stifel Nicolaus (1,700). Wells Fargo is the most bearish on the index with a year-end target of just 1,390. This is 15.91% below where the index is currently trading. UBS is the second-most bearish with a target of 1,425, while Barclays is the third-most bearish at 1,525.

Technology Loses Share; Financials, Health Care Gain

2013-05-22T17:56:07Z

Because of Apple's (AAPL) struggles this year, the S&P 500 Technology sector has been one of the weaker performing sectors so far in 2013. This has allowed the Financial sector to make up significant ground in its race to take back its spot as the biggest sector in the market.

Below is a look at the current weightings of the ten S&P 500 sectors compared to where they stood at the end of 2011 and 2012. As shown, at the end of 2011, the Technology sector made up 19.02% of the S&P 500, while the Financial sector was at 13.43%. The Financial sector made nice gains on Tech in 2012 as it narrowed the gap by 2.27 percentage points (18.95% vs. 15.63%). Over the first five and a half months of 2013, the spread has tightened even more, and the Financial sector is now just 1.3 percentage points below Tech. Technology has seen its weighting fall 1.11 percentage points this year down to 17.83%, while the Financial sector has seen its weighting gain 0.90 percentage points up to 16.53%. Another five months of similar action would put the Financial sector back on top.

Note that we don't think it's a good thing when the Financial sector is the biggest sector of the market. The Financial Services sector is there to "service" the rest of the economy as it grows. Back before the financial crisis hit in late 2007, the Financial sector was by far the biggest sector of the market, and we all saw how that ended.

Energy Inventories Higher Than Expected

2013-05-22T16:14:54Z

This week's of release of inventories for crude oil and natural gas were both higher than expected. With regards to crude oil, traders were expecting a decline of one million barrels, but the actual decline came in at just 338K. At current levels, there have only been three weeks since 1983 that crude oil inventories were higher, and they all came in the last three weeks!

Traders were expecting gasoline inventories to fall by 300K, but instead of declining, stockpiles rose by more than 3 million barrels. Following this week's build, gasoline inventories are now well above their average for this time of year. Hopefully this can eventually translate to lower prices at the pump where prices have now gone 18 days without a decline.

The Dark Ages of Bernanke's Tenure

2013-05-22T14:53:35Z

The chart below shows the annual real rate of US GDP growth going back to 1930. In the last 84 years, the US economy has averaged an annual growth rate of 3.34%. For the chart, we have color coded each year based on whether or not annual GDP growth was above (gray) or below (red) 3.0%. Currently, the US economy is in the midst of its eighth straight year where annual growth has been (or will be) below 3%. This eight years also happens to coincide with the entire tenure of Ben Bernanke as the chairman of the Federal Reserve. Prior to the current eight year stretch, the longest streak of sub 3% growth was the four years from 1930 through 1933.

While the blame for the current period of sub-par growth hardly rests on the shoulders of the current Fed Chairman, one can imagine that he will do whatever he thinks is humanly possible to make sure that the streak ends before his tenure is up. For this reason, for better or for worse, we would expect that the Fed will keep its current policies of accommodation intact until it is abundantly clear that economic growth has picked up.

The Fed Minutes Freakout

2013-05-22T12:49:07Z

For Fed watchers out there, today is one of the good days. Already, we have seen NY Fed President William Dudley make headlines when he said that it will take another three or four months before Fed policymakers will know whether or not the economy is on firm enough footing to start easing on stimulus. At 10 am, Fed Chairman Ben Bernanke will be testifying in front of a Congressional Committee on the Fed's outlook for the economy. If that's not enough to tide you over, at 2PM we will get the release of the FOMC minutes from the 4/30-5/1 meeting.

So far in 2013, days where the Fed has released the minutes from a prior meeting have not exactly been positive for the market. The charts below show the intraday trading of the S&P 500 on each of the days where the FOMC released the minutes from a meeting. In each chart, the red dot indicates the time when the Minutes were released (2PM).

On January 3rd, the S&P 500 erased a modest gain for the day and declined 0.38% in the last two hours of trading day. On February 2nd, the S&P 500 was already down for the day, but it fell an additional 0.72% in the last two hours of trading. Finally, on April 10th, the S&P 500 was up more than 1% when the minutes were released, and while the S&P 500 didn't decline, the rally was stopped dead in its tracks.

In each instance, the reason for the skittishness in the equity market was related to concerns that the Fed was going to taper its bond buying program at some point in the near future. With the benefit of hindsight, though, each of those instances of concern were overblown.

Now, If Only Gas Prices Could Start Dropping

2013-05-21T21:11:09Z

Lately, it is not only the stock market that goes up, up, and up. After an 8% decline from its February highs, the price of gasoline has started climbing once again. From its most recent low in late April, the national average price of a gallon of gas has risen by 4.4% and has now gone 17 straight days without a decline. While this may sound like a long streak, back in January and February, prices at the pump went 36 straight days without a decline, so the current run is hardly unprecedented. That being said, consumers could use a couple of days of relief at the pump.