It remains a difficult 2014 for both the Wall Street Bears and the Chicago Bears…
This arctic blast hibernation push could not happen soon enough for either team. While equities and risk assets continue to be accumulated in the U.S. markets, stocks do look a bit overbought here when looking at most 10, 20 and 50 day measures. The news flow and earnings data has been encouraging, however, the market could use a time to digest this recent move while some of the risk buying spreads to foreign equity and global credit markets. And while falling energy prices are a positive for global cost structures, too quick a pullback can be destabilizing for economies too dependent on oil and gas prices. Energy stocks are also 10% of the S&P 500, so a bit of calm after their 20% pullback could help encourage equity buyers.
Ativan, Valium, Librium, Xanax, or Klonopin? JP Morgan notes the anxiousness as Managers underperform…
While the tape is pretty quiet and relaxed (especially compared to October) beneath the surface, anxiety levels are rising and buying is growing a touch more “urgent” as this market isn’t giving underinvested people any chance to step in on the long side. The most “painful” buying felt like it was running out of steam late last week around ~1990, but two macro events (Kuroda and McConnell) subsequently intervened to squeeze the tape up another ~40+ points. However, despite this persistent bid to stocks, it still feels like the rest of 2014 won’t be as “easy” as many are now assuming (people are much more worried about the SPX going to 2100 instead of it revisiting 1975 while the “year-end melt-up rally” proclamations are growing louder and more frequent). -- JPMorgan
And just when you thought active equity Portfolio Managers could not underperform any further, they do…
“It has been an abysmal year,” said Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America. “Large-cap mutual funds have a chronic bias towards smaller stocks, since it is hard to overweight the very largest stocks, but these stocks have actually outperformed by a pretty large margin this year. The smaller-cap bias has hurt quite a bit.” In addition, widely held technology and energy stocks had a dismal October, amid concerns about global growth, potentially extended stock valuations and a sliding oil price. BofA data covers all U.S. large-cap equity funds, including those tilted towards value stocks or growth companies that are actively managed. Only 17.7 per cent are beating the Russell 1000 index of large-cap stocks so far this year. That compares with 40.5 per cent for 2013 as a whole.
Even with peak equity prices, Janet Yellen is telling you to keep an eye on our algorithms…
Federal Reserve officials are warning investors and foreign central bankers to brace for market turbulence as the Fed prepares to raise short-term interest rates next year. In a speech to central bankers Friday in Paris, Fed Chairwoman Janet Yellen said rate increases, when they materialize in advanced economies, “could lead to some heightened financial volatility.” New York Fed President William Dudley, at the same conference, issued a more detailed alert. “This shift in policy will undoubtedly be accompanied by some degree of market turbulence,” he said of future rate increases in the U.S. “Moreover, it could create significant challenges for those emerging market economies that have been the beneficiaries of large capital inflows in recent years.”
And to prepare for more volatility, College endowments are shifting aggressively into alternatives this year…
According to preliminary data released by NACUBO and Commonfund, U.S. college and university endowments increased their allocations to alternative strategies during fiscal year 2014, which ended on June 30. In 2013, alternative strategies accounted for an average of 53% of endowment portfolios, down a percentage point from the previous year; but in 2014, allocations to alternatives increased to 58% of endowment portfolios. The study also found that endowments with over $1 billion in assets under management had greater-than-average allocations to alternatives, at 65% of their assets.
Speaking of hedge fund managers…David Einhorn added to Greenlight’s net long exposure during the correction…
“We ended the quarter 40% net long which is our lowest net exposure so far this year at any month end. We were well positioned to be opportunistic in a dislocation in early October which was the first real dislocation we’ve seen in a long time. We added to our net long exposure during the correction, which unfortunately was brief.”
It was a big week for employment data. Still looks like we are enjoying porridge with Goldilocks…
- @Kelly_Evans: The jobless rate actually dropped to 5.756% from 5.942% — big one-month move.
- @larry_kudlow: Ave hourly earnings +2.0% y/y. Hours worked +2.8%. That’s 4.8% total wage income. Less 1.5% inflation = 3.3% real income. Pretty good number.
- There was little change in the U.S. recovery narrative this week. Most of the focus was on Friday’s release of the October employment report. Nonfarm payrolls rose 214K last month, below consensus expectations for a 235K increase, but largely in line with the recent trend. In addition, the net upward revision to the two prior months totaled 31K. The household survey looked better as the unemployment rate unexpectedly ticked down a tenth to 5.8%, despite a similar-size uptick in the labor force participation rate to 62.8%. Household employment jumped 683K. Average hourly earnings rose 0.1% after a flat reading in the prior month, missing consensus expectations for a 0.2% gain. This left annual wage growth up just 2.0%. While sluggish wage growth was once again the big area of concern in the data, it also provided further evidence that the Fed can remain patient on liftoff.
- @bencasselman: Initial claims of 278k are at their lowest level since April 2000, and near 40-year lows(!)
@AmyOtto9: That election wasn’t a wave, it was a Game of Thrones season finale.
The mid-term elections also occurred last week. The focus was on control of the Senate. But more surprising were the further gains in the House…
Apple Pay (NASDAQ:AAPL) has a public data point (via Whole Foods Market (NASDAQ:WFM)) and it is very impressive given only iPhone 6 owners can use it…
@mdudas: Updated estimate: Apple Pay represented ~1% of @WholeFoods transactions in the 17 days since Apple Pay launched.
Speaking of Whole Foods, the monthly jobs data, and Obamacare…
“Whole Foods has always had one of the highest ratios of full-time to part-time in the retail industry. But we have gradually moved to more part timers; we found that of course from a healthcare standpoint that reduces our cost structure tremendously’. -- (Whole Foods Conference Call)
Speaking of falling oil prices…
“As you all know, the price of oil has dropped about $30 a barrel. It is $1 trillion stimulus per year to the world’s economy.” – Pioneer Natural Resources (Nov. 5)
Restaurants are beginning to see the gains in more household disposable income…
Restaurant industry performance improved in October, surpassing September’s strong results and representing its best month in nearly three years, according to the latest Restaurant Industry Snapshot from TDn2K’s Black Box Intelligence and People Report. Same-store sales grew 2.8 percent during the month — a 0.7-percent improvement compared with the growth rate reported for September, according to the report released Thursday. In addition, the industry achieved positive growth in the vital same-store traffic indicator for the first time since February 2012, underscoring the strength of October’s performance.
And who let Industrial stocks out of the barn? The Industrial Sector SPDR Trust (ARCA:XLI) was the top performing sector for the last 4 weeks. Lower energy prices having a direct positive impact on all Transportation stocks as well as lowering manufacturing costs for any metal bender…
Looking at Friday’s table of Large Cap all-time highs not only shows the breakout in many Industrial names, but also a plethora of Financial stocks. So think about that…Financials and Industrials are now leading this market higher. Run faster bears?
The week was a strong one for most all sectors except Healthcare and Consumer Discretionary…
Looking more broadly, the bears were able to find fish to eat in the commodities and foreign equity markets…
Kids have unplugged the TV for YouTube and Minecraft. Now women are tuning out. Are Football and ESPN all that are left for the television?
While prime-time TV usage is in some ways relatively stable, with the proportion of people watching TV this season slipping just 5 percentage points from a year ago, women in advertisers’ key age groups are disappearing at a disproportionate clip. From Sept. 22 to Oct. 27, for example, the percentage of 18-to-49-year-old women watching TV in prime time fell 9 points from a year earlier, according to Nielsen stats… That women in the most advertiser-friendly demo are vanishing is disconcerting enough; what’s particularly unsettling is the rate at which younger female viewers are tuning out. Season-to-date, the percentage of women 18-to-34 watching TV is down 13 points, while women 18-to-24 are down 17 points.
@Mark_J_Perry: New Funding Could Value Uber at $25B, Equal to Southwest Airlines ($26B) & More Than Hertz ($10B) + Avis/Budget ($6B)
The San Francisco car-hailing service is in early talks with investors about raising at least $1bn in new capital, less than six months after it received $1.2bn in funding, to accelerate its international expansion, reports Tim Bradshaw in San Francisco. People familiar with Uber’s plans say that it hopes to raise the money at a higher valuation than the $17bn it secured with June’s Series D round. That price tag had already made it the highest-valued private company in Silicon Valley and Uber’s aggressive move to raise yet more capital will likely raise fresh questions about how much further private tech company valuations can rise… The fundraising will test private investors’ appetite for growth in the technology sector, which has so far shown little sign of abating despite some venture capitalists’ concerns about the rate at which start-ups are consuming cash.
Finally, our CEO slide show of the Week…
(HowGoogleWorks)
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