Shortened Holiday weeks should not wipe out your plans to search for further gains to your investment portfolio…
While the positive distractions of Holiday cheer increase as the end of 2014 approaches, you should not become less focused on your portfolios. Historically, the Thanksgiving and December holidays as well as the start of the New Year have been fantastic times to be long equities and other risk assets.
Reduced trading volumes can create pockets of volatility and exaggerated price movements. As it stands today, the best looking waves are U.S. Large Cap Equities (with Energy being the broken pier that you want to avoid). Central Bankers are trying to entice you to try the waves in Europe and Asia but these sets are for big boards with aggressive riders only. In Europe, the data is trying to surprise on the upside and valuations are cheap, but Equities really need Putin to pick up a new hobby that doesn’t include tanks and munitions. But with Oil in the $70s, German bond yields below 1% and Spain/Italian yields at 2%, there is a lot of firepower to buy Euro stocks if the Growth + Putin variables can improve. For now, it is all about American Equities and the U.S. Dollar, and as a reward, let us all take Thursday off to celebrate.
The Central Banks helped to pull the market out of its boredom and send it to new record highs last week…
The S&P 500 extended its winning streak to five weeks and is now up ~10% from the 15-October low. It was relatively quiet for most of the week with few notable directional influences. However, policy support continued to get a lot of attention with the further ramp in ECB sovereign QE expectations and the unexpected rate cut from China on Friday. This week also saw the return of some high-profile M&A and corporate actions announcements, while sentiment surrounding Q3 earnings remained relatively upbeat with retail getting most of the attention. In addition, there was nothing on the economic calendar that detracted from the US recovery outperformance theme. There continued to be limited spillover from the rhetoric in Washington surrounding executive action on immigration with Republicans not expected to pursue another fiscal showdown. There also seemed to be relatively little impact from the recent pickup in concerns about high yield (and small cap) underperformance as a potential warning signal for other risk assets.
Record S&P 500 levels were confirmed with new highs in breadth (# of names and volume)…
And nearly every XL sector joined the New Highs party…
As you would expect, the number of New 52 week highs also jumped to triple digit levels on Friday…
Looking beyond the S&P 500, the number of Large Cap all-time highs surged to a triple digit level on Friday. And note the sectors represented as only Utilities are missing:
For the week, each XL sector registered a gain
Best moves were from those sectors down the most (Energy & Materials)…
More broadly, Brazil and Europe put in big bounces
Geographies and Sectors most depressed are bouncing the highest which is a positive sign of RISK appetite…
Looking closer at the giant in Europe, Germany has had a 12% bounce. Will the 5 month trend line act as resistance or a starting line?
The Euro economic surprise index would suggest that it is time to BUY Europe…
Since 2010, bounces off the bottom of the Citigroup Economic Surprise Index have corresponded with lift-off in European equity prices. Recall that a similar phenomenon was true for the U.S., particularly in the early years of the recovery from the GFC. As investors consistently doubted the recovery, equity prices slid when the data was disappointing and rallied whenever economic data was better relative to expectations.
The great news for U.S. Stock pickers and Hedge Funds continues…
Correlations among U.S. industry sectors looks to be at 30 year lows. If you are an alpha seeking stock picker, then your time is now. Active managers, please be kind to the index managers because 2014 won’t always be this easy for you.
If you were an alpha-crushing U.S. equity portfolio manager in 2014, you were likely long Staples, Healthcare and Utilities…
One area of concern remains rising credit spreads. High Yield spreads are now UP on a year over year basis. So will Equity Market volatility follow like it has in the past?
U.S. Growth + No inflation helped the S&P 500 last week…
To say that last week's release of the Philly Fed Manufacturing report for the month of November was stronger than expected would be a gross understatement. The report absolutely crushed expectations. While economists were forecasting a level of 18.50, the actual level of the current conditions index spiked to 40.8. To put this level in perspective, it was the highest monthly reading since December 1993, and was just the eighth highest monthly reading since 1980. In terms of this month’s 20.1 point increase, that was the largest monthly increase since June 2009. And finally, relative to expectations, it was the biggest beat since at least 1998. Although this indicator tends to be volatile, it was quite simply one of the strongest economic data points we have seen in quite some time/
Strong U.S. economic data + the 2nd coldest November + $70 crude oil = new highs in Retail stocks…
The CEO of Macy’s is even upping his expectations…
Macy's Inc (NYSE:M), the largest U.S. department-store chain, will gain from consumers that are less burdened by energy costs, Chief Executive Officer Terry Lundgren said. “We expect to benefit from the lower gas prices,” Lundgren said in an interview with Fox News’ Maria Bartiromo today. “We have much higher expectations for the fourth quarter.
1) White Collar bonuses are surging.
2) Nice Advertising placement Tiffany’s…
Three elite New York law firms will raise their year-end bonuses to associate attorneys by as much as $40,000, reflecting in part this year’s resurgence in lucrative mergers-and-acquisitions work. Managements at Simpson Thacher & Bartlett LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and Cleary Gottlieb Steen & Hamilton LLP disclosed on Friday they would cut checks of between $15,000 and $100,000 next month for associate attorneys depending on their seniority. Lawyers who have been with the firms seven or more years would make the most. In 2013, bonuses paid by each firm were $10,000 to $60,000, respectively. The pay comes on top of annual salaries that range from $160,000 for first-year associates to nearly $300,000 for the senior-most associates. Associates are the salaried, typically younger lawyers that support a firm’s partners. “We recognize that you have been working incredibly hard and have all contributed to the Firm’s extraordinary success this year,” wrote William Dougherty, the chair of Simpson’s executive committee, in a memo to staff.
Better get your hotel reservations further in advance because the business is very good right now…
Two worldwide hotel companies, Marriott and Hilton, recently announced that they would increase their fee revenue by tightening rules on last-minute reservation cancellations. Business travelers have long been accustomed to being able to cancel a reservation at many hotels, without charge, as late as 6 p.m. on the day of arrival. Effective Jan. 1, those days are gone at the two chains. The companies say that if you don’t cancel your reservation by the day before your scheduled arrival, you’ll be charged a penalty of one night’s room rate.
Surging U.S. economy + Mobile video = Record high prices for spectrum…
The Federal Communications Commission’s auction of wireless spectrum licenses has collected $34 billion in bids, turning what was expected to be a relatively sleepy affair into a likely windfall for taxpayers and an enormous commitment of capital for the carriers. The offers reflect the surge in wireless traffic as Americans increasingly watch YouTube videos, stream music and share photos with their iPhone (NASDAQ:AAPL) and Galaxy (OTC:SSNLF) smartphones. Companies including Verizon Communications Inc. and AT&T Inc.(NYSE:T) so far have met that demand by stitching together smaller purchases of spectrum since the government’s last big auction in 2008. Now, they are paying up to buy the crucial resource in bulk. The auction, which is continuing, is poised to become the most lucrative ever in the U.S. The interest surprised many analysts, some of whom expected it to bring in less than half the current total. The communications industry had been more focused, said analysts, on a coming auction of spectrum now held by television broadcasters. That was recently pushed back to 2016, however, and there are concerns about further delays.
If you are at all POSITIVE on:
1) China growth,
2) Worldwide iron ore demand or
3) Brazilian equities
Then you should spend some time with Dr. Damodaran’s valuation analysis on VALE SA (NYSE:VALE)…
I am sure that I am missing something but at the stock price of $8.53 on November 18, 2014, it looks grossly undervalued. Even in my worst case scenario, where operating income drops another 20% from the already depressed LTM number and the company earns only its cost of capital from this point on, my value per share is $13.60.
Illinois judge rules Pension Benefits cannot be changed. Next stop = Supreme Court. Meanwhile, Illinois municipal bonds fetch a bankruptcy discount…
Illinois will have to find a new way to fix the worst pension shortfall in the U.S. after a judge struck down a 2013 law that included raising the retirement age. Yesterday’s ruling that the pension changes would have violated the state’s constitution undoes a signature achievement of outgoing Democratic Governor Pat Quinn and hands responsibility for tackling the state’s $111 billion pension deficit to Republican businessman Bruce Rauner, who defeated him in the Nov. 4 election…
The plan to save about $145 billion over 30 years by reducing those adjustments and raising the retirement age for workers 45 and under was set to take effect on June 1 before being put on hold by a court order in May. Illinois bonds weakened after the ruling. Taxable pension debt maturing in June 2033, the most frequently traded state securities, traded yesterday after the decision at a yield of 5.32 percent, compared with an average of 5.26 percent yesterday and 5.3 percent this month, according to data compiled by Bloomberg. It’s about 2.7 percentage points more than Treasuries.
Finally, this early Arctic blast has given the gift of Thanksgiving snow to the Rockies. 50% of the lifts were open at Breckenridge over the weekend with more snow falling today and tomorrow. So make those plans now to come visit early and often. Happy Thanksgiving everyone!
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