On the week, the S&P 500 fell a whopping 3 points to 2,096 this week from last week’s 2,099. And last week’s close of 2,099.13 was almost the exact same as the prior week’s 2,099.06 close. Here is the progression in a linear fashion:
6/10/16 SP 500 close: 2,096.07; the 10-year Tsy closed at 1.64%
6/3/16 SP 500 close: 2,099.13, the 10-year Tsy closed at 1.85%
5/27/16: SP 500 close: 2,099.06, the 10-year Tsy closed at 1.85%
If readers had just watched the market levels the last 3 weeks, you’d have to conclude the market was comatose.
Personally, I like CNBC. I like Judge’s Halftime Show with Josh Brown and Jon Najarian as well as Melissa Lee’s Fast Money – and even Jim Cramer – but you listen to the mainstream financial media and punditry, who seem to be following the “Bearish Billionaires” set of Soros, Icahn, Sam Zell and Stan Druckenmiller, and maybe for good reason.
As Jim Cramer noted one morning on Squawk Box, maybe the bearishness of these guys gives the CNBC crowd “cover” to be raise cash and boost shorts, and if the financial media is wrong, the pundits can always say, “look, I had good company”. (Jim was talking about Apple (NASDAQ:AAPL) stock after the poor quarter and the Icahn sale, and after Berkshire disclosed a new position in the shares. Cramer noted this Berkshire buy of Apple gives other portfolio managers cover to own Apple, since they can always point to Berkshire and say, “Look, the smart guys own it”. The same reason I kept half a position in IBM (NYSE:IBM) in 2013, after selling half.)
What’s puzzling me is that Treasuries are within 7 basis points of the mid-February ’16 1.57% low tick, and the SP 500 is nothing close to where it traded at the February ’16 lows.
Corporate high-yield or the (NYSE:HYG) actually rose 38 bp’s on the week, and technically remains in pretty good shape.
SP 500 Earnings data (by the numbers, courtesy of Thomson Reuters):
- Forward 4-quarter estimate: $123.30 versus last week’s $123.29.
- P.E ratio: 17(x)
- PEG ratio: 16(x)
- SP 500 earnings yield: 5.88% vs last week’s 5.87%, and still under 6%
- Year-over-year growth rate of the forward estimate; 1.06% vs last week’s +0.96% and the 6th consecutive week of a sequential increase, which matters little since the 1% growth rate remains at a very low level.
Analysis / conclusion: What struck me this week was the cadre of bearish billionaires that are now pretty sour on the prospect of decent, forward, SP 500 returns. The fact that SP 500 earnings growth looks to be poised to start to improve to mid-single-digits as we turn the corner into July ’16 may not matter if the Fed meeting this week and “Brexit” put sufficient fear into investors. While Icahn and Soros have been bearish for a while, it just seems the mainstream financial media made it a point to trumpet this pessimism this week.
When you look at the four “drags” on SP 500 earnings the last 12 – 18 months, i.e. the Energy sector, the Basic Materials sector, Apple, and China, Energy and Basic Materials sectors have bottomed (at least price has bottomed, and while earnings have bottomed since Q1 ’16, we aren’t seeing sharp upward revisions to estimates, yet), I am watching Apple’s calendar Q1 ’17 (Christmas quarter) revenue estimates as well as full-year fiscal 2017 estimates (ends Sept ’17) to see if the Street starts to lift numbers, or – at the very least – not revise forward estimates lower. As long As Apple doesn’t make new lows in price – below the early May ’16 lows of $89.37 – then clients will continue to hold the stock.
Finally, China, like Energy and Basic Mat, the economic data doesn’t seem to indicate that China is falling apart like what was seen last Q4 ’15. To be frank, I dont have any great insight into China other than what I read in the headlines. I watch the China PMI data, and some other economic data, but really focus on the Shanghai and Xinhua indices, and have no direct exposure for clients, other than through Emerging Market ETF’s.
Two of the drags, Energy and Basic Mat are flat-to-improving, while Apple is still seeing lower revisions, and China is a push, depending on who you talk to.
Every day I note how the HYG and (NYSE:JNK) (high-yield ETF’s) trade relative to the equity market. For now that is my key tell – if the SP 500 gets whacked and the high yield market stays firmly bid, I’m prone to remain bullish.
All the SP 500 sectors are overbought here – you could make a good case for a 5% – 7% correction – but that is tough to trade for clients.