Buzz on the Street: The Bears Are Livin' on a Prayer
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Here is a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, February 3, 2014
Earnings Season; How We Doin'?
On Friday, Factset updated their S&P 500 (INDEXSP:.INX) earnings season stats, and since we're exactly halfway through (251 companies reported), it's worth a look.
- 8-of-10 sectors are showing earnings growth.
- The strongest industry is Internet Software & Services at 20.2%. (Note this falls within Technology sector.) That industry is led by Facebook (NASDAQ:FB).
- Of companies reoprting, 74% beat on earnings, in-line with 4-year average of 73%.
- 67% of companies have beaten on revenues, above 4-year average of 59%.
- Health Care and IT have highest percentages of companies beating on earnings. Utilities has the lowest percentage.
- For Q1, 44 companies have guided below consensus, while just 10 have guided above.
- Q1 estimated earnings growth has fallen to +2.2% from +4.3% on December 31.
- Earnings growth is expected to accelerate throughout year (Q2 = +8.5%, Q3 = 12.4%, Q4 = 11.9%).
- Companies remain concerned with F/X, Europe, and China.
- As of Friday, forward P/E is 14.7, which is above five-year average of 13.1, and 10-year average of 13.9.
- As of Friday, in the past month, the S&P fell 2.5% while forward 12-month EPS estimates rose 0.3%.
If we look at all this in context, the pullback makes sense.
When you have a valuation most people would agree was mildly stretched to the upside and a streak of "meh" earnings growth, there's bound to eventually be some kind of correction -- especially after a 30% up year.
Interestingly enough, this morning's low of 1758.05 was an exact 5.0% pullback from the all-time intraday high of 1850.84.
Let's see if we hold that.
Tuesday, February 4, 2014
Shorting Natty Once Again
I am shorting Natural Gas again as it is up almost 10% today. It is ahead of itself again, and it should form a pennant up here then retrace to the 50-day at some point. So, that is how I am playing it again, using at-the-money front-week puts on United States Natural Gas Fund (NYSEARCA:UNG). I like natural gas as a long in a much longer timeframe, but this is just trading here, hence the options. I am fully prepared to lose the entire amount should it happen. Also, I am starting with a half position this time as it could extend higher tomorrow at which point I would add to my options.
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Wednesday, February 5, 2014
Brazil Cancels Bond Auction, Treasuries
Brazil canceled its bond auction scheduled for today due to "market conditions." Truth be told, Brazil's Treasury has no incentive to sell with the way the Real has been getting hit lately, but it does highlight that this isn't just a blip on the radar screen. Yesterday, Russia canceled its bond auction for the same reason. The problem in emerging markets isn't about Turkey; it's where it's spreading to in the rest of the emerging markets, like Russia, Indonesia, China, Brazil, etc.
Treasuries continue to back off, which is very telling on how the market is reacting to the recent economic data. The ISM services today was still on the not great side under the surface with slack new orders and falling exports and imports. Moreover, in my mind, it may prove that the drop in ISM manufacturing on Monday was in fact not just weather related.
I'm exiting a third of my Treasury hedge and short (via a put spread) here as it is up ~90%. If we get another dip tomorrow, I will exit another 1/3, but I plan to hold some of the position through the NFP report on Friday because I think the net result with revisions will be better than expected. The 10-year future (TYH4) is still trying to work off its overbought nature, and it balked at making new contract highs on Monday, but we're in an uptrend, so I think for the moment pullbacks are meant to be bought unless the trend is violated.
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Thursday, February 6, 2014
My rule of thumb when watching unsettled markets is that if the major averages are up and if biotech is down, it's almost certainly short covering and should be taken with a grain of salt. Despite the major averages being up, the iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB) is flat, and the SPDR S&P Biotech (NYSEARCA:XBI) is down 0.52% as I write this. It's also a rule of thumb for me that when the XBI (which is a better equal-weighted view of the NASDAQ Biotech Index) is lower than the IBB (which is heavily weighted large-cap bio), things are skewed towards a softer biotech market.
While I have no idea why Todd would want to eat pea soup in the first place, his comments on biotechs the last few days jive with what I'm seeing in the markets. The question for us all is whether a likely bad employment number gives us a blowoff low tomorrow intraday or just starts something a bit longer term and a quickie pullback.
Friday, February 7, 2014
Instant Reaction to NFP
Not as bad as last month's report, but there is not much to like.
- There was almost no revision to December's number.
- The headline number and private number were both weak.
- Hourly earnings were actually revised down last month.
The unemployment rate and the underemployment both dropped for the month. That was with an increased Labor Participation Rate. Part of it was a big household number of 638,000. Apparently, weather stops companies from hiring, but you can drive around and do a door-to-door survey and find out that everyone has jobs? Also, a part of this might be from revisions made to last year's data.
So, is it the weather? Is it the weather that caused GM's (NYSE:GM) sales to grind to a halt? Was it weather that hurt housing and stopped the consumer?
Does it matter? Does two months of weakness make it hard for the recovery to get traction? I think the data are problematic any way you look at it.
Doesn't this mean more QE?
Probably not. QE is facing many hurdles, not the least of which is growing evidence that aside from causing P/E multiples to expand, it does very little and is far harder to exit than previously thought.
Here is what is facing Janet Yellen next week:
1. She owes favors to Obama. She has to be more sensitive to the political backlash of QE than Ben had to be. That will make her tone down her QE message.
2. She seems to encourage actual discussion more than Ben did. The others, Fisher in particular, seem to realize that if you are going to have a voice, you better start early because it is hard to change policy once it is entrenched. Look for her to face more vocal input into policies.
3. She is smart and wants to put her own stamp on things. She may introduce new ideas. They may or may not be received well by a market that got to like what QE offered -- higher equity prices.
What are we doing?
We are adding to our Treasury short. We are taking our 10-year short position to 30% from 10%.
We will be watching markets closely, but my best bet here is that risk assets finish the day lower from here AND that Treasuries finish the day lower as well. I don't like how either are trading right now.
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