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Mon, 20th February 2017

Anirudh Sethi Report

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Archives of “US Market” Category

Overnight US Market :Dow closed + 2 points.Nasdaq closed sharply down -56 points

The Dow Jones industrial average ended up fractionally Wednesday after a big jump in oil prices on word of an OPEC oil deal.

Tech stocks took a hit as the major indexes ended mostly lower to cap a wild month.

The Dow lost considerable steam, ending up a mere 2 points and about 29 shy of its record closing high of 19,152.14. Earlier in the day, it and the S&P 500 topped their closing records, both set Friday, before scaling back. The S&P 500 wound up in negative territory, down 0.3%

Losing more altitude is the Nasdaq composite, which fell 1.1%.

The price of benchmark U.S. crude jumped as much as 9%m ending about a dime over $49 a barrel after OPEC countries moved toward finalizing a deal to reduce production.

Among energy companies, Devon Energy (DVN) jumped 14.6%, the biggest gain in the Standard & Poor’s 500 index.

Goldman Raises S&P Target To 2,400 On “Trump Hope”

Having warned for nearly all of 2016 that the market is getting ahead of itself on the back of median P/E multiples that are higher than 99% of all historical reading, Goldman chief strategist David Kostin stubbornly kept his year end S&P target at 2,100 on valuation concerns.

Today, however, with oil soaring and the S&P at all time highs, he finally threw in the towel as a result of the Trump victory, and in a report Kostin writes that the Trump “Hope” will dominate through 1Q 2017 as S&P 500 climbs by 9% to 2400.  However, at that point, “less-than-expected tax cuts and higher inflation and interest rates will limit both upward EPS revisions and any P/E multiple expansion. S&P 500 will end next year at 2300, reflecting a price gain of 5% and a total return of 7% including dividends.”

Here is the summary from Goldman:

  • US equity investors have focused “more on hope than n fear” since Donald Trump’s election. Ironically, many commentators believe his campaign rhetoric focused “more on fear than hope.” In 2017, we expect the stock market will be animated by competing views of whether economic policies and actions of President Trump and a Republican Congress instill hope or fear.
  • “Hope” will dominate through 1Q 2017 as S&P 500 climbs by 9% to 2400. The inauguration occurs on January 20 and our Washington economist expects much legislation will be proposed during the first 100 days. The prospect of lower corporate taxes, repatriation of overseas cash, reduced regulations, and fiscal stimulus has already led investors to expect positive EPS revisions. Instead of our baseline adjusted EPS growth of 5% to $123, growth could accelerate to 11% and reach $130, which would support a P/E multiple above 18x. Top “Hope” investment recommendations: (1) Cyclicals vs. Defensives; (2) Stocks with high US versus foreign sales exposure; and (3) High tax rate companies.
  • “Fear” is likely to pervade during 2H and S&P 500 will end 2017 at 2300, roughly 5% above the current level. Our economists expect inflation will reach the Fed’s 2% target, labor costs will be accelerating at an even faster pace, and policy rates will be 100 bp higher than today. Rising inflation and bond yields typically lead to a falling P/E multiple. Congressional deficit hawks may constrain Mr. Trump’s tax reform plans and the EPS boost investors expect may not materialize. Potential tariffs and uncertainty around other policy positions may raise the equity risk premium and lead to lower stock valuations in 2H. The median stock trades at the 98th percentile of historical valuation based on an array of metrics. Top “Fear” investment recommendations: (1) Low vs. High labor cost companies; and (2) Strong vs. Weak Balance Sheet stocks.
  • Money flow represents a potential upside to our baseline forecast. Equity mutual fund and ETF inflows may benefit as investors lose money owning bonds. After years of active management underperformance and outflows, higher return dispersion will increase the alpha opportunity for investors skilled enough to capture it. Economic policy uncertainty and the later stages of the economic cycle are typically associated with higher stock return dispersion

Overnight US Market :Dow closed 24+ points

The three major stock indexes moved slightly higher Tuesday as health-care companies rallied on the results of UnitedHealth Group, outweighing declines in energy companies.

Tiffany jumped after it reported better quarterly results than analysts expected.

The Dow Jones industrial average and S&P 500 inched up 0.1% each. The Nasdaq composite climbed 0.2%. Earlier, it hovered around its record closing high of 5,398.92, set Friday, before scaling back a bit.

It was the second straight down day for the broad Russell 2000, however, which slipped 0.1%. Monday’s skid of 1.4% snapped an amazing 15-day win streak, its longest in 20 years.

OPEC nations meet Wednesday to try to finalize a deal that would reduce oil production, but the possibility of a deal seems to be falling apart. Saudi Arabia’s representatives have sounded skeptical while Iran is hesitant to limit its own output as it ramps up production following years of international sanctions.

Overnight US Market :Dow closed -54 points ,S&P 500 Closed – 12 points

 Stocks slipped Monday after setting records throughout last week. Consumer companies and banks are taking some of the largest losses. Energy companies are climbing as the price of oil jumps.

The Dow Jones industrial average, S&P 500 and Nasdaq composite closed down 0.3%, 0.5% and 0.6%, respectively.

Also finished lower down — by 1.4% — was the Russell 2000, an index of smaller companies. It had risen for 15 days in a row, its longest streak in 20 years. All four indexes finished at record highs Friday.

Online retail giant Amazon fell 1.8% and toy maker Hasbro lost 2.8%. Banks, which have been on a strong run since the election, also traded lower. Citigroup slid 1.7% and Charles Schwab dropped 1.2%.

The price of benchmark U.S. oil surged 2.3% to above $47 a barrel. Major oil producers from OPEC will meet Wednesday to discuss output cuts to shore up prices.

Germany’s DAX index dropped 1.1% while the CAC 40 in France fell 0.9%. The FTSE 100 index of leading British shares slipped 0.6%. Hong Kong’s Hang Seng index advanced 0.5% and Tokyo’s Nikkei 225 gave up 0.1%. Seoul’s Kospi added 0.2%.

Bond prices edged higher. So the yield on the 10-year Treasury note fell, to 2.33% from 2.36%.

The dollar inched higher compared to other currencies. It slipped to 112.39 yen from 113.04 yen. The euro fell to $1.0573 from $1.0592.

Overnight US Market :Dow Closed +59 points.

U.S. stocks ended mostly higher Wednesday, with the Dow Jones industrial average and the S&P 500 again setting new all-time closing highs after strong results from farm equipment maker Deere.

However, technology stocks slipped after HP released a weak profit forecast.

Helped by gains for industrial companies Caterpillar and United Technologies, the Dow Jones industrial average climbed about 59 points, or 0.3%, to 19,083.18. The Standard & Poor’s 500 index inched up 0.1% to 2204.72.

The Nasdaq composite dipped 0.1% to 5,380.68. Trading was relatively light ahead of the Thanksgiving holiday. U.S. markets will be closed Thursday and will close early on Friday at 1 p.m. ET.

The Russell 2000 index of small-company stocks, which has risen for the previous 13 trading days, was up 0.2%. The index has closed at a record high for eight consecutive days. It’s up 18% this year, more than twice as much as the S&P 500, which tracks large companies.

Overnight US Market :Dow closed above 19000 + 67 points

Get out the Dow 19,000 rally caps. The Dow Jones industrial average, arguably the world’s best-known stock market gauge, closed above the 19,000 barrier Tuesday for the first time in its 120-year history.

For the second straight day, all four major U.S. stock indexes touched new record-high territory. The Dow jumped 67.18 points, or 0.4%, to close at a record high of 19,023.87.

In a day of milestones, the benchmark Standard & Poor’s 500 stock index closed above 2200 for the first time ever as it rose 4.76 points, or 0.2%, to 2202.94. The Nasdaq composite rose 0.3%, to an all-time closing high of 5386.35 and the Russell 2000 gained 0.9% to 1334.34, its thirteenth straight session of gains — its longest winning streak in 20 years.

The assault on Dow 19,000 has taken nearly two years, or 700 calendar days, since it took out the 18,000 barrier back on Dec. 23, 2014. It was the slowest climb from one 1,000-point milestone to the next since taking nearly six years to climb from 14,000 in July 2007 to 15,000 in May 2013. (That long drought, of course, coincided with the Great Recession and the worst stock market decline since the Great Depression.)

Dow 19,000 is the latest signal that the rally sparked by Donald Trump’s surprise presidential election win is broadening as investors continue to bet on the prospects for a more investor- and business-friendly White House and Congress.

Whether the bullish hype turns out to be the right trade remains to be seen, as Trump has yet to get the keys to the White House or make one of his campaign promises come true.

Overnight US Market :Dow closed +89 points.S&P 500 Up 16 points.

U.S. stocks jumped Monday as all four major U.S. indexes closed at new record highs.

Stocks got a lift from energy stocks as the price of oil jumped. Investors are hoping that OPEC countries will soon finalize a deal that would cut oil production and help support prices. The start of the week once again brought several corporate deals, with companies in the energy and technology industry making moves.

The Standard & Poor’s 500 index rose 16.28, or 0.8%, to close at a record 2198.18. The Dow Jones industrial average gained 88.76, or 0.5%, to a record close of 18,956.69. The Nasdaq composite index gained 47.35, or 0.9%, to close at an all-time high of 5368.86.  The Russell 2000, an index of smaller companies, rose 6.59, or 0.5%, to 1322.23.

For the past couple of weeks, the main driver in markets has been the election of Donald Trump as the next U.S. president and bullishness about possible pro-growth fiscal policies. In general, his victory has helped stocks and the dollar but weighed on bonds. But slowly attention is shifting onto other matters, including next month’s widely anticipated interest rate hike from the Federal Reserve.

Also generating attention is the next meeting of oil ministers from the OPEC oil cartel on Nov. 30 in Vienna, Austria. Expectations are growing that the ministers will push through a production cut following an indication recently that one was on the cards. That’s helped buoy oil prices in markets.

Benchmark U.S. crude oil rose to its highest price this month. It gained $1.80, or 3.9%, to $47.49 a barrel while Brent crude, the international standard, rose $2.04, or 4.4%, to $48.90 a barrel in London.

 

Why Deutsche Bank Thinks The S&P Is Going To 2,500 Next

For the past year, Deutsche Bank was one of the most stubbornly pessimistic banks. Then, overnight, everything changed for one reason: Donald Trump.

The German bank laid out its 180-degree change in opinion in a 30-page Friday note titled “Trump: the huge picture for stocks”, in which it revealed that it now expects the S&P to easily rise to 2,250 by Trump’s inauguration, and then rise to 2,500 by 2018 “before suffering its next bear market.” 

While not necessarily the “huge picture”, here is the big picture summary of DB’s note: 

In the first week of President elect Trump, most of our investor conversations centered on their concerns about a higher fiscal deficit lifting Treasury yields and pressuring PEs and a stronger dollar/ weak oil prices pressuring the EPS outlook and the possibility of protectionism. While we don’t ignore such risks, we think the market is under appreciating the likely big boost to S&P EPS from a lower corporate tax rate and the boost to Bank profits from rising yields (and lower pension expense) and the much higher chance now of a long lasting economic expansion that rivals the 10 year US record. We’re more confident now that the S&P will reach 2500 in 2018 before suffering its next bear market.

Overnight US Market :Dow closed -36 points.

The U.S. stock market finished lower Friday but higher for the week as Wall Street heads into a holiday-shortened week when the focus will be on a slew of economic data and fresh scrutiny of a suddenly surging U.S. dollar and rising interest rates.

The past week on Wall Street centered on competing forces as the domestically focused small-company Russell 2000 stock index continued its hot streak, hitting another record high Friday and extending its winning streak to 11 sessions. Similarly, the tech-heavy Nasdaq notched an intraday record Friday.

Still, fresh headwinds emerged in the form of an appreciating U.S. currency and a sell-off in the U.S. government bond market that sent the 10-year Treasury note yield, which moves in the opposite direction of price, soaring to its highest intraday level (2.351% at its high point Friday) since Dec. 4, 2015, according to Tradeweb.

Stocks finished the week mixed. The Nasdaq closed down 12.46 points, or 0.2%, to 5321.51, after setting an all-time intraday high of 5346.80. The Standard & Poor’s 500 fell 5.22 points, 0.2%, to 2181.90, but remained within striking distance of its record closing high of 2190.15 set Aug. 15. The Dow Jones industrial average, which set a record high this week, closed down 35.89 points, or 0.2%, to 18,868. All the major stock indexes posted gains for the week.

Overnight US Market :Dow closed +36 points.

Stocks rose Thursday as Federal Reserve Chair Janet Yellen emphasized that the Fed is likely to raise interest rates ‘relatively soon’, which sent bond yields higher and gave banks a boost.

The Standard & Poor’s 500 index gained 10.18 points, or 0.4%, to close at 2187.12, just 3 points short of its record closing high of 2190.15 set August 15. The Nasdaq composite index jumped 39.39, or  0.7%, to 5333.97, slightly short of its all-time closing high of 5339.52 set September. 22. The Dow Jones industrial average, which hit record highs last week, gained 35.68 points, or 0.2%, to close at 18,903.82. .

Federal Reserve Chair Janet Yellen said again that the Fed is more likely to raise interest rates soon. She testified before Congress, and in prepared remarks, Yellen sketched a picture of an improving U.S. economy. The Fed is widely expected to raise rates when it meets in mid-December. She added that if the Fed keeps waiting now and later raises rates too quickly, that increases the risk of a recession.

Bond prices slipped. The yield on the 10-year U.S. Treasury note jumped to 2.28% from 2.22%. Bond yields rise when investors expect higher interest rates.

Though the election of Donald Trump as the next U.S. president has complicated the U.S. economic outlook, financial markets still think that a Fed rate hike next month is far more likely than not. What’s more interesting to markets is when the ensuing rate hike will be and it’s here that Trump’s victory could impact. Trump has promised to cut taxes and raise infrastructure spending, measures that could boost economic growth and potentially spur inflation. That’s seen a rally in stocks, a sell-off of U.S. bond yields and a concurrent rise in the dollar.