With continued uncertainty in global markets, today two legends in the business sent King World News powerful pieces that covered everything from baseball to major markets to what surprises to expect at the end of the year.
November 3 (King World News) – From Jeff Saut’s note today: “This sector [energy] is also the largest contributor to the earnings decline for the S&P 500 as a whole. If the Energy sector is excluded, the blended earnings growth rate for the S&P 500 would jump to 5.0% from -2.2%.” …FactSet “Earnings Insight,” 10/30/15
The stock market is on fire right now. If it were a baseball team, it would have to be the Kansas City Royals, who just closed out the 2015 Major League Baseball season in style by trouncing the New York Mets to win the World Series.
I was a huge baseball fan growing up, and when I wasn’t playing or watching the sport, you’d often find me off somewhere analyzing all the numbers and statistics found on the backs of trading cards even before Moneyball made it cool (ok, maybe not cool but at least cool enough to produce a movie starring Brad Pitt). My obsession with the stats side is likely a big reason why I gravitated to analyzing financial statistics and indicators once my playing career ended, and may even explain why my playing career ended when it did. Perhaps if I had spent less time learning every pro player’s batting average and more time learning how to hit a slider, I’d still be playing baseball instead of sneaking it into a market commentary.
However, I did manage during my senior year of high school to get a double off of Wade Davis, who was on the mound for the Royals to close out this year’s World Series and who played for my school’s big division rival (I’ll leave out what happened during the other times I faced him). But while Davis’ Kansas City team used sound fundamentals to go on their strong run, it remains a question as to how sound this market’s fundamentals really are.
The S&P 500 jumped another 1.17% yesterday to close above 2100 and continue the hot streak that just produced the best month for stocks since October 2011 and the tenth best month during the last 28 years! However, I’m not really sure what has changed over the last 31 days to justify this run aside from the more dovish expectations for the Fed, so I’ll point out again that several indicators I follow are extremely overbought at the moment and the risk level remains elevated for some sort of short-term pullback.
The market has certainly demonstrated its technical strength recently, but keep in mind that there were many trades that took place between 2100 and 2130 earlier this year that could act as resistance here, and I’m just not sure this market has enough momentum after 25 sessions to power through this ceiling on the first try. It was interesting that yesterday’s robust performance was led by the small and micro-caps, which finally appear to be participating in this rally in earnest, but I want to see that relative strength continue before I get too excited about the true return of risk-taking to the market.
The Russell 2000 is approaching both its September high and the 200-day moving average, which may prove to be tough obstacles this far into the run, so perhaps more than anything else I will be watching the action in the small-caps over the coming days to see what kind of attack the bulls can mount. However, considering the large caps are already more overextended above the 50-day moving average than at any point in the last four years, stocks may need some time to reload.
Also, this is a portion from Art Cashin’s note: Does Santa Have Some Helpers In The Corner Office – The WSJ’s keen-eyed Kristen Scholer explored the calendar connection with corporate buybacks. Here’s a bit of what she noted:
Consumers likely won’t be the only ones shelling out this holiday season. Companies typically ramp up their stock buybacks as winter sets in, a trend which could provide a boost to equities.
“If stocks are being bought back aggressively, it tends to make the year end up on a spike, like a sugar high for equities,” said Dave Lutz, head of ETF trading at JonesTrading.
Nearly 25% of all annual buyback activity happens, on average, in the final two months of the year, according to Goldman Sachs Group Inc. November is typically the busiest month with companies spending 13% of their annual repurchase dollars then, the bank’s data show, which covers years 2007 through 2014, but excludes 2008 during the financial crisis. December ties with May for the third most active month with 10% of annual repurchase dollars being spent then.
She then added to the tantalizing possibilities for yearend.
Mr. Lutz said share repurchases toward the end of the year come when liquidity is otherwise drying up around the holidays. That means the buybacks can have a more outsized impact on share prices than they typically do, he said.
Repurchase activity can heat up around this time in part because companies need to complete their announced authorizations before the calendar year wraps up. And it doesn’t hurt that November and December follow a black-out period when companies are precluded from repurchasing their stock leading into earnings.
Mr. Lutz said November and December can also be busy months for buybacks because “companies want to see their stocks finish on a high for the year.”
With two months left in 2015, an increase in buyback executions would be bullish for stocks in the near term.
Let’s hope the pattern holds.
Overnight And Overseas – Tokyo closed for “Culture Day”. Shanghai was softer but Hong Kong rose. India and the emerging markets were a bit better. European markets are down a bit with new questions on Volkswagen and financials hurt by Standard and Chartered. The dollar is firm against the Euro and the yen. Gold is soft again with crude moving a bit higher. U.S. futures are looking down but, so far, only mildly so.
Consensus – New money for a new month has an influence for anywhere from 1 to 3 days, so that’s a wild card. Bulls may get some help from firming crude. The fly in the ointment would probably be a geo-political surprise. Stick with the drill – stay wary, alert and very, very nimble. ***ALSO JUST RELEASED: ALERT: Stock Market Mutual Funds See Largest Outflows In 30 Years! CLICK HERE.
***KWN has also released the incredible audio interview with London metals trader and whistleblower Andrew Maguire, where he discuses the great unwind that is going to take place in the gold and silver markets, what traders should expect next, and where gold and silver prices are headed, CLICK HERE OR ON THE IMAGE BELOW.
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