Outlook for February 2017

Wow…we are already one month done in 2017. Time sure flies by. Things are getting pretty interesting in the market these days. The stock market is continuing to set new all-time highs with the DJIA hitting 20K finally (not that the number really means anything). But there are some traders which are starting to question whether this “Trump rally” really is warranted and if the market is getting ahead of itself. The earnings expectations are still down and not rising anytime soon based on the forward guidance from most companies, so a broad market rise like this is raising some eyebrows. 
Continue reading

Outlook for 2017

Happy New Year! 2016 is in the books and what a year it has been. The year saw some major geo-political events that most analysts were completely blindsided by, such as the Brexit vote and the US presidential election. Overall, the market sentiment has shifted to a more bullish side after a flat market the year before (in 2015).

How’d the markets do in 2016? Here’s some chart porn courtesy of Novel Investor.

Continue reading

Outlook for December 2016

Well, here we are. Plenty to look forward to as we ring in the end of a rollercoaster year. Things still seem to be chugging along nicely as investors are happy about the state of the world economy (even though they shouldnt be). The Fed is almost guaranteed at this point to raise the interest rates by another 25 basis points. In anticipation, we have seen major holders such as sovereigns (such as China, Saudis etc) dumping treasury bills in the market driving up the yield and changing the yield curve. With the increase in yield, we noted a milestone achieved during the month of November — the 10 yr US treasury yield crossed above the S&P 500 yield. Over the past decade, the narrative has been to pay a higher premium and go into riskier assets (i.e., stocks) to generate income…now that the same kind of income can be generated in a less risky asset (i.e., bonds), investors have to question whether they want to own stocks to generate same level of income. It will be interesting to note how the market proceeds, and we are already seeing a slow slide in share prices in some of the stock sectors such as consumer staples, healthcare, REITs, telecommunications etc. As of this writing, $3T (yes, trillion) have already been wiped out from the bond markets due to rising yields — the other markets (stock mkts, currency mkts) will feel the effects of this storm.

Other central bankers seem to be heading the other way as they are more in tune with the problems in their respective economies. The Bank of Canada has in the past given clear indication that the monetary policy could see further easing – potentially a rate cut from the current 0.5% in their October Policy Report.

Continue reading

Outlook for November 2016

We are well into the last quarter of the year and corporate earnings season is demonstrating some telling signs of the overall state of the economy. Some sectors are chugging along just as usual, but things do not look good for some sectors such as Cons Disc or Industrial. The adjusted EPS numbers continue to temper investors’ emotions and stopping them from dumping the stocks and anemic growth. Meanwhile, M&A deals have been roaring as the companies flush with cheap access to cash continue destroying shareholder value. M&A deals always increase late in the cycle as corporate boards flush with cash try to bump their falling revenues and earnings with desperate need to prop up stock prices. These moves are as predictable as they come.

On the central banks front, its business as usual. Lots of circular reasoning and lost credibility from the Broken Fed as they fail to raise rates again while passing hawkish and dovish comments every other day. In central bank world, devoid of any reason and completely disconnected from reality, everything appears normal. Current expectations remain that the Fed will raise the rates in December (based on bond market probability matrix). However, it was very interesting to note that Yellen used the words “high-pressure economy”, which is an indication that the rise in interest rates may not be as rapid as previously perceived and/or showing some doubt on even raising rates. Any increase in interest rates will bring immense turmoil into the markets as it has a cascading effect on bond markets, stock markets, currency markets and the commodity markets. All eyes will be focused on the Fed.

Other central bankers seem to be heading the other way as they are more in tune with the problems in their respective economies. The Bank of Canada, for the first time in a while gave some clear indication that the monetary policy could see further easing – potentially a rate cut from the current 0.5% in their October Policy Report.

I continue to watch from the sidelines and hoard cash waiting for the fat pitches. I am the least bit interested in staying fully invested here and make a measly 1% or 2%. I continue liquidating more of my riskier assets and purchase hard assets instead – which should provide some shelter and see benefit during the coming turmoil.

Continue reading

Outlook for October 2016

The third quarter for 2016 finally comes to an end and it will be interesting to note how companies have performed. Most companies have had falling earnings for a few quarters now, but the stock buybacks have kept the stock prices buoyant, portraying a better than actual EPS number. However, the buybacks appear to have peaked and slowed down a bit according to research from FactSet. This, and when you consider that the earnings numbers put forward by companies do not even conform to standard accounting practices just stinks of an massive con in the equity markets. Income Surfer has already brought our attention to this fact last quarter, so I will point you to the post “This Quarter Has Been Adjusted” instead of repeating it all here. Whether this will translate to the fireworks we’ve been expecting now or will we have to wait a few more months? I have no idea…but I remain hopeful that the market will provide some great opportunities in the coming weeks/months.

On the central banks front, its business as usual. Lots of circular reasoning and lost credibility from the Broken Fed as they fail to raise rates again while passing hawkish and dovish comments every other day. In Yellen-Wonderland things appear to be awesome. Current expectations remain that the Fed will raise the rates in December (based on bond market probability matrix). Other central bankers are going the other way, most of them cutting interest rates as the economies are anemic. All eyes will be on the central banks to get a glimpse of future expectation.

I continue to watch from the sidelines and hoard cash waiting for the fat pitches. I am the least bit interested in staying fully invested here and make a measly 1% or 2%. I continue liquidating more of my riskier assets and purchase hard assets instead – which should provide some shelter and see benefit during the coming downturn.

Continue reading