Posts by Michael Santoli

  • Market turmoil kicks up opportunity in deeply discounted funds

    Michael Santoli at Yahoo Finance 6 hrs ago

    Let’s say you’ve watched the quick-and-nasty crunch in stock and corporate bond prices the past couple of weeks and want to treat it as a buying opportunity to gain or rebuild long-term exposure to these investments.

    But the market still acts squirrely, and the S&P 500’s 6% jump from recent lows in two days means the deft traders might’ve collected much of the reflex-rebound cash.

    There is a narrow swath of the market, though, where historically wide markdowns remain available to pretty much anyone.

    Closed-end funds are like mutual funds, except their shares trade on an exchange like a stock. For this reason, their shares often trade at a premium or (more commonly) a discount to the net asset value of the securities they hold.

    Right now, the wave of fear washing through markets has driven wider-than-usual discounts in CEFs holding rather standard portfolios of stocks, corporate bonds and municipal debt. The typical CEF is trading at a double-digit discount, meaning a dollar’s worth of its portfolio can be bought for less than 90 cents.

    But a scan of fund expenses and leverage rules can eliminate those CEFs that are most likely to hurt owners.

  • Three tests face a market shaken by volatility storm

    Michael Santoli at Yahoo Finance 11 hrs ago

    Doing what it could to humble the greatest number of people, the stock market followed its ominous downside dump Tuesday with the best two-day surge since the dawn of this bull market.

    Among the questions greeting a nervous summer Friday after the S&P 500 jumped 6.4% in two sessions: Do dead cats bounce that high? Another: Are such violent moves a hint of of further pain, or just a passing manic phase?

    With stocks still 7% below their recent highs, it seems there are at least three core challenges facing the market: A badly broken trend, the still-dangerous winds of this volatility storm, and the Fed’s response to all the noise.

    The S&P 500 (^GSPC) chart is busted.

    After months of sideways stasis, stocks have cracked through plenty of trend levels, laying waste to nearly a year’s worth of upward progress in a couple of weeks.

    Long-term investors need not care much about the look of a chart, but it depicts a velocity of wealth destruction and an upending of once-reliable trend lines that reassured buyers.

    The volatility storm has imposed alarming damage.

    The Fed’s fix will be in focus for weeks.

     

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  • Don't ignore the chance of a 'mild' bear market

    Michael Santoli at Yahoo Finance 1 day ago

    The suddenly violent market has spun investors’ heads around. Ideally this is forcing them to consider a broader range of possible paths ahead for stocks.

    Wednesday’s powerful, if overdue, 4% bounce in the big indexes relieved the immediate pressure. But it’s a reprieve, rather than a pardon, for a tape that has relinquished the benefit of the doubt.

    The S&P 500 (^GSPC) failed even to climb back to the high of the prior day’s badly failed rally. The 619 points the Dow (^DJI) rose yesterday represent less than a third of the ground it lost in the prior week.

    If the main requirement for a decent bottom in stocks was a fearful and confused investing crowd, we’d be pretty close.

    The demand for downside protection in the form of index put options and bets on surging volatility has reached historic levels. The weekly Investors Intelligence poll of investment advisors showed the lowest number of professed bulls in five years. The CNN/Money Fear & Greed Index is deep in Extreme Fear territory.

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  • Unhinged market tests Wall Street rules of thumb

    Michael Santoli at Yahoo Finance 3 days ago

    We’re moving from an indiscriminate selloff to a discriminating bounce.

    After three days of sweeping carnage in global stock markets, overnight Chinese stocks (000001.SS) suffered more injury and Japan (^N225) fell further. But Europe and US stocks were poised to stage at least reflex rallies.

    This was even before the widely anticipated easing move from the People’s Bank of Chinawas announced before 7 am New York time. The fact that Western markets were set to de-link from China’s manic market is a positive, if only a tentative one.

    With the immediate prospect of an ongoing crash set aside at least for the moment, an investor’s greatest risk is perhaps being hit by an errantly thrown cliché.

    In volatility attacks, supposed rules for surviving and profiting from are thrown around both by real and would-be market gurus.

    The S&P 500 fell more than 2% a day for three straight sessions, a rarity outside the crucible of bear-market climaxes.

    “Markets never bottom in August.”

  • It's now a bull with claws, as traders await a washout

    Michael Santoli at Yahoo Finance 4 days ago

    The market owes us nothing – not even an explanation.

    After rising for six-and-a-half years and reaching a generous valuation in a slow-growth world, big U.S. stocks had gone a long way toward pricing in a healthier corporate economy.

    Perhaps the idea that the market owes us no more, that bullish investors were playing only for an “upside overshoot” beyond fair value, set the context for this nasty selloff of the past week. But that’s not very enlightening or helpful right now, as markets look to extend a sloppy selloff into a new week.

    Yes, China’s currency devaluation and the disorderly descent of its stock market are the proximate culprits here. But emerging-market assets have been in a smothering decline, commodities were being liquidated and credit markets have been unsettled for months.

    Now the broad market is making up for a monotonous plot by packing lots of drama into a brief period. Our market has gone from shrugging off global turmoil to throwing up hands in surrender to them.

    So here are a few things to consider as red fills quote screens this morning:

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  • 'Normal' stock drop breaks an uncommon market calm

    Michael Santoli at Yahoo Finance 7 days ago

    This stock market slide is like a 60-degree August day in San Diego: A rude shock for those used to the steady local norm, but otherwise pretty mild to anyone who’s at all worldly.

    The smothering pressure of asset declines across the developing world has finally forced the S&P 500 (^GSPC) out of the tight box that’s contained the index for the past half year.

    Thursday’s relentless but not-quite-panicky 2.1% loss placed the benchmark a few points beneath its March low. Traders relying on this slender trading range holding up now need a new game plan.

    Yet one reason it feels a bit jarring is because the US equity market has been unusually flat for months, lulling us with sideways choppy moves.

    The S&P is now at a six-month low, yet is only down 4.5% in that span. That is the smallest decline out of the 623 six-month lows registered by the index since the year 1928. For what it’s worth, the one-year forward returns from a six-month low in the index have been better than the average yearly performance over the long stretch of history, according to Yahoo FInance contributor Ryan Detrick.

  • Staring into a void, investors pull cash from harm's way

    Michael Santoli at Yahoo Finance 8 days ago

    If nature abhors a vacuum, investors aren’t so crazy about them either.

    It’s hard to avoid all the voids right now. The August Wall Street vacation evacuation is well underway, markets are facing an absence of inflation, huge air pockets underneath commodities and emerging-market currencies – and a vexing lack of clarity about what the Fed might do in less than a month’s time.

    The collective response to this environment devoid of strong conviction has been to pull cash out of riskier markets and wait.

    Barclays Capital says more than $90 billion has sought the shelter of money-market funds in the past six weeks. That’s roughly the same magnitude of flight response seen in other “risk-off” spasms of the past four years, from the 2011 Euro debt crisis, the “fiscal cliff” drama of 2012 and the “taper tantrum” in 2013.

    Professional investors commonly speak of putting certain complicated market calls as on the “too hard” pile. There is wisdom in knowing when one has no clear edge in figuring out a delicate investment situation. But the markets still open just about every weekday, and more often than not they sag into this vacuum.

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  • Markets now serving up some 'scary-cheap' stocks

    Michael Santoli at Yahoo Finance 9 days ago

    These roiling global markets are surfacing cheap assets – almost all of them attached to some frightful risk.

    That’s why things get cheap of course – because, for rational reasons, those who owned them before got scared out of them. And so, until all the nervous money is flushed out or something changes popular opinion about the danger, they get cheaper.

    Emerging markets stocks look horrible, the iShares MSCI Emerging Markets fund (EEM) sinking almost daily in a steady march rather than a cleansing panic. They are tracking commodity prices and EM currencies lower. This fund is just about back to its 2011 lows, set during the global credit scare. Professional investors’ exposure to EM stocks hasn’t been this low for a year and a half, back to a level that preceded a nice rally, according to a new Merrill Lynch survey.

    Clearly the market still thinks company profit estimates are too high, or else EM stocks outside Asia wouldn’t be trading under 10-times forecast earnings.

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    So who’s brave enough to take on that pain?

     

  • Investors invoke ghosts of markets past

    Michael Santoli at Yahoo Finance 10 days ago

    In a market noisy with mixed messages and conflicting signals, Wall Street can't even decide what year it is.

    Once again, it's become popular among traders and market handicappers to argue that today's conditions are eerily similar to some momentous year in the past.

    Charts showing the current action synched up with earlier cycles are flying around - each picture implicitly promising 1,000 important words on what will happen next. And each one prompts even more words of disagreement over its meaning.

    So, for example, there's a chart matching up the recent pattern in the S&P 500 (^GSPC) to its path in 1937, which suggests a nasty market top has been hit. In 1937, a five-year post-crisis rally gave way to a bear market as the Fed prematurely tightened policy and Washington cut spending. Oh, and World War II was brewing in Europe and Asia.

    Note that the chart's scales are mismatched, so the magnitude of recent gains doesn't fit with those 78 years ago. But no matter – most of the propagators of these historical charts are out less for accuracy than for drama, or to support their market stance.

     

  • This is the market you've been wishing for

    Michael Santoli at Yahoo Finance 11 days ago

    It might not feel like it, but this is the market you’ve been wishing for.

    Coming into this year, investors were suffering from acute “macro fatigue,” weary of the long post-crisis phase when big global moves among central banks, currencies and government policies set the market agenda.

    When, they asked, would we return to picking individual stocks and bonds, culling the fundamentally strong from the weak and embracing a return to “normal” financial conditions?

    Well, like or not, this shift has pretty much happened. Only the result is a frustrating, anxious stalemate in the stock market rather than a refreshing game of riding the obvious winners.

    Sure, last week was consumed by macro talk over the Chinese currency reset – but through it all U.S. stocks did what they’ve done, bounced around in a range.

    Three major sectors – energy, basic materials and industrials – have suffered bruising double-digit declines this year, even as the broad market has failed to drop as much as 5% from an all-time high.

     

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