Posts by Michael Santoli
When we all have worried for long enough and prices go down, markets get less risky, not more.
Greece and China didn’t get “fixed.” Investors just fretted over them enough, and market prices adjusted sufficiently, to make them seem less an immediate threat to economic health. And then the value of stocks and bonds not in the direct path of the damage lofted.
The corporate debt market was ruffled and cheapened by the oil crash and too much risky new issuance. But without a nasty accident touching the banks or the flow of capital to sound companies, credit measures have stabilized for now, allowing stocks to bounce - for now.
So have we endured enough angst over the pronounced retreat in corporate profits, and appropriately knocked down the shares of the backsliding companies in the late-summer market tumble?
Earnings for the S&P 500 (^GSPC) companies are set to have dropped nearly 5% in the third quarter, based on the 60 or so companies that have reported and forecasts for the rest.
We’re now hearing more talk of an “earnings recession,” with plenty of confusion and disagreement over what it means.
The market crash worth thinking about today is not the one that happened on this date in 1987 – the violent rupture that cost the Dow (^DJI) 22% in one day.
The slower, less severe but still painful global mini-crash of 2011 is the one that might have at least a bit of relevance for today’s situation.
The ’87 crash was a moment of brutal comeuppance for a market that was heedless and exuberant until a few months earlier. Stocks were up 40% for the year before starting to sputter in August.
This year has more closely resembled 2011 – a mostly sideways crawl as stocks digested prior years’ gains, until global credit and growth anxiety smothered fragile risk appetites that summer.
At this point in 2011, the S&P 500 (^GSPC) was down just over 2% year to date, having followed world markets lower in a nasty August-September setback and then recovered some lost ground. Right now, the index is off slightly more than 1% for the year, having recouped a bit more than half the 12.4% late summer drop.
In other words, it leaves them where they’ve been for months now, if not years.
T he market is living under the tyranny of the 2%. For so many crucial investor queries, it seems, the answer is coming up 2%.
Consider the array of indicators clustered around this number:
-The 10-year Treasury yield (^TNX) has retreated to 2.02%, on soft inflation measures, depressed global yields, the quest for safety and waning expectations of a Federal Reserve rate hike this year.
This is not a panicked level or an augur of serious recession risk. But a 2% U.S. government yield certainly doesn’t suggest much fear of economic reacceleration soon.
-In a notable bit of symmetry, the dividend yield on the S&P 500 index (^GSCP) is now in the same zone, at 2.15%. Very few investors awake each day deciding between adding fresh cash either to Treasuries or equities, but the asset classes are still tethered somewhat by relative yields.
-Markets are also fixated on 2% as the stated long-term goal for core inflation set by the Fed.This target has been elusive, though in the latest government inflation reading core prices were up 1.8% over the prior year.
Market corrections can be scary – especially when they hit so suddenly after a long stretch of calm. And it’s hard to distinguish a routine pullback from the onset of a bear market.
Yet the way the S&P 500 (^GSPC) bounced twice -- in August and September, off 2015 lows beneath the 1900 mark -- is leading some long-term investors to bet that this was a nasty shakeout that has probably passed.
Saira Malik, head of global active equity portfolio management at TIAA-CREF, is among those putting clients’ money behind the idea that the recent lows should hold.
“We actually do think the market has bottomed and will probably resume an uptrend from here,” Malik says in the attached video interview. “And that’s because investors are going to warm up to the fact that the market’s not too hot or too cold.
“The economy is basically a Goldilocks economy right now,” she adds, employing a phrase for the moderate growth pattern of the 1990s.
Long-running positive trends in domestic job growth and tame inflation have been only partially offset by “mostly transitory” negatives such as the drop in energy prices and an inventory pullback.
This week we awoke to an op-ed headlined, “How the Fed Saved the Economy” by Ben Bernanke, who is promoting his book, “The Courage To Act.”
By Thursday, you’d think the Fed had saved the markets by having the courage – or the anxiety – not to act by raising interest rates as many expected they would last month.
Stocks extended their bouncy nine-day revival Thursday after the minutes of the Fed’s “no change” meeting were taken to show a committee continuing to err on the side of lower rates for longer.
With the S&P 500’s (^GSPC) spurt above the 2000 level, the market has just about regained the benefit of the doubt that it had surrendered with faltering rebound attempts since August.
In other words, the burden of proof is back on those who don’t believe that the Aug. 24 and Sept. 29 rebounds from below the 1900 level qualify as decent bottom for now.
Still, not everything is lining up in favor of continued immediate or impressive gains from here. It’s hard to start calling confidently for one of those scripted year-end chases to the upside just yet.
With roots back the earliest industrial flour mills in the 1860s, General Mills Cos. (GIS) boasts a deep culture of food production innovation.
Under CEO Ken Powell, the Minneapolis packaged-food mainstay is applying its extensive food-science know-how both to promoting a sturdier food infrastructure in Africa, and creating products for developed markets that fit evolving customer tastes for wholesome eating.
Five years ago, General Mills founded Partners in Food Solutions, which links small and medium-sized food processors in Africa with the company’s food technology experts.
“ If we can help those smaller companies get better, [increase] productivity, have any better products…they in turn will demand more raw ingredients from the farmers upstream, the smallholder farmers in Africa. And that's a very powerful development model,” Powell says in the attached video interview, from this month’s Concordia Summit gathering on public-private development partnerships.
We can discuss Greece, China, moving averages and crowded trades without end. And we will.
But over any significant span of time, the stock market is driven by corporate profits and what investors are willing to pay for them.
Using this undeniable two-factor principle, it makes almost perfect sense for the market to be trading exactly where it is.
Near the end of July 2014 – nearly 15 months ago – the collective forecast for the next 12 months’ S&P 500 (^GSPC) companies’ per-share earnings was $127.71. Right now, the 12-month forward forecast is at $127.62, within a whisper of where it was a year-and-a-quarter ago.
And the S&P 500 itself was at 1987 late July of last year, or 15.6-times forward earnings. Today, the index is at 1995 as of last night’s close, 15.6-times expected earnings.
Of course, between then and now, the index traded down 8% by last October and then rallied 17% from there into the May high, before the latest deep pullback and partial recovery of the past couple of months.
More from Yahoo Finance
Has the volatility storm tracked out to sea like Hurricane Joaquin - giving us a scare, prompting frantic precautionary actions and inflicting isolated damage, but ultimately sparing us real pain?
That’s what the typical Wall Street weather buff is asking today. After a five-day winning streak, stocks have put some distance between the S&P 500 and its August low, while finally lowering the pitch of investor fear, if not dispelling confusion.
A bit of noise is being made now about the fact that the CBOE S&P 500 Volatility Index (^VIX), which tracks demand for protective index options, has receded below the 20 mark for the first time in more than five weeks.
While no magic threshold, many traders use 20 as the frontier between a hazardous, agitated market and a more orderly one. Certainly, the VIX chart now shows a steep spike that certainly resembles many passing market storms of years past, though it’s always tricky to sound a confident “all clear.”
Since its founding nearly 120 years ago, General Electric Co. (GE) has presented itself as the essential growth company, whose main product was “progress” as it brings “good things to life.”
Now elephant-hunting activist investor Nelson Peltz is suggesting, gently but firmly, that GE come to terms with its maturity and behave a bit more like an entrenched cash cow.
This was not Peltz’s explicit message in spending $2.5 billion for about a 1% stake in GE in what might be called a “friendly activist” approach. In a “white paper” laying out recommendations for the company and detailing its investment thesis, Peltz’s Trian Fund Management calls GE a “defensive growth” company. Trian also classifies the company's long-term organic growth prospects in its industrial and healthcare franchises as “strong.”
In many respects, such a reassessment by Immelt would merely be an acknowledgement of the way Wall Street has already defined GE in the last decade or so.