Posts by Michael Santoli
Michael Santoli at Yahoo Finance 19 hrs 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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Michael Santoli at Yahoo Finance 2 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.”
Michael Santoli at Yahoo Finance 3 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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Michael Santoli at Yahoo Finance 6 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.
Michael Santoli at Yahoo Finance 7 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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Michael Santoli at Yahoo Finance 8 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.
So who’s brave enough to take on that pain?
Michael Santoli at Yahoo Finance 9 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.
Michael Santoli at Yahoo Finance 10 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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Michael Santoli at Yahoo Finance 15 days ago
The club has a strictly limited membership, granting to those admitted the right to handle lucrative traffic flow. Though members must adhere to certain explicit obligations, the arrangement nurtures a thriving, protected industry – until new technology threatens the cozy collective and brings tough competition through greater customer choice.
This describes the New York City yellow-cab market, in which owners of a fixed number of taxi medallions profited for decades thanks to steady fare increases and their exclusive ability to pick up street hails.
This tightly restricted access to a reliable business consistently boosted the value of those medallions. From 1975 through 2013, medallion prices soared 2,700%, compared to less than 1,700% for the Dow Jones Industrial Average.
Until, that is, Uber Technologies spread fast through the city, winning over customers with its handy on-demand service and undercutting revenue per taxi shift and eroding the value of those once-coveted medallions.
Since hitting a high of $1.2 million early last year, medallion prices have tumbled, with the latest trade occurring at $870,000.
Michael Santoli at Yahoo Finance 20 days ago
Like many things that are good for us in the long term, spreading investments across all corners of the world means tough sacrifices and moments of doubt.
Owning emerging-markets stocks in a diversified portfolio has been painful in recent years, especially for a U.S. investor who earns and spends in strengthening dollars.
The main emerging-markets ETF, iShares MSCI Emerging Markets (EEM), is trading at a four-year low. U.S. stocks, by some measures, are at a 10-year high relative to emerging equities.
To cite one dramatic example, Brazil, as tracked by the iShares MSCI Brazil Capped ETF (EWZ), is down more than 40% in dollar terms in the past year, giving back nearly all of the prior decade’s gains.
An investor in developing economies right now is effectively fighting the Fed - and fighting all the global forces that are driving the Fed to begin pushing interest rates higher before too long.