For investors focused on fundamentals, expressing any caution about equities runs the risk of watching the market rally further. Flows into equity exchange traded funds are accelerating, a powerful hint that people are betting on a big year end rally.
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are also positive on the markets
And what about next week?
“It’s a very busy week for data in general — what I would call a feast for the Fed in terms of the amount of data,” said Kristina Hooper, a U.S. investment strategist for Allianz Global Investors.
The Labor Department’s report on November nonfarm payrolls will cap a data-heavy week on Friday. It’s the last such report before the Federal Reserve’s Dec. 17-18 policy-setting meeting.
If the employment data are much stronger than expected, the Fed might decide at that meeting to scale back its $85 billion-a-month in bond buying that has boosted equities, according to Hooper.
A Santa Claus rally could be coming to town, according to some data crunching by S&P Capital IQ.
For years like this one, when the S&P 500 is up 20% or more in the first 11 months, the December gain has been 1.8%, with an increase 73% of the time.
Any company on which Warren Buffett places big bets deserves our attention.
Buffett's Berkshire Hathaway has been buying this stock since it was trading in the low $20s. Currently Berkshire holds more than $1.4 billion in shares (this represents about 1.56% of its portfolio). Another "hedgie" bull that we should mention is David Einhorn's Greenlight Capital, which owns more than $600 million in shares.
General Motors has also become the most popular stock amongst the hedge funds that we track. At the end of the third quarter, 140 funds held stakes in the company, compared to 122 at the end of the second quarter.
In other news, RBC's Jonathan Golub checks the data and finds big years for the S&P 500 are likely to be followed by ... big years. Since 1947, he says, the S&P 500's top-10 performing years have averaged a 31% gain, and have been followed by average returns of 14% in the 12 months after.
Another bear gives up
"I am out of justification to fight the uptrend," says Tom McClellan, becoming the latest bear to throw in the towel. “Up until now, I have had what I thought was compelling evidence to believe in the bearish case, but it has now been revealed to have been insufficient for the task.”
Jeremy Siegel sees 2,000 as fair-market value for S&P 500
Wharton professor Jeremy Siegel spoke on a live webcast Friday about stock valuation, saying that when interest rates are lower than 8%, U.S. equities, as measured by the S&P 500, have averaged a price-to-earnings ratio of 19.
That P/E ratio implies a fair-market value for the S&P 500 of over 2,000 based on this year’s combined earnings. That’s 10% to 13% higher than the index’s current levels.
Siegel argues that view works even if long-term interest rates, as measured by the 10-year bond, rise, since they are abnormally low thanks to the Fed.
A big reason households are doing better is the rise in home prices, leaving fewer Americans underwater on their mortgage. From lows in Feb. 2012, U.S. home prices are up 21%, according to S&P/Case-Shiller data. The latest report on that series is due on Tuesday.
U.S. stock-index futures traded higher late Sunday as Asian markets traded broadly higher. Futures for the Dow Jones Industrial Average DJIA +0.34% , the Nasdaq 100 NDX +0.57% and S&P 500 SPX +0.50% were up 0.3% apiece around 10:45 p.m. Eastern time. On Friday, the Dow industrials rose 0.3%, the Nasdaq Composite COMP +0.57% added 0.6%, and the S&P 500 imporved by 0.5%. The futures' gains came as Japan's Nikkei Stock Average JP:NIK +1.54% sat 1.1% higher in early Monday afternoon trade, while Hong Kong's Hang Seng Index HK:HSI -0.05% advanced 0.2%, and Australia's S&P/ASX 200 AU:XJO +0.32% rose 0.5%
Our so-called bubble is boring compared to China. With the helium the Fed is pumping into the economy, it’s going in the right direction, but not fast or high enough. We need to catch up, so I’m wondering if the Fed can do more. Rather than reducing quantitative easing, how about increasing the bond buying to $100 billion a month? That would keep interest rates low and delight the stock market.