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Big Round Numbers Signal Appetite for Risk Is Back

Michael Santoli
Daily Ticker
Big Round Numbers Signal Appetite for Risk Is Back

Big round numbers are rolling through world asset markets at the moment, most of them marking a threshold leading to a revival of investor risk appetites.

Right around the 100 mark are Japanese yen to the dollar, West Texas crude oil per barrel and the annual run rate of profits for Standard & Poor’s 500 (^GSPC) companies.

Related: Oil Tops $100 Again, Here's the 1 Thing Energy Investors Need to Watch

The 1,000 level now defines the new all-time high set this week by the small-cap Russell 2000 index (^RUT), while the $1,000 milestone sits ahead of another crucial bull-market bellwether: Google (GOOG) stock.

There is nothing intrinsically significant about any one of these numbers – not even to chart-driven traders. Their appearance in this cluster is a mere coincidence, and no doubt it’s possible at almost any time to hunt for several market indicators that are bumping against a level ending in zeroes.

Related: Google and Tesla: Too Late to Touch?

Yet, as Yahoo! Finance Editor-in-Chief Aaron task and I discuss in the attached video, round numbers on traded assets tend to focus the attention of investors on how far a market has come and whether it’s justified. And in each case here, surpassing a nearby round-number value would mark an important clue that the upward trend in risk assets is sturdy.

U.S. Dollar-Yen

There’s an old saying in finance that when money is loose, the craziest banker sets the rules for everyone else with ever-riskier loans on easier terms. At this point, Japanese Prime Minister Shinzo Abe is effectively the craziest banker on earth. His radical money-printing experiment is aimed at depressing the value of the yen and moving Japan’s economy from deflation to a 2% inflation target.

The policy has already sent the yen down by 25% against the dollar since mid-November, sending Japanese stocks soaring, lifting Japanese government bond yields and helping to finance risk-taking around the world.

Capital globally has been moving in expectation that money will flow from Japanese government debt into riskier places, including the debt of some struggling European issuers. The exchange rate has lately been hovering near 101, and analysts are now predicting a more gradual depreciation of the yen from here. Yet any decline appreciably below the 95-100 range would probably suggest that investor faith in “Abenomics” was flagging, reining in risk appetites globally.

West Texas Intermediate Crude

Arguably, the rise in U.S.-traded crude oil above $100 a barrel in the past week is largely due to some geopolitical, technical and speculative factors, rather than stronger demand or economic growth expectations.

It’s certainly true that Egyptian government instability has put a bid into crude. The spread between European Brent and WTI crude has tightened to its narrowest gap in two-and-a-half years as North American pipelines and rail transport have relieved an anomalous glut at the Cushing, Okla., pricing hub. And investment funds have been aggressive buyers of crude against all manner of other, weaker commodities such as gold and copper.

Still, with growth “strong enough” to support oil around $100 – which nonetheless is not lifting U.S. gasoline prices based off Brent – the firm oil market is at least not disturbing the narrative of firm risk markets.

S&P 500 Earnings

Assuming second-quarter profit forecasts are modestly exceeded as usual, S&P 500 companies will surpass $25 per share in quarterly profits two straight quarters for the first time. Even if the present consensus full-year forecast for $108 still appears too high, American multinationals will produce that $100 in operating earnings.

They’ve used lots of tricks to get there, buying back huge amounts of their own shares and cutting labor costs to the bone, but per-share profits are what equity markets capitalize. At more than 16-times this year’s profits, stocks aren’t cheap given how mature the profit cycle is, but neither are they all that rich. For now, a rising multiple means growing confidence, not a wild buildup of bubbly speculation.

Russell 2000

While the big-cap indexes remain a few percent below their recent peaks, the small-cap Russell 2000 benchmark is at a new record, nosing above the 1000 level for the first time this week. The domestic focus of smaller companies has helped as the emerging world and Europe struggle.

Ryan Detrick of Schaeffer’s Investment Research has noted that the 1000 threshold acted as a cap on the Dow Jones industrials (^DJI) for more than a decade from the late ‘60s to the early ‘80s. More recently the S&P Mid-Cap 400 (MDY) took 20 months to surmount it. He sees the Russell’s tentative push above it as a positive sign for the broad market. At minimum, a stock market being led, as this one, by small stocks, consumer names and regional banks is hard to get too bearish about.


Shares of the tech-and-advertising bellwether are about 10% below the $1,000 milestone. As the blue-chip growth leader, any extension to new highs by the indexes would almost necessitate Google getting there - and would be suspect if Google didn’t. Four analysts have four-digit price targets on Google – which actually suggests a healthy sobriety in Wall Street toward the stock.

Another high-priced tech favorite, Priceline.com (PCLN) had a $1,000 price target dangled in front of it by Morgan Stanley – about a 13% gain from its recent $887 quote. Unlike Google, Priceline qualifies as one of the select few momentum-stock cult favorites in the market.

As Task notes in the video, a few of these have cracked lately – and cracked hard, as stocks tend to do when faith is shaken -- including Intuitive Surgical (ISRG) and Lululemon Athletica (LULU). On the whole, though, many such names persist in defying their many detractors, either continuing to scale new heights, like Tesla Motors Inc. (TSLA) or recovering impressively after setbacks to stalk old highs, such as Chipotle Mexican Grill (CMG).

The existence of a group of expensive, passionately loved and avidly derided momentum names speaks to the dearth of rapid-growth stories in the market, and aggressive investors’ willingness to chase them at any price – for now.

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