Posts Tagged S&P 500
Earnings-yield on S&P 500 at two decade-high
Posted by Oksana Grebenjuk in Favourites, Fund Markets on Октябрь 6th, 2010
The earnings yield (EY) on the S&P 500 index is now above 7 percent, which is typically the kind of yield an investors would get from an average junk bond.
EY amounted to 7.09 percent for the S&P 500 as of June 30, 2010 — the highest quarter-end level in two decades.
This either means that stocks are very cheap (relative to bonds) and might make an attractive buy; or that investors have such a pessimistic view of the economy that they expect earnings growth to slow down over the next few quarters (or even years), given the grim economic backdrop.
EY is simply the earnings per share for the recent 12-month period divided by the current market price per share.
Generally speaking, if the EY of a broad stock index is less than the rate of the 10-year Treasury yield, stocks could be considered overvalued. If the earnings yield is higher, stocks might be considered undervalued relative to bonds
Traditionally, stock investors have demanded an extra risk premium of several percentage points above the risk-free rates of Treasuries to compensate for the greater risk inherent in owning equities. Read the rest of this entry »
Who Is Going To Be Wrong: The Bond Market Or Stock Market?
Posted by Oksana Grebenjuk in Fund Markets on Октябрь 4th, 2010
One of the more bizarre contradictions of the recent rally in equity markets, is the complete refusal by the bond market to budge from its deflation/recession view. In most cases, the equity and bond markets trade according to the same economic outlook.
If the market believes inflation/growth is on the way, stocks rally and bonds fall (yields rise). Conversely, when the outlook is for deflation/recession, equities fall and bonds rise (yields decline).
However, there is currently a deep divide today as the stock market (and commodity market for that matter) trades like growth and inflation are on the way, but the bond market is holding to its deflation/recession view. Below is a 3 year chart which compares the 10 year treasury to the SP 500.
You can clearly see that while the two can briefly diverge, they eventually converge on the same economic consensus. So the question is which market is right and which one is wrong? To be honest I really don’t know at this point. Read the rest of this entry »
Fed holds key for stocks to break range
Posted by Oksana Grebenjuk in Fund Markets on Сентябрь 20th, 2010
If the Federal Reserve’s view of the economy brightens by just a glimmer this week, it could push the stock market above its four-month trading range.
The S&P 500 closed the week at the higher end of that range, just below 1,130. Some chartists see a break above it as presaging a test of the year’s highs.
But options trading suggests some see 1,130 as the market’s ceiling and are protecting their portfolios against a decline.
Other investors see the Federal Open Market Committee policy meeting on Tuesday as the turning point that stocks have been searching for to break out of the range with conviction.
«Going up to the close on Tuesday, we could see a little bit of enthusiasm, and perhaps it could be the catalyst that could push us above 1,130 on the S&P,» said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
In late August, Fed Chairman Ben Bernanke said he would need to see a significant deterioration in economic conditions before easing monetary conditions further. Recent data, including a stronger-than-expected reading on private-sector jobs growth, could prevent further action from the Fed. Read the rest of this entry »
3 Stocks Winning Favor With Analysts
Posted by Oksana Grebenjuk in Fund Markets on Сентябрь 16th, 2010
Profit estimates for America’s largest companies are turning ever-so-slightly sweeter. As of the end of March, operating earnings underlying the S&P 500 index were forecast to total $20.45 for the third quarter, which runs through the end of this month. By the end of June, that estimate had increased by 27 cents. Now it’s another four cents higher, at $20.76. If met, that forecast would mark a slight decline from the second quarter (as is typical) but a 32% improvement from a year earlier.
The three companies below are in the middle of the momentum. For each, current-quarter estimates for not only earnings, but also sales, have increased over the past four weeks.
Good earnings news alone can sometimes be attributed to mere cost cutting, but when it’s accompanied by brighter sales, it’s often a sign of solid customer demand. The average analyst recommendation for these stocks — buy, hold and so on — has also improved in recent weeks.
Caterpillar
Caterpillar (CAT: 71.26, +0.62, +0.87%) shares sell for more than 20 times this year’s earnings forecast, a sizable premium to the broad stock market. Investors must know that this year’s earnings forecast of $3.63 isn’t nearly representative of what the company can earn during a good year. Eying a slow but steady recovery in global demand for earthmoving equipment and parts, Wall Street analysts expect the company to earn more than $5 a share next year and about $6 a share in 2012. In a meeting last month with analysts, Caterpillar chief Doug Oberhelman restated his plan to reach earnings of $8 to $12 a share by 2012. Part of the plan is to add production capacity, so that sales aren’t constrained by manufacturing delays during the next peak in demand, as has happened in the past. The main risk to the plan, of course, is that the expected demand doesn’t materialize as soon as hoped. Shares at their current price offer a 2.5% dividend yield. Read the rest of this entry »
Forget Stocks. This Year, Bonds Have Had More Fun
Posted by Oksana Grebenjuk in Fund Markets on Сентябрь 14th, 2010
It’s no secret U.S. stock investors have suffered through roller-coaster volatility this year for no real return, while fixed-income investors have been having a ball. The longest-dated Treasury mutual funds have returned nearly 20%. Equities, meanwhile, have done zilch.
Even short-term Treasury debt has been a better bet than anything benchmarked to the three major market averages — and the yields on 3- and 6-month T-bills are negative.
Take the S&P 500 ($INX) as the benchmark for the U.S. stock market. It has generated a return this year of negative 0.07%, according to Morningstar. (That’s price performance plus dividends though Sept. 8.)
Now have a look at the Barclays U.S. Aggregate Float Adjusted bond index, a broad benchmark for U.S. bond market performance. It has generated a total return of 7.42%. That’s been great news for investors in the retail-friendly Vanguard Total Bond Market Index (VBMFX) which tracks the index: It has returned a healthy 7.28% so far.
No wonder more than $30 billion flew out of U.S. equity mutual funds from January to July, according to the Investment Company Institute — and more than $185 billion gushed into bond funds. Bond prices have gone bonkers. Read the rest of this entry »
Bounce Or New Beginning?
Posted by Oksana Grebenjuk in Fund Markets on Август 31st, 2010
Although it was one of the last summer Friday’s, trading was surprisingly volatile. Despite the fact that most traders were likely working on their short game or vacationing with the family, there was a serious dose of data input to the game on Friday ranging from economic results, corporate guidance, and of course, some very important Fedspeak. The end result was an impressive move up in the indices, which may or may not represent a new beginning for the bull camp.
While the bears could be heard making remarks about short-covering and discussing the height to which a dead cat could actually bounce, the bulls talked about a second successful test of 1040 and a move «into the gap» that was created by Tuesday’s opening dive lower. And while no one knows for sure how much farther the bulls can run, it does appear that our heroes in horns were able to wrestle the ball away from their opponents on Friday.
There were three key inputs to the session. First, we had the first revision to the second quarter GDP in the U.S. While down significantly from the initial estimate made earlier in the month (remember, the government’s first estimate didn’t even include all the data from the final month of the quarter), the growth rate of 1.6% was actually better than the consensus for a rate of 1.3% and the whisper numbers containing a zero-handle. The takeaway from the report was that although the growth has indeed slowed, the economy does continue to grow. And in short, this is what «slowdowns» look and feel like.
The next bit of data was less upbeat as Intel (INTC) revised its revenue guidance for the third quarter — and not in a good way. Although analysts following the chipmaker suggested that the move wasn’t exactly a surprise, the computers that look for key words were able to put «Intel» and «reduced guidance» together in order to create a swift downdraft. It is also interesting to note that the Intel news was released within a couple minutes of the University of Michigan’s Confidence index, which, while not a bad report by any stretch, also came in «below consensus.» As such, the computers clearly got busy for a period of about 10 minutes Friday morning. Read the rest of this entry »
Investing In South Korea: Why This Emerging Market Is A Perfect Contrarian Opportunity
Posted by Oksana Grebenjuk in Investing on Август 27th, 2010
The mere mention of this country’s name can cause the «Risk-o-Meter» to nudge higher. But it’s got nothing to do with the nation’s own economy or growth prospects.
Rather, the problem resides to its immediate north in the shape of the contentious Kim Jong-Il and the saber-rattling North Koreans. Their South Korean neighbors live with the constant threat of violence erupting at any moment – especially after North Korea allegedly torpedoed one of South Korea’s warships in March.
But the likelihood of a full-blown war is slim. Why? Because the United States still has some 28,500 troops in South Korea. And thanks to the long-standing U.S.-South Korea alliance, any North Korean attack would effectively be an attack upon the United States, too.
Even Kim Jong-Il knows that’s a bad idea and would end disastrously for his rogue nation.
And for investors, the overblown geopolitical climate is just one reason why I’m convinced that now is the perfect time to buy into this contrarian situation. But there are more… Read the rest of this entry »
U.S. stock futures rise ahead of Bernanke testimony
Posted by Oksana Grebenjuk in Fund Markets on Июль 21st, 2010
U.S. stock futures rose on Wednesday, buoyed by Apple’s stronger-than-expected results, as investors braced for testimony by Federal Reserve Chairman Ben Bernanke and another barrage of earnings reports.
Nasdaq 100 futures gained 11.75 points to 1,851.50 and S&P 500 futures added 4.40 points to 1,084.50. Futures on the Dow Jones Industrial Average rose 31 points to 10,210. The Dow (DJIA 10,230, +75.53, +0.74%) ended up 0.7% on Tuesday, reversing intraday triple-digit
losses.
Sentiment was buoyed after Apple (AAPL 251.89, +6.31, +2.57%) reported last night a surge in earnings due to booming demand for its iPhone and iPad devices.
Strategists at Deutsche Bank said the spotlight Wednesday will be on Bernanke’s monetary policy report to the U.S. Senate Banking Committee.
«Expectations that Bernanke may announce policy accommodation measures seemed to help risk assets recover from the softer housing-starts data and Goldman Sachs’ earnings and revenue miss,» they wrote in a note. Markets will «likely listen carefully to decipher any hints about the possibility of a U.S. double-dip [recession].»
Bernanke will start speaking at 2 p.m. Eastern time, but before that investors will get a number of earnings reports from companies, including Morgan Stanley (MS 25.22, +0.44, +1.78%) , Wells Fargo & Co. (WFC 25.91, -0.11, -0.42%) and Freeport McMoRan Copper & Gold Inc. (FCX 64.32, +3.46, +5.69%) . Read the rest of this entry »
Stocks May Surprise By Year-End
Posted by Oksana Grebenjuk in Favourites, Fund Markets on Июль 5th, 2010
Economic news has been weak lately. Financial markets have performed poorly for over two months. Dow Theory «sell signals» have been issued. You may have heard a «death cross» is on the way. It is nearly impossible to find a bull among the growing sloth of bears. We are concerned about both the fundamentals and the technicals. However, in the context of history the current situation is not all that unusual.
On the economic front, the Wall Street Journal helps put recent weak economic numbers in some perspective. Stocks did quite well from late 2002 to late 2007. They also did well from 1992 to 1994.
Pauses aren’t uncommon early in a recovery. After rebounding from recession in late 2001 and early 2002, the economy had a 12-month stretch in which it grew at a paltry 1.5% annual rate, sparking fears of a double-dip recession. In late 1991, growth waned after a recovery had started. In the past 12 months, the economy has gotten off to a faster start than in 2002.
From CNBC: Former Federal Reserve Chairman Alan Greenspan said that the recent stock market decline is «typical» of a recovery, and that international instability has more to do with the recent decline than problems in the United States. «What we’re looking at is an invisible wall, which we’ve run into here. Which, essentially, as far as I can see, is a typical pause that occurs in an economic recovery,» Greenspan said in an interview with CNBC. «Ordinarily we’re saying that the stock market is driven by economic events, I think it’s more in the reverse.» Read the rest of this entry »
4 Investment Ideas That Provide Income
Posted by Oksana Grebenjuk in Investing on Июль 1st, 2010
As of this moment, the S&P/TSX Composite index is down 384.58 point or -3.27% year to date. The S&P 500 is down 67.32 or -6.04% year to date. That is your market update. When the global economic outlook appears uncertain and on the brink of another recession, equity markets reflect this reality in terms of greater than normal volatility. In markets like these, what we should be looking for are non-correlated assets and managers that have demonstrated the expertise to preserve capital during uncertain times like today.
In addition, one should also be focusing their efforts on receiving some form of income while the economic climate sorts itself. The following 4 ideas should hopefully accomplish both those goals. While we cant speak to the best/worst time to buy/sell particular securities, as that depends on one’s personal circumstances, the approach we usually take, especially with closed end funds, is to purchase them when they are trading at the steeper than normal discount to their Net Asset Value (NAV). The only other thing we would like to add is that you should do you own due diligence.
Trident Performance Corp.
This closed end fund is managed by CI Investments. Its investment objective is to provide tax-efficient risk-adjusted long term rates of return by obtaining exposure to a Global Macroeconomic Portfolio, advised by Trident Investment Management. Co-Founded in 1998, by Nandu Narayanan, Trident Investment Management seeks to exploit macroeconomic trends to generate attractive risk-adjusted rates of return with low or negative correlation to traditional ‘long’ investments. This is exactly what Mr. Narayanan did during the financial crisis, when the CI Global Opportunities Fund recorded positive performance of 109% in 2007 and 42.6% in 2008. Since inception in March 1995, the fund has averaged 19.69% as of the end of May 31, 2010. Read the rest of this entry »
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