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To Nasdaq 5000 and Beyond
The dot-com era Nasdaq was a product of dreams. Now, strong profits drive its rise. When the index finally tops 5000 again, it’s likely to stay.
By Alexander Eule
February 21, 2015
Looking back, it seems like a mirage. For a few days in March 2000, the Nasdaq Composite hovered above 5000. That same week, as Barron’s chronicled, Procter & Gamble (ticker: PG) tumbled 39%. The Dow Jones Industrial Average, meanwhile, was down 14% on the year, against the Nasdaq’s 24% gain. The New Economy was making its mark.
Until it wasn’t. The Nasdaq held 5000 for barely 48 hours before crashing 80% in the next 31 months.
P&G recovered its losses in two years. The Nasdaq is still trying, though it seems to be a matter of days now. The high-tech index closed last week at 4956, just 1% from 5000 and 2% from its all-time closing high of 5049.
This time, the 5000 level could stick. “What was propelling the Nasdaq in the year 2000 was a dream. What’s driving the Nasdaq today is reality,” says Gavin Baker, who runs the Nasdaq-focused Fidelity OTC Portfolio fund (FOCPX). “The current valuation is very well supported by earnings and cash flows and if those earnings and cash flows continue growing, the Nasdaq should continue going up.”
Patience and fundamentals have been force-fed on Nasdaq investors. The nearly 3,900-point recovery has taken 12 years. In the 1990s, the Nasdaq had managed the same 350% gain in just three. The dot-com rally, of course, was powered by wildly inflated multiples. In March 2000, the Nasdaq traded at well over 100 times earnings. Today, the Nasdaq has a price/earnings multiple of 21, a few ticks above the Standard & Poor’s 500, at 17.5.
“You had a lot of very immature companies that didn’t have real business models. They were entirely depending on the capital markets for funding,” says Baker, originally a tech analyst who has run Fidelity’s OTC fund since 2009. The OTC name is a throwback to the fund’s 1984 inception, when the Nasdaq was colloquially known as the over-the-counter market. Today, Fidelity OTC is one of just a handful of mutual funds that benchmarks against the Nasdaq. That gives Baker a unique view of the index. “In a lot of ways the reality that we are living in is more incredible than the dream that was driving the Nasdaq” 15 years ago, he says.
But that hasn’t stopped P/Es from tumbling to Earth. “That’s what the story is,” Baker adds. “The earnings of the Nasdaq have grown significantly. The P/E has dramatically compressed.” Valued at 2000’s P/E level, today’s Nasdaq would be priced somewhere around 30,000, Baker notes.
It’s worth pointing out that, in real terms, Nasdaq investors are still waiting to be made whole. Despite a relatively modest inflation rate of 2.2% over the last 15 years, Nasdaq 5000 is actually Nasdaq 7000.
Only Microsoft (MSFT) and Intel (INTC) were on the index’s Top 10 list 15 years ago and remain there today. Oracle (ORCL), with a market value of $192 billion, would rank No. 5, but it changed its listing to the New York Stock Exchange in 2013.
EVEN NASDAQ 7000 is not impossible in the coming years. The index is now a mature group; the largest contributors to the index carry reasonable P/Es (see table). Earnings alone could drive the Nasdaq up 18% in the coming year, if analysts’ estimates are correct. According to FactSet, combined earnings for the index are forecast to be $235 per share in 2015, up from last year’s $199.
The Nasdaq’s performance, meanwhile, is now backstopped by the world’s largest company. Apple (AAPL) makes up 10% of the index. At just 14.7 times earnings estimates for the next 12 months, Apple shares could easily head higher, as Barron’s points out in “Apple Shares Could Return 25% in a Year.”
There are still bubble-type stocks, of course. Fifteen years after the crash, investors continue to pay up for Amazon.com (AMZN), even though it struggles to turn a profit. SolarCity (SCTY), a solar-panel installer, is up 579% since its December 2012 initial public offering and now fetches a market value of $5.2 billion. The company has never produced an annual profit and is likely to lose $531 million this year.
Still, if the dot-com edition of Nasdaq 5000 left a legacy, it’s a more discriminating class of technology investors, at least in the public arena. Underwriters know better than to come to market with a half-baked idea. Last year, just 53 technology companies came public, according to University of Florida professor Jay Ritter, compared with 371 in 1999 and 261 in 2000. It’s a different Nasdaq. Soon 5000 could be just another number.
E-mail: editors@barrons.com
Weekly Market Summary
US indices have now risen 3 weeks in a row. For the week, SPX, DJIA and RUT all rose 0.7%. NDX continues to lead; it rose 1.3%.
For the first time in at least a half year, all four US indices are simultaneously at new bull market highs. SPX, DJIA and RUT are at all-time highs and NDX is at a 15 year high. Theoretically, at new highs, there are no unprofitable shareholders and thus no forced sellers. The path of least resistance is usually higher until the market becomes overbought.
On weekly timeframes, the indices are not yet overbought; note RSI in the top panel in the chart below. SPX is nearing a 5 year channel top but it's about another 2% higher at roughly 2150. Of course, SPX can travel along the top of that channel for several weeks, as it did at the end of 2014.
RUT is similar - about 2% from a channel top - except in this case the top trend line extends back 15 years.
The picture is slightly different on a daily timeframe. Below is SPY. It is only about 0.7% from an 8 month channel top. Importantly, there has been no notable deterioration in momentum; in the bottom panel, MACD is still yawning. We would normally expect SPY to test its rising 13-ema (green line; now at 208), and then retest the recent high before pulling back more significantly (yellow shading). In other words, SPY seems to still be in the initial thrust off the low.
Could it fail earlier? Yes. This is precisely what happened at the end of December. The big difference now is that all four indices are synchronized; in December, NDX was the very notable laggard, making a lower high.
So, a decline to the 13-ema, should it take place this week, would probably be an attractive entry point for a retest of the high, especially if confirmed by other indicators (like put/call or Trin).
A decline this week wouldn't be surprising. NDX is now up 8 days in a row. In the past 3 years, that has happened just 3 times. The last two are shown below (yellow shading). NDX went to a higher high each time but the dominant pattern was sideways over the next several weeks.
NDX's RSI(5) is also now at 90 (top panel, below). In the past 14 months, that has happened four other times (arrows). The index should make a higher high, but a small decline or sideways pattern occurred first each time in the past.
Breadth has improved. For NDX, 69% of Nasdaq companies are above their 50-dma and 56% are above their 200-dma. That's the best either has been since July.
The conventional wisdom says that expanding breadth shows broadening participation in the rally and is therefore bullish. Sometimes it is but not always.
We show the last 10 times breadth was this strong over the past 4 years below. Of those 10 times, 4 coincided with a relative peak in the NDX and 5 coincided with sideways choppiness over the next several weeks. In only 1 of those 10 times did NDX march steadily higher (green line).
Breadth has also improved in SPX. It's not overbought like NDX. 82% of companies are above their 20-ema and 79% above their 50-ema. This is the best breadth in SPX since December. The index can become overbought when 90% and 85% are above their 20-ema and 50-ema, respectively (yellow shading). Not yet.
A recent and more complete discussion on breadth can be found here.
Another useful measure of breadth is Trin (also known as the Arms Index). During the recent rally, Trin sunk to extreme lows. This normally happens when advancing issues is greatly exceeded by advancing volume.
What does that imply? Usually, it means that the advance is reaching a short-term point of exhaustion. In the chart below, similar instances are highlighted. In most cases (not all), SPY moved towards its 13-ema in the next week. This can be through price (decline) or time (sideways to allow the 13-ema to catch up).
In the chart above, most (not all) of these instances went on to a higher high, so it was not the end of the rally.
In summary, the trend in the indices is strong and clearly pointing higher. Breadth is improving. But there are a number of indications that the advance is getting overheated short term. It wouldn't be surprising to see a move sideways or down to the rising 13-ema soon.
Short term sentiment is still favorable. The equity put/call ratio is still declining from an elevated level. There is considerable room for these ratios to move down (chart from McMillan).
Similarly, inflows to equity ETF and mutual funds were positive a second week in a row. Since December, fund outflows had totaled a substantial $27b. The inflow this week was small in comparison ($3.6b). In the chart below, we have highlighted market peaks; based on this measure at least, further inflows are likely before the market is at risk of a larger decline.
There is an alternative interpretation, however. The indices are moving to new highs but fund inflows are light. It could be that investors are so confident in the rally that they are buying individual stocks instead of funds. That, of course, would be negative.
Fund managers are demonstrably more confident in the rally. Driven by Europe, fund managers surveyed by BAML now have the fourth highest allocation to global equities since the rally began six years ago. Similar instances since 2007 are highlighted (green). There has been a clear tendency for equities to struggle in the next month, or longer. The most recent similar case was in July: SPY moved sideways for a month before declining 5% in early August (chart from BAML).
A post from this week on fund managers' asset allocation can be found here.
A final thought on sentiment: a popular measure is CNN's "Fear and Greed" barometer. On Friday, this hit a relative extreme of 80. Similar instances are shown below (green). In the past 3 years, there were 6 other instances; only one coincided exactly with a notable top. The others made higher highs for as long as two more months (arrows).
It's a small sample. But one message from this is that risk/reward is becoming less attractive. That would certainly be the case should the indices continue to rise unabated. Not only would "Fear and Greed" become extreme but so would some of the breadth measures mentioned earlier, as well as put/call ratios.
It's also worth noting that valuation metrics are stretched. We estimate price to sales to be over 1.75 at present. That is equivalent to the late 1990s; in that instance, price to sales reached 2.0, so there is a precedent for higher valuation ratios, but, based on current financials, US equities are expensive (chart from Yardeni).
There is no notable seasonal bias in the last week of February nor in the week after February OpX. That said, a strong move up during any OpX is often followed by weakness the following week (chart from Rob Hanna).
Our weekly summary table follows.
Posted by Urban Carmel@The Fat Pitch on Feb 21, 2015
Weekly Market Summary
US indices have now risen 3 weeks in a row. For the week, SPX, DJIA and RUT all rose 0.7%. NDX continues to lead; it rose 1.3%.
For the first time in at least a half year, all four US indices are simultaneously at new bull market highs. SPX, DJIA and RUT are at all-time highs and NDX is at a 15 year high. Theoretically, at new highs, there are no unprofitable shareholders and thus no forced sellers. The path of least resistance is usually higher until the market becomes overbought.
On weekly timeframes, the indices are not yet overbought; note RSI in the top panel in the chart below. SPX is nearing a 5 year channel top but it's about another 2% higher at roughly 2150. Of course, SPX can travel along the top of that channel for several weeks, as it did at the end of 2014.
RUT is similar - about 2% from a channel top - except in this case the top trend line extends back 15 years.
The picture is slightly different on a daily timeframe. Below is SPY. It is only about 0.7% from an 8 month channel top. Importantly, there has been no notable deterioration in momentum; in the bottom panel, MACD is still yawning. We would normally expect SPY to test its rising 13-ema (green line; now at 208), and then retest the recent high before pulling back more significantly (yellow shading). In other words, SPY seems to still be in the initial thrust off the low.
Could it fail earlier? Yes. This is precisely what happened at the end of December. The big difference now is that all four indices are synchronized; in December, NDX was the very notable laggard, making a lower high.
So, a decline to the 13-ema, should it take place this week, would probably be an attractive entry point for a retest of the high, especially if confirmed by other indicators (like put/call or Trin).
A decline this week wouldn't be surprising. NDX is now up 8 days in a row. In the past 3 years, that has happened just 3 times. The last two are shown below (yellow shading). NDX went to a higher high each time but the dominant pattern was sideways over the next several weeks.
NDX's RSI(5) is also now at 90 (top panel, below). In the past 14 months, that has happened four other times (arrows). The index should make a higher high, but a small decline or sideways pattern occurred first each time in the past.
Breadth has improved. For NDX, 69% of Nasdaq companies are above their 50-dma and 56% are above their 200-dma. That's the best either has been since July.
The conventional wisdom says that expanding breadth shows broadening participation in the rally and is therefore bullish. Sometimes it is but not always.
We show the last 10 times breadth was this strong over the past 4 years below. Of those 10 times, 4 coincided with a relative peak in the NDX and 5 coincided with sideways choppiness over the next several weeks. In only 1 of those 10 times did NDX march steadily higher (green line).
Breadth has also improved in SPX. It's not overbought like NDX. 82% of companies are above their 20-ema and 79% above their 50-ema. This is the best breadth in SPX since December. The index can become overbought when 90% and 85% are above their 20-ema and 50-ema, respectively (yellow shading). Not yet.
A recent and more complete discussion on breadth can be found here.
Another useful measure of breadth is Trin (also known as the Arms Index). During the recent rally, Trin sunk to extreme lows. This normally happens when advancing issues is greatly exceeded by advancing volume.
What does that imply? Usually, it means that the advance is reaching a short-term point of exhaustion. In the chart below, similar instances are highlighted. In most cases (not all), SPY moved towards its 13-ema in the next week. This can be through price (decline) or time (sideways to allow the 13-ema to catch up).
In the chart above, most (not all) of these instances went on to a higher high, so it was not the end of the rally.
In summary, the trend in the indices is strong and clearly pointing higher. Breadth is improving. But there are a number of indications that the advance is getting overheated short term. It wouldn't be surprising to see a move sideways or down to the rising 13-ema soon.
Short term sentiment is still favorable. The equity put/call ratio is still declining from an elevated level. There is considerable room for these ratios to move down (chart from McMillan).
Similarly, inflows to equity ETF and mutual funds were positive a second week in a row. Since December, fund outflows had totaled a substantial $27b. The inflow this week was small in comparison ($3.6b). In the chart below, we have highlighted market peaks; based on this measure at least, further inflows are likely before the market is at risk of a larger decline.
There is an alternative interpretation, however. The indices are moving to new highs but fund inflows are light. It could be that investors are so confident in the rally that they are buying individual stocks instead of funds. That, of course, would be negative.
Fund managers are demonstrably more confident in the rally. Driven by Europe, fund managers surveyed by BAML now have the fourth highest allocation to global equities since the rally began six years ago. Similar instances since 2007 are highlighted (green). There has been a clear tendency for equities to struggle in the next month, or longer. The most recent similar case was in July: SPY moved sideways for a month before declining 5% in early August (chart from BAML).
A post from this week on fund managers' asset allocation can be found here.
A final thought on sentiment: a popular measure is CNN's "Fear and Greed" barometer. On Friday, this hit a relative extreme of 80. Similar instances are shown below (green). In the past 3 years, there were 6 other instances; only one coincided exactly with a notable top. The others made higher highs for as long as two more months (arrows).
It's a small sample. But one message from this is that risk/reward is becoming less attractive. That would certainly be the case should the indices continue to rise unabated. Not only would "Fear and Greed" become extreme but so would some of the breadth measures mentioned earlier, as well as put/call ratios.
It's also worth noting that valuation metrics are stretched. We estimate price to sales to be over 1.75 at present. That is equivalent to the late 1990s; in that instance, price to sales reached 2.0, so there is a precedent for higher valuation ratios, but, based on current financials, US equities are expensive (chart from Yardeni).
There is no notable seasonal bias in the last week of February nor in the week after February OpX. That said, a strong move up during any OpX is often followed by weakness the following week (chart from Rob Hanna).
Our weekly summary table follows.
Posted by Urban Carmel@The Fat Pitch on Feb 21, 2015
OT: Oscars 2015 ‘swag bag’ features everything from a vibrator to a vaporizer
Published: Feb 20, 2015 11:02 a.m. ET
From Marketwatch, enjoy the reading !
http://www.marketwatch.com/story/this-125k-oscar-swag-bag-comes-with-a-vibrator-and-a-vaporizer-2015-02-12
Good afternoon lee ...
What are you up to ?
The S&P 500 hasn’t been this highly valued in more than a decade
The index’s forward 12-month P/E ratio is at 17.1, its highest level since December 2014
So far, fourth-quarter earnings haven’t shined. Lackluster corporate results have managed to temper expectations for S&P 500 companies, threatening to take some of the air out of the market.
By Anora Mahmudova
NEW YORK (MarketWatch) — So far, fourth-quarter earnings haven’t shined. Lackluster corporate results have managed to temper expectations for the S&P 500 companies, threatening to take some of the air out of the market.
Stocks, however, haven’t flinched. In fact, the S&P 500 and the Dow Jones Industrial Average hit fresh records Friday, inflating already lofty valuations.
According to FactSet, the 12-month forward price-to-earnings ratio on the S&P 500 has moved above 17 to its highest level since Dec. 31, 2004. Meaning, investors are willing to pay a multiple of 17 times next year’s projected earnings. And it isn’t as if stocks were cheap to start.
At the end of last year, forward P/E was 16.2. Since then, the ratio has expanded because prices have risen by about 2.5% while earnings estimates fell by more than 3%.
To be sure, high P/E ratios aren’t good predictors of pullbacks or crashes. But when stocks are overvalued, they tend to suffer sharper falls when corrections do happen. Think of it as piling on building blocks, higher and higher, until they come crashing down. It is no wonder that a few hedge fund heavyweights are dumping stocks (It is worth noting that even those who are said to be getting out of stocks may only be cutting exposures to stocks through, say, equity funds).
David Tepper took ax to U.S. stockholdings in 2014
It appears that investors are pouring money into stocks because of lack of alternatives. That may not end well, cautions Kim Forrest, senior investment strategist at Fort Pitt Capital.
“[P/E] multiples are expanding because interest rates and inflation are falling. But just as disinflation, driven by oil plunge, is temporary, multiple expansion will end at some point too,” Forrest said. In other words, it may not be long until it all comes crashing down.
It may be prudent for investors to adjust their portfolios accordingly and follow Tepper’s lead in 2015.
The S&P 500 hasn’t been this highly valued in more than a decade
The index’s forward 12-month P/E ratio is at 17.1, its highest level since December 2014
So far, fourth-quarter earnings haven’t shined. Lackluster corporate results have managed to temper expectations for S&P 500 companies, threatening to take some of the air out of the market.
By Anora Mahmudova
NEW YORK (MarketWatch) — So far, fourth-quarter earnings haven’t shined. Lackluster corporate results have managed to temper expectations for the S&P 500 companies, threatening to take some of the air out of the market.
Stocks, however, haven’t flinched. In fact, the S&P 500 and the Dow Jones Industrial Average hit fresh records Friday, inflating already lofty valuations.
According to FactSet, the 12-month forward price-to-earnings ratio on the S&P 500 has moved above 17 to its highest level since Dec. 31, 2004. Meaning, investors are willing to pay a multiple of 17 times next year’s projected earnings. And it isn’t as if stocks were cheap to start.
At the end of last year, forward P/E was 16.2. Since then, the ratio has expanded because prices have risen by about 2.5% while earnings estimates fell by more than 3%.
To be sure, high P/E ratios aren’t good predictors of pullbacks or crashes. But when stocks are overvalued, they tend to suffer sharper falls when corrections do happen. Think of it as piling on building blocks, higher and higher, until they come crashing down. It is no wonder that a few hedge fund heavyweights are dumping stocks (It is worth noting that even those who are said to be getting out of stocks may only be cutting exposures to stocks through, say, equity funds).
David Tepper took ax to U.S. stockholdings in 2014
It appears that investors are pouring money into stocks because of lack of alternatives. That may not end well, cautions Kim Forrest, senior investment strategist at Fort Pitt Capital.
“[P/E] multiples are expanding because interest rates and inflation are falling. But just as disinflation, driven by oil plunge, is temporary, multiple expansion will end at some point too,” Forrest said. In other words, it may not be long until it all comes crashing down.
It may be prudent for investors to adjust their portfolios accordingly and follow Tepper’s lead in 2015.
Springleaf in the lead to acquire Citigroup’s OneMain
NEW YORK (Reuters) – Citigroup Inc is in advanced talks to sell its consumer finance unit OneMain Financial Holdings Inc to subprime lender Springleaf Holdings Inc for more than $4 billion, people familiar with the matter said on Friday. [Reuters]
Valeant Is Said to Agree to Buy Salix for $10.1 Billion
(Bloomberg) -- Valeant Pharmaceuticals International Inc. agreed to buy Salix Pharmaceuticals Ltd. for about $10.1 billion, a person with knowledge of the matter said, to add gastrointestinal drugs to its stable of offerings.
Valeant will pay $158 a share in cash for Salix, the person said, asking not to be identified because the company hasn’t announced the deal. Salix shares rose $7.11 to $157.85 on Friday, almost completely eliminating any premium in the purchase price.
The deal with Salix marks a comeback for Valeant, which was thwarted last year in a long-running quest to buy Allergan Inc., the maker of Botox. Valeant is a serial acquirer, using an advantageous tax structure to make purchases and then slashing research and development costs to boost profits. Before Salix, Valeant had completed $19.2 billion of deals in the past five years, including the purchase of eye-care company Bausch & Lomb Inc. in 2013.
Valeant emerged this month with the lead offer for the assets of Dendreon Corp., a bankrupt developer of a drug for advanced prostate cancer.
Valeant has a sizable presence in Bridgewater, New Jersey, though it’s headquartered in Canada in part because of lower corporate tax rates, Chief Executive Officer Mike Pearson has said.
A Valeant spokeswoman and a Salix spokesman declined to comment.
Restated Results
Salix, based in Raleigh, North Carolina, makes drugs to treat ulcerative colitis and travelers’ diarrhea and is nearing approval for a potential treatment of irritable bowel syndrome.
The company said last month that it will restate its results for 2013 and most of 2014 after the board conducted an accounting review of how inventory of top drugs built up with wholesalers. With that move, Salix put behind it the accounting issues that kept potential acquirers at bay last year, when it was on a handful of drugmakers’ shopping lists including Actavis Plc and Allergan. Shire Plc also was interested in Salix, according to two people with knowledge of the situation.
Allergan later backed away from a deal with Salix in part because due diligence revealed the accounting problems, according to a person with knowledge of the matter. Allergan was later acquired by Actavis in a $67 billion deal.
After conducting its review, Salix will lower its reported revenue for 2013 and the first three quarters of 2014 by $20.7 million, and reduce net income over the same period by $11.9 million, the company said last week.
To contact the reporters on this story: Ed Hammond in New York at ehammond12@bloomberg.net; David Welch in New York at dwelch12@bloomberg.net
To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net Stephen West, Bernard Kohn
Valeant Is Said to Agree to Buy Salix for $10.1 Billion
(Bloomberg) -- Valeant Pharmaceuticals International Inc. agreed to buy Salix Pharmaceuticals Ltd. for about $10.1 billion, a person with knowledge of the matter said, to add gastrointestinal drugs to its stable of offerings.
Valeant will pay $158 a share in cash for Salix, the person said, asking not to be identified because the company hasn’t announced the deal. Salix shares rose $7.11 to $157.85 on Friday, almost completely eliminating any premium in the purchase price.
The deal with Salix marks a comeback for Valeant, which was thwarted last year in a long-running quest to buy Allergan Inc., the maker of Botox. Valeant is a serial acquirer, using an advantageous tax structure to make purchases and then slashing research and development costs to boost profits. Before Salix, Valeant had completed $19.2 billion of deals in the past five years, including the purchase of eye-care company Bausch & Lomb Inc. in 2013.
Valeant emerged this month with the lead offer for the assets of Dendreon Corp., a bankrupt developer of a drug for advanced prostate cancer.
Valeant has a sizable presence in Bridgewater, New Jersey, though it’s headquartered in Canada in part because of lower corporate tax rates, Chief Executive Officer Mike Pearson has said.
A Valeant spokeswoman and a Salix spokesman declined to comment.
Restated Results
Salix, based in Raleigh, North Carolina, makes drugs to treat ulcerative colitis and travelers’ diarrhea and is nearing approval for a potential treatment of irritable bowel syndrome.
The company said last month that it will restate its results for 2013 and most of 2014 after the board conducted an accounting review of how inventory of top drugs built up with wholesalers. With that move, Salix put behind it the accounting issues that kept potential acquirers at bay last year, when it was on a handful of drugmakers’ shopping lists including Actavis Plc and Allergan. Shire Plc also was interested in Salix, according to two people with knowledge of the situation.
Allergan later backed away from a deal with Salix in part because due diligence revealed the accounting problems, according to a person with knowledge of the matter. Allergan was later acquired by Actavis in a $67 billion deal.
After conducting its review, Salix will lower its reported revenue for 2013 and the first three quarters of 2014 by $20.7 million, and reduce net income over the same period by $11.9 million, the company said last week.
To contact the reporters on this story: Ed Hammond in New York at ehammond12@bloomberg.net; David Welch in New York at dwelch12@bloomberg.net
To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net Stephen West, Bernard Kohn
Fund Managers' Current Asset Allocation - February
Every month, we review the latest BAML survey of global fund managers. Among the various ways of measuring investor sentiment, this is one of the better ones as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $700b in assets.
The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal.
To this end, fund managers became very bullish in July, September, November and December, and stocks have subsequently sold off each time. Contrariwise, there were some relative bearish extremes reached in August and October to set up new rallies. We did a recap of this pattern in December (post).
Summary: In February, fund managers increased their global allocation to equities to among the highest since the bull market began. Most of the increase was to Eurozone equities, which now has the second highest allocation in the survey's history. US equities fell out of favor, a set up in which they should outperperform on a relative basis.
Let's review the highlights.
Fund managers increased their cash levels slightly to 4.7%. While this is relatively high on a historical basis, note that cash levels haven't been much below 4.5% since 2013. We consider current levels to be neutral.
Fund managers are +57% overweight equities, the fourth highest since the bull market began six years ago. The only other time equity allocations have been this great in the past year was in July; equities fell later that month. We consider current levels to be bearish. Similar instances are highlighted in green.
As we have continually noted, what has been remarkable is how long managers have been highly overweight equities (virtually since the start of 2013). This is longer than any period during the 2003-07 bull market (yellow shading). In the past, after overexposure like that seen in the past 2 years, a washout low would be marked by an equity weighting under +15-20% (green shading).
US exposure dropped from +24% to just +6% overweight. Over +20% has been over-owned in the past. As we said last month, this is where the US equities underperform ex-US markets, and that turned out to be the case. On a relative basis, US equities are now neutral (just above its long term average). US equities should outperform those in Europe and Japan (see below).
Eurozone exposure jumped massively to +56% overweight from +20%. This is the second highest exposure to Europe in the survey's history. Judging from the experience in 2006, European equities are likely to underperform.
Allocations to Japan stayed near the highs of the last few months (+35% overweight). Allocations the past four months haven't been this high since April 2006. It looks extreme. Managers expect Japan to benefit from central bank liquidity.
Emerging markets are the only region where managers are underweight (-1%, up from -13% last month). This is where bottoms form, but, in the past, it has often (but not always) taken more than one month for a solid low to be put in.
Remarkably, although US bonds outperformed SPX throughout 2014, fund managers are -55% underweight. Bonds continue to be the most underweighted asset class and this, in large part, explains why cash balances have not been lower that 4.5% in more than a year. For comparison, managers were -38% underweight in May 2013 before the large fall in bond prices.
Globally, managers are not just overweight equity and underweight bonds, they are overweight the highest beta equities (technology, discretionary, banks). The largest underweights are materials and energy.
The global overweight in discretionary stocks is the highest since the survey began.
In the US, pharma (biotech) is the most favored sector, followed by banks and tech. This has been the case for many months. Utilities, staples, telecoms (defensives) and energy remain underweighted.
Survey details are below.
Cash (+4.7%): Cash balances rose slightly to 4.7% from 4.5% in January. Typical range is 3.5-5%. BAML has a 4.5% contrarian buy level but we consider over 5% to be a better signal. More on this indicator here.
Equities (+57%): A net +57% are overweight global equities, a 7 month high. This is the 4th highest level since the bull market began. Over +50% is bearish. A washout low (bullish) would be under +15-20%. More on this indicator here.
Bonds (-55%): A net -55% are now underweight bonds, a small decline from -53% in January. For comparison, they were -38% underweight in May 2013 before the large fall in bond prices.
Regions:
US (+6%): Exposure to the US sank substantially to +6% overweight from +24% in January.
Europe (+56%): Exposure to Europe jumped massively to +56% overweight, the second highest in the survey's history.
Japan (+35%): Managers are +35% overweight Japan, unchanged from last month. Funds were -20% underweight in December 2012 when the Japanese rally began.
EEM (-1%): Managers increased their EEM exposure to -1% underweight from -13% in January.
Commodities (-20%): Managers commodity exposure remained low at -20% underweight. With the exception of August, it has been less than -15% since early 2013. Low commodity exposure goes in hand with low sentiment towards EEM.
Macro: 51% expect a stronger global economy over the next 12 months, unchanged from January. January 2014 was 75%, the highest reading in 3 years. This compares to a net -20% in mid-2012, at the start of the current rally.
Posted by Urban Carmel@The Fat Pitch on feb 18, 2015
Fund Managers' Current Asset Allocation - February
Every month, we review the latest BAML survey of global fund managers. Among the various ways of measuring investor sentiment, this is one of the better ones as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $700b in assets.
The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal.
To this end, fund managers became very bullish in July, September, November and December, and stocks have subsequently sold off each time. Contrariwise, there were some relative bearish extremes reached in August and October to set up new rallies. We did a recap of this pattern in December (post).
Summary: In February, fund managers increased their global allocation to equities to among the highest since the bull market began. Most of the increase was to Eurozone equities, which now has the second highest allocation in the survey's history. US equities fell out of favor, a set up in which they should outperperform on a relative basis.
Let's review the highlights.
Fund managers increased their cash levels slightly to 4.7%. While this is relatively high on a historical basis, note that cash levels haven't been much below 4.5% since 2013. We consider current levels to be neutral.
Fund managers are +57% overweight equities, the fourth highest since the bull market began six years ago. The only other time equity allocations have been this great in the past year was in July; equities fell later that month. We consider current levels to be bearish. Similar instances are highlighted in green.
As we have continually noted, what has been remarkable is how long managers have been highly overweight equities (virtually since the start of 2013). This is longer than any period during the 2003-07 bull market (yellow shading). In the past, after overexposure like that seen in the past 2 years, a washout low would be marked by an equity weighting under +15-20% (green shading).
US exposure dropped from +24% to just +6% overweight. Over +20% has been over-owned in the past. As we said last month, this is where the US equities underperform ex-US markets, and that turned out to be the case. On a relative basis, US equities are now neutral (just above its long term average). US equities should outperform those in Europe and Japan (see below).
Eurozone exposure jumped massively to +56% overweight from +20%. This is the second highest exposure to Europe in the survey's history. Judging from the experience in 2006, European equities are likely to underperform.
Allocations to Japan stayed near the highs of the last few months (+35% overweight). Allocations the past four months haven't been this high since April 2006. It looks extreme. Managers expect Japan to benefit from central bank liquidity.
Emerging markets are the only region where managers are underweight (-1%, up from -13% last month). This is where bottoms form, but, in the past, it has often (but not always) taken more than one month for a solid low to be put in.
Remarkably, although US bonds outperformed SPX throughout 2014, fund managers are -55% underweight. Bonds continue to be the most underweighted asset class and this, in large part, explains why cash balances have not been lower that 4.5% in more than a year. For comparison, managers were -38% underweight in May 2013 before the large fall in bond prices.
Globally, managers are not just overweight equity and underweight bonds, they are overweight the highest beta equities (technology, discretionary, banks). The largest underweights are materials and energy.
The global overweight in discretionary stocks is the highest since the survey began.
In the US, pharma (biotech) is the most favored sector, followed by banks and tech. This has been the case for many months. Utilities, staples, telecoms (defensives) and energy remain underweighted.
Survey details are below.
Cash (+4.7%): Cash balances rose slightly to 4.7% from 4.5% in January. Typical range is 3.5-5%. BAML has a 4.5% contrarian buy level but we consider over 5% to be a better signal. More on this indicator here.
Equities (+57%): A net +57% are overweight global equities, a 7 month high. This is the 4th highest level since the bull market began. Over +50% is bearish. A washout low (bullish) would be under +15-20%. More on this indicator here.
Bonds (-55%): A net -55% are now underweight bonds, a small decline from -53% in January. For comparison, they were -38% underweight in May 2013 before the large fall in bond prices.
Regions:
US (+6%): Exposure to the US sank substantially to +6% overweight from +24% in January.
Europe (+56%): Exposure to Europe jumped massively to +56% overweight, the second highest in the survey's history.
Japan (+35%): Managers are +35% overweight Japan, unchanged from last month. Funds were -20% underweight in December 2012 when the Japanese rally began.
EEM (-1%): Managers increased their EEM exposure to -1% underweight from -13% in January.
Commodities (-20%): Managers commodity exposure remained low at -20% underweight. With the exception of August, it has been less than -15% since early 2013. Low commodity exposure goes in hand with low sentiment towards EEM.
Macro: 51% expect a stronger global economy over the next 12 months, unchanged from January. January 2014 was 75%, the highest reading in 3 years. This compares to a net -20% in mid-2012, at the start of the current rally.
Posted by Urban Carmel@The Fat Pitch on feb 18, 2015
You can count real friends one hand, often minus a few fingers !
GM lee !
Good saturday morning everyone ... enjoy the week-end !
Earnings Preview for the week of February 23
Of the companies reporting earnings for the week of February 23 - 27 some of the bigger names include:
Monday
Pre Market - DISH, AER, DNOW, AXL, CTB, AWI, TVPT, PACD
After Hours - ESRX, THC, OKS, OKE, AGU, DK, QUAD, LNT, SF, KAMN, TXRH, MDCA, ROSE, TRAK, HVT, SSW
Tuesday
Pre Market - HD, CMCSA, M, BMO, ODP, ECL, SAH, VRX, FDML, EXPD, WIN, RLGY, WLK, CEQP, AMT, VAL, TOL, CMLP, CBRL, PF, PLL, SAFM, DPZ, SPWR, WEN, UTHR
After Hours - HPQ, CBI, EIX, FSLR, CLR, DPM, QEP, AWK, SM, HLS, DYN, NFX, CENX, RRC, DOOR, VRSK, MATX, DY, PZZA, NDSN, NLY, RJET, CLGX,
JAZZ, CPRT, HEI, SAM, WBMD, ZAGG
Wednesday
Pre Market - TGT, LOW, MGA, RY, TJX, CHK, FMS, HFC, RRD, DLTR, CPB, CVC, OCR, LAD, ECA, AEE, TDS, USM, CLH, MWE, AVA, STRZA, ICLR, EV,
TRS, LAMR, SODA
After Hours - LB, RIG, AVGO, CRM, ESV, BWC, WLL, SFM, CXO, WPX, WR, AMSG, AR, GXP, MMLP, CHMT, OAS, AEGN, TTEC, RLJ, HK, FOE, AGO, MDVN,
WDAY
Thursday
Pre Market - BUD, TD, KSS, AES, CTRX, SRE, WNR, VC, CNP, LKQ, EME, SDRL, HSNI, MGLN, NTI, EXH, HAWK, CHS, AMCX, BIN, SERV, VAC, NSM,
OGE, HSC, TWI, KOP, SEAS, DDD, GOGO
After Hours - IM, GPS, JCP, ROST, UHS, KBR, LYV, TPC, KND, MTZ, HLF, EVHC, SWN, ADSK, BIO, MNST, SEMG, UIL, MENT, SBAC, OUT, CROX, DGI,
TUMI, BLOX, WIFI,
Friday
Pre Market - CST, NRG, POM, XLS, GVA, RDC, HPT, PNM, TTI, HTH, NRF, CAS, DFRG, HZNP, PTCT, KERX
After Hours - CNL
Earnings Preview for the week of February 23
Of the companies reporting earnings for the week of February 23 - 27 some of the bigger names include:
Monday
Pre Market - DISH, AER, DNOW, AXL, CTB, AWI, TVPT, PACD
After Hours - ESRX, THC, OKS, OKE, AGU, DK, QUAD, LNT, SF, KAMN, TXRH, MDCA, ROSE, TRAK, HVT, SSW
Tuesday
Pre Market - HD, CMCSA, M, BMO, ODP, ECL, SAH, VRX, FDML, EXPD, WIN, RLGY, WLK, CEQP, AMT, VAL, TOL, CMLP, CBRL, PF, PLL, SAFM, DPZ, SPWR, WEN, UTHR
After Hours - HPQ, CBI, EIX, FSLR, CLR, DPM, QEP, AWK, SM, HLS, DYN, NFX, CENX, RRC, DOOR, VRSK, MATX, DY, PZZA, NDSN, NLY, RJET, CLGX,
JAZZ, CPRT, HEI, SAM, WBMD, ZAGG
Wednesday
Pre Market - TGT, LOW, MGA, RY, TJX, CHK, FMS, HFC, RRD, DLTR, CPB, CVC, OCR, LAD, ECA, AEE, TDS, USM, CLH, MWE, AVA, STRZA, ICLR, EV,
TRS, LAMR, SODA
After Hours - LB, RIG, AVGO, CRM, ESV, BWC, WLL, SFM, CXO, WPX, WR, AMSG, AR, GXP, MMLP, CHMT, OAS, AEGN, TTEC, RLJ, HK, FOE, AGO, MDVN,
WDAY
Thursday
Pre Market - BUD, TD, KSS, AES, CTRX, SRE, WNR, VC, CNP, LKQ, EME, SDRL, HSNI, MGLN, NTI, EXH, HAWK, CHS, AMCX, BIN, SERV, VAC, NSM,
OGE, HSC, TWI, KOP, SEAS, DDD, GOGO
After Hours - IM, GPS, JCP, ROST, UHS, KBR, LYV, TPC, KND, MTZ, HLF, EVHC, SWN, ADSK, BIO, MNST, SEMG, UIL, MENT, SBAC, OUT, CROX, DGI,
TUMI, BLOX, WIFI,
Friday
Pre Market - CST, NRG, POM, XLS, GVA, RDC, HPT, PNM, TTI, HTH, NRF, CAS, DFRG, HZNP, PTCT, KERX
After Hours - CNL
RBC and CIBC downgraded at KBW
Citing the challenging environment for Canadian lenders, KBW cuts Royal Bank of Canada (NYSE:RY) and CIBC (NYSE:CM) to Underperform from Market Perform.
Yesterday: Moody's: Prolonged oil slump a negative for Canadian lenders (Feb. 19)
RBC is off just 7% YTD, but CIBC has faced a much tougher slog, down more than 20%.
RBC and CIBC downgraded at KBW
Citing the challenging environment for Canadian lenders, KBW cuts Royal Bank of Canada (NYSE:RY) and CIBC (NYSE:CM) to Underperform from Market Perform.
Yesterday: Moody's: Prolonged oil slump a negative for Canadian lenders (Feb. 19)
RBC is off just 7% YTD, but CIBC has faced a much tougher slog, down more than 20%.
Morning Lex ...
EchoStar beats by $0.22, misses on revenue
EchoStar (NASDAQ:SATS): Q4 EPS of $0.59 beats by $0.22.
Revenue of $843.89M (+4.4% Y/Y) misses by $29.06M.
Deere (NYSE:DE): FQ1 EPS of $1.12 beats by $0.29.
Revenue of $5.61B (-19.3% Y/Y) beats by $70M.
Shares +0.32% PM.
Deere beats by $0.29, beats on revenue
Deere (NYSE:DE): FQ1 EPS of $1.12 beats by $0.29.
Revenue of $5.61B (-19.3% Y/Y) beats by $70M.
Shares +0.32% PM.
Teleflex beats by $0.05, beats on revenue
Teleflex (NYSE:TFX): Q4 EPS of $1.43 beats by $0.05.
Revenue of $476M (+5.7% Y/Y) beats by $3.42M.
S&P 500 Futures 2,095.95 +0.70 +0.03%
Crude Oil 51.70 -0.14 -0.26%
GM Lady ...
Yesterday was a long, tough & emotional day ... had to fire people.
Never fun ...
GM to you ! Really glad it's friday ...
Morning stuffie, ez, larry & all !
Good morning everyone !
Thanks for keeping the board alive everyone ...
YOU da man lady ...
Cooking time ... back later !
Last update AH movers ...
After Hours Movers
Top Gaining Stocks
Price %Change
ENPH Enphase Energy Inc... 15.88 14.08%
VDSI Vasco Data Securit... 31.30 11.90%
BSX Boston Scientific ... 16.50 11.19%
PBPB Potbelly Corp 15.55 9.51%
LINC Lincoln Educationa... 2.26 8.65%
CAPN Capnia Inc 2.64 8.64%
FHLC Fidelity Covington... 37.31 8.46%
FXEN FX Energy Inc. 2.51 7.26%
VUZI Vuzix Corp 7.50 6.99%
YGE Yingli Green Energ... 2.33 6.88%
RUBI Rubocom Project In... 17.50 6.19%
KEG Key Energy Svcs 2.39 5.75%
HTBX Heat Biologics Inc... 6.55 5.65%
RPTP Raptor Pharmaceuti... 9.89 5.32%
ASTC Astrotech Corporat... 3.03 5.21%
UCTT Ultra Clean Holdin... 10.25 5.13%
NG Novagold Resources... 3.95 4.93%
NCLH Norwegian Cruise L... 45.40 4.61%
BLRX Biolinerx Ltd. 2.09 4.50%
PES Pioneer Energy Ser... 6.68 4.37%
Top Losing Stocks
Price %Change
PERY Perry Ellis Intern... 20.50 -14.33%
FOSL Fossil Group Inc. ... 85.90 -13.51%
TUBE Tubemogul Inc 14.10 -11.38%
ZIXI Zix Corporation 3.41 -10.03%
FMD First Marblehead C... 4.86 -8.30%
TLI Lmp Corporate Loan... 10.09 -8.27%
LZB La-z-boy Inc. 25.70 -6.72%
TTS Tile Shop Hldgs In... 9.75 -5.83%
RMD Resmed Inc. 62.98 -5.19%
PDS Precision Drilling... 6.00 -4.94%
AAV Advantage Oil & Ga... 4.89 -4.66%
LC Lendingclub Corp 21.46 -4.62%
RAX Rackspace Hosting ... 47.60 -4.55%
CVE Cenovus Energy Inc... 18.00 -4.41%
CRTO Criteo S.a. Adr (S... 41.14 -4.11%
RAIL Freightcar America... 27.50 -4.05%
MERC Mercer Internation... 13.36 -3.83%
NE Noble Corp. 18.74 -3.82%
CRK Comstock Resources... 6.26 -3.79%
CP Canadian Pacific R... 186.81 -3.78%
< forget about it ...
TUBE Tubemogul Inc 14.10 -11.38%
Would not even be a fair fight ... Raise it to $2
Perry Ellis International Reports Preliminary Fourth Quarter Fiscal 2015 Results
See more at: http://globenewswire.com/news-release/2015/02/17/707227/10120393/en/Perry-Ellis-International-Reports-Preliminary-Fourth-Quarter-Fiscal-2015-Results.html#sthash.qe5diQS9.dpuf
PERY Perry Ellis Intern... 20.50 -14.33% AH
Perry Ellis International Reports Preliminary Fourth Quarter Fiscal 2015 Results
See more at: http://globenewswire.com/news-release/2015/02/17/707227/10120393/en/Perry-Ellis-International-Reports-Preliminary-Fourth-Quarter-Fiscal-2015-Results.html#sthash.qe5diQS9.dpuf
PERY Perry Ellis Intern... 20.50 -14.33% AH
Missing any of that stuff MG ? lol
Buffett ups IBM/SU/DE stakes, exits XOM/COP, enters QSR/FOXA
Warren Buffett added to his IBM bet amid the IT giant's Q4 selloff: Berkshire Hathaway (BRK.A, BRK.B) owned 77M IBM shares at the end of Q4, up from 70.5M at the end of Q3. (13F filing)
Berkshire also upped its stake in Suncor (NYSE:SU) by nearly 4M shares to 22.4M as oil prices plunged. However, the firm dumped the 41M-share stake in Exxon Mobil (NYSE:XOM) it held at the end of Q3, and its 5M-share stake in ConocoPhillips (NYSE:COP). Its 449K-share stake in Express Scripts (NASDAQ:ESRX) was also liquidated.
A new 8.4M-share stake was taken in Restaurant Brands (QSR - rose 8.7% today following earnings), and a 4.7M-share stake in 21st Century Fox (NASDAQ:FOXA). Existing stakes in GM, DirecTV, MasterCard, and Visa were moderately upped (among others), and stakes in Bank of New York and National Oilwell moderately lowered.
Berkshire owned 17.1M Deere (NYSE:DE) shares at the end of Q4, up from 7.6M at the end of Q3 (the Q3 stake was kept confidential). Deere is up 1.6% AH.
Overall, Buffett's firm created or expanded positions in 15 companies, and cut or liquidated positions in 5.
Buffett ups IBM/SU/DE stakes, exits XOM/COP, enters QSR/FOXA
Warren Buffett added to his IBM bet amid the IT giant's Q4 selloff: Berkshire Hathaway (BRK.A, BRK.B) owned 77M IBM shares at the end of Q4, up from 70.5M at the end of Q3. (13F filing)
Berkshire also upped its stake in Suncor (NYSE:SU) by nearly 4M shares to 22.4M as oil prices plunged. However, the firm dumped the 41M-share stake in Exxon Mobil (NYSE:XOM) it held at the end of Q3, and its 5M-share stake in ConocoPhillips (NYSE:COP). Its 449K-share stake in Express Scripts (NASDAQ:ESRX) was also liquidated.
A new 8.4M-share stake was taken in Restaurant Brands (QSR - rose 8.7% today following earnings), and a 4.7M-share stake in 21st Century Fox (NASDAQ:FOXA). Existing stakes in GM, DirecTV, MasterCard, and Visa were moderately upped (among others), and stakes in Bank of New York and National Oilwell moderately lowered.
Berkshire owned 17.1M Deere (NYSE:DE) shares at the end of Q4, up from 7.6M at the end of Q3 (the Q3 stake was kept confidential). Deere is up 1.6% AH.
Overall, Buffett's firm created or expanded positions in 15 companies, and cut or liquidated positions in 5.