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Mark Decambre

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September is a notoriously weak month for investors, and October also has the hallmarks of a rough patch for Wall Street, with the Nov. 3 presidential election looming

A bout of volatility returned to financial markets with a vengeance last week, disrupting what had been a nearly uninterrupted climb to records for U.S. stock indexes and raising questions about the path for Wall Street headed into a hornet’s nest of challenges.

Perhaps, the overarching question is, “What the heck just happened to equity markets in the 48 hours after the S&P 500 index SPX, -0.81% and Nasdaq Composite Index COMP, -1.26% on Wednesday notched their 22nd and 43rd closing records of 2020 respectively, and the Dow DJIA, -0.56% scored its first finish above 29,000 since February, bringing it within 2% of its Feb. 12 all-time closing high?”

The bull perspective

From the bull’s perspective, not a lot has changed.

Bullish investors see the promise of lower interest rates for years to come and further injections of money by the Federal Reserve into various parts of the financial system, along with perhaps another fiscal stimulus from the government, as buttressing the market and offering a floor against future dramatic losses.

Optimists see the slump that the equity market experienced this week as a bump in the road to greater gains.

“Since the current bull market kicked off in March, there have only been two pullbacks of more than 5%. Recent bull markets have tended to have three or four setbacks over the first nine months,” wrote SunTrust Advisory chief market strategist Keith Lerner in a research note on Thursday — see chart:

Lerner also notes that the five-month winning streak for the S&P 500 since August, which has only occurred 27 times since 1950, is a good sign because it tends to imply that further returns are ahead.

So, investors may view this retreat as a natural corrective phase that removes some of the euphoric froth from equity valuations that had far exceeded the metrics that pragmatic investors use to assess an asset’s value compared against its peers.

MarketWatch’s William Watts wrote last Thursday, citing Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, that technology stocks — particularly, a cohort that includes Facebook FB, -2.88%, Amazon.com AMZN, -2.17%, Netflix NFLX, -1.84%, Microsoft MSFT, -1.40%, Apple AAPL, +0.06% and Google parent Alphabet GOOGL, -2.96% GOOG, -3.09% (or FANMAG) — had seen their valuations rise by dint of multiple expansion, or rapidly rising prices, while other segments of the market had seen earnings estimates fall out of whack with their prices, distorting the “P” portion of the commonly used priced-to-earnings metric, or P/E, used to gauge a stock’s worth.

“But these two groups of stocks have gotten more expensive for completely different reasons,” he noted. “FANMAG’s P/E has risen because their ‘P’ (prices) has gone up faster than their ‘E’ (earnings), while the P/E for the rest of the S&P 500 has expanded because ‘E’ has gone down much more than ‘P’,” wrote Suzuki.

Indeed during the period between the market’s March lows and early last week, investors have maintained a voracious appetite for technology-related stocks, and a group known as “stay-at-home companies”, including Zoom Video Communications Inc. ZM, -2.99%, due to the belief that not only are they receiving a boost from the COVID-19 pandemic but also that they are best positioned to benefit when the economy eventually emerges from the recession.

A bounce off Friday’s lows, aided by moves into financials also was viewed as constructive for the broader market, heading into the three-day Labor Day weekend.

“The move higher was mostly led by financials, which came as a result of slightly higher rates rate on the long end of the curve, notably the 10 basis point move in the 10-year Treasury,” wrote Peter Essele, head of portfolio management for Commonwealth Financial Network, via email.

Yields in the 10-year Treasury TMUBMUSD10Y, 0.721% benchmark bond rose to 0.72%, marking the biggest single-day rise on Friday since May 18.

It’s unusual for yields to climb as stocks are falling as they did on Friday because investors usually turn to the perceived safety of government debt, driving prices higher and yields lower, in times of uncertainty. That didn’t occur on Friday and may be interpreted by some as signaling that at least fixed-income investors see the move in stocks as indicative of a temporary pullback rather than a more significant and lasting decline.

UBS Global Wealth Management’s chief Investment Officer Mark Haefele said that he viewed this week’s market drop as investors consolidating gains. “We view the latest selloff as a bout of profit-taking after a strong run,” he wrote.

“The S&P 500 enjoyed its strongest August in 34 years, gaining 7%, and added a further 2.3% in the first two days of September, to reach a fresh record high,” he wrote. “Stocks are still well-supported by a combination of Fed liquidity, attractive equity risk premiums, and a continuing recovery as economies reopen from the lockdowns.”

The bear’s perspective

From a bearish vantage point, the outlook for stocks looks more uncertain for investors. This uncertainty may have well laid the groundwork for substantial episodes of turbulence if not gut-wrenching drops in stocks, some experts say.

“The mini-tech selloff on Thursday has left a lot of scarring; it is not overly surprising that in New York equities trading, things were relatively muted into a long weekend,” wrote Stephen Innes, chief global markets strategist at AxiCorp, in a Friday research note.

September is a notoriously weak month for investors, and even if that weakness is somewhat moderated in an election year, October also has the hallmarks of a rough patch for Wall Street, with the Nov. 3 presidential election looming.

Chris Senyek, chief investment strategist at Wolfe Research, said the possibility of a resurgence of COVID-19 headed into the fall and winter also is cause to lighten up on stocks.

“Our sense is that a similar resurgence in infection rates is likely to occur in the United States this fall as children and college students returns to school and flu season begins,” analysts at Wolfe Research wrote on Friday.

Michael Kramer, founder of Mott Capital Markets, in a blog on Friday described the recent swings in the market as “insane” and said that it is difficult to gauge what’s ahead for the market, but he notes that an explosion in volumes related to the selloff could signal a change in the uptrend for stocks.

He noted that for the first time since April 3, the S&P 500 closed below its uptrend. “This is typically not something we want to see; it would indicate that momentum is likely shifting,” he wrote (see attached chart).

Of Friday’s paring of losses into the close, Kramer said: “The rally into the close was impressive, but it could have just as easily been on the heels of short-covering as it was on real buying.”

Part of the downturn occurred as two popular companies saw their shares drop after stock splits: Apple AAPL, +0.06% and Tesla TSLA, +2.78%.

Tesla has been among the highest of highfliers in recent months and viewed by some as a gauge of sentiment in the overall market. Its recent retreat is something bearish investors have pointed to as a signal of weakness in the market.

On top of that, Tesla wasn’t announced as a new entrant into the S&P 500 index late Friday, which may cast a pall over the stock that has lost about 20% from its peak.

The road ahead

Looking ahead, investors turn next to the Federal Reserve’s Sept. 15-16 policy meeting, which could be important in clarifying the length of the time interest rates could be held lower but also what, if any, new quantitative easing the central bank will implement.

Fed Chairman Jerome Powell in an interview with National Public Radio conducted Friday afternoon said that the 1.4 million jobs added to the labor market in August and an unemployment rate falling to 8.4% from 10.2% as a good sign of progress in the economy.

But he did emphasize that progress is going to be slow: “We do think it will get harder from here,” Powell said.

Doubts that the government will soon provide a fresh round of fiscal stimulus for out-of-work Americans has put some pressure on the Fed to do more to dull the impact on the economy from disruptions caused by the pandemic.

The Fed’s role may be the most important feature of whether the stock market is able to continue to make progress higher. As it stands now, there are few alternatives to stocks, with long-dated government bonds yielding around 1% or less.

Author: Mark DeCambre

Source: Market Watch: Here’s why the Dow plunged last week and what’s ahead for the stock market

It has been the best of times and the worst of times for U.S. equity benchmarks over the past two quarters, and that is, perhaps, why Wall Street analysts are facing their most befuddling challenge yet.

The Dow Jones Industrial Average DJIA, 0.37% and the S&P 500 SPX, 0.50% just put in their best quarterly performances since 1938 in the aftermath of a bruising pandemic that took hold in March, according to Dow Jones Market Data. That performance would be stellar if it weren’t for a few simple facts: The Dow booked its worst first six months of a calendar year since the 2008 financial crisis, while the S&P 500 notched its worst first half of the year in a decade.

In other words, the returns enjoyed this quarter came after a troubling quarter that was ushered in by the emergence of the COVID-19 epidemic in the U.S. and its subsequent punishing effect on the economy, with businesses compelled into hibernations to curtail the spread of the deadly infection.

Since hitting a March 23 low at 2,237.40, the S&P 500 has surged 38% to nearly 3,100, while the Dow has climbed 38.5% and the Nasdaq Composite Index COMP, 0.45% has rallied about 46%.

The problem is that there’s no clear consensus on where the market goes from this point, and strategists have been more inclined to raise their year-end outlooks for the S&P 500 rather than lower them, even as the markets have run briskly higher past their targets and as coronavirus cases have staged a resurgence in parts of the U.S.

Jason Goepfert, head of SentimentTrader and founder of independent investment research firm Sundial Capital Research, wrote in a Tuesday note that based on standard deviations, strategists have never been so confused about the outlook into the end of a year (see attached chart):

Meanwhile, Bloomberg News, citing a recent research survey from DataTrek Research co-founder Nicholas Colas, noted that a fifth of poll respondents said the S&P 500 will finish out the year up 10% from its current levels, with roughly the same number predicting that it will end the year down by that degree.

Goepfert estimated that based on another way to consider strategists’ standard deviation, expressed as a share of the S&P 500 at the end of June, the current divergence by analysts is only the widest since 2009. To be sure, that is still a fairly wide breadth (see attached chart):

The Sundial analysts said that the average year-end target for analysts is 2,998 for the S&P 500, about 3% below where it is currently. That target matches the lowest-ever year-end target relative to where the S&P was trading at the end of June, according to Goepfert.

However, that may be a good thing. When the average target was that low, the market tended to fare well in the subsequent six- and 12-month periods, even if the near-term market returns weren’t stellar.

Goepfert said that the S&P 500 returned an average of more than 7% over the next six months, roughly July through December.

It is when the strategists are more uniformly bullish that problems arise, he said, pointing out that the market tends to return a negative-1.7% through the end of the year during those periods.

The Wall Street Journal wrote that Bank of America’s analysts put a 2,900 year-end price target on the S&P, abandoning previous calls of 2600 and 3100. Goldman lifted the low end of its three-month target to 2750 from 2400 in late May as the index hovered around its year-end projection of 3000, the paper reported.

Of course, it is impossible to know where the market will end up by the end of this dramatic year, considering all the variables that the market must digest, including a 2020 presidential election that could knock equities around and a economy that has seen tens of millions lose their jobs over the course of a few short months.

Author: Mark DeCambre

Source: Market Watch: Why stock-market strategists have never been more confused in June about the year-end outlook for equities

Stephen Roach, Yale University senior fellow and former Morgan Stanley Asia chairman, has a warning for U.S. dollar bulls. The prominent economist says that the era of the U.S. buck may be coming to an end and is forecasting a 35% decline soon in the U.S. currency against its major rivals, citing increases in the nation’s deficit and dwindling savings.

The lecturer said during CNBC’s “Trading Nation” on Monday that the rise of China and the decoupling of the U.S. from its trade partners is setting the stage for a dramatic weakening of the U.S. currency in the next few years that is likely to end the supremacy of the monetary unit as the world’s reserve currency.

“The dollar is going to fall very, very sharply,” he told the business network.

Roach’s comments follow similarly themed op-ed that he wrote in Bloomberg last week, in which he specifically declared that the “era of the U.S. dollar’s ‘exorbitant privilege’ as the world’s primary reserve currency is coming to an end.

In that article, the economist said that the U.S. economy is already “stressed” by the impact of the COVID-19 pandemic, and suggested that the recession that has gripped the U.S. in February amid the public health crisis will only amplify the dollar’s woes.

The finance expert said that the rest of the “world is having serious doubts about the once widely accepted presumption of American exceptionalism.”

On Monday, Roach said that the U.S.’s fiscal deficit, as the government expends trillions of dollars, in an effort to mitigate the harm from COVID-19, may only make matters worse for bucks.

Meanwhile, Roach says that China’s currency, the yuan USDCNY, -0.24% USDCNH, -0.10%, may garner increasing appeal from investors, as Beijing goes through a phase of structural reforms that could shift the country’s manufacturing-heavy economy to one focused more on services and one with greater consumer-led growth.

Roach makes the case that although a weaker dollar, sometimes favored by President Donald Trump, would benefit U.S. exports in the short term, it would prove more problematic over the longer term.

One measure of the buck, the ICE U.S. Dollar Index DXY, 0.16%, has been weakening over the past 30 days, down 3.9% but is up slightly on the year, rising 0.1%, according to FactSet data.

The index measures the buck against a basket of six rival currencies, including the euro EURUSD, -0.11%, the pound GBPUSD, -0.47% and the yen USDJPY, -0.11%.

A weaker dollar has implications for assets and the stock market, including the Dow Jones Industrial Average DJIA, -0.55% and S&P 500 index SPX, -0.39%, with most debts denominated in dollars. In addition, a majority of cross-border financing and international trade are conducted in dollars.

Worries about the global economy have traditionally encouraged buying of dollars along with other havens because of the perception of the U.S. as a stable economy and currency.

Roach, however, says that growing deficits will eventually change that perception and deliver a gut punch to the greenback.

Check out the CNBC interview:

Author: Mark DeCambre

Source: Market Watch: ‘The dollar is going to fall very, very sharply,’ warns prominent Yale economist

Fed’s Powell says don’t ‘bet against American economy’— even as unemployment could rise to 25%

U.S. stocks soared at the start of Monday trading after drugmaker Moderna announced positive, early results from its first human trial of its experimental Covid-19 vaccine.

Risk assets also received a boost after Federal Reserve Chairman Jerome Powell on Sunday night struck a more upbeat tone on the U.S.’s growth prospects, while highlighting that the central bank still retained tools to limit the economic blow from the coronavirus.

What are benchmarks doing?

The Dow Jones Industrial Average US:DJIA surged 735 points, or 3.1%, to 24,421. The S&P 500 US:SPX rose 76 points, or 2.6%, to 2,939. The Nasdaq Composite US:COMP added 173 points, or 1.9%, to 9,188.

On Friday, the Dow rose 61 points, or less than 0.3%, to 23,685.42, while the S&P 500 rose 11.20 points, or 0.4%, higher to end the session at 2,863.70. The Nasdaq Composite Index closed at 9,014.56 after gaining 70.84 points, or 0.8%.

Stocks closed out last week lower, with the Dow down 2.7%, the S&P 500 losing 2.3% and the Nasdaq 1.2% lower — marking their worst weekly skid since the period ended March 20.

What’s driving the market?

Moderna Inc.announced positive results from a phase-one clinical trial for its experimental coronavirus vaccine, providing a jolt to markets that have been hopeful for a remedy or vaccine for the deadly illness that has stricken more than 4.7 million world-wide so far, according to data compiled by Johns Hopkins University.

“These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25” micrograms, Moderna chief medical officer Dr. Tal Zaks said in a news release. The next step is a Phase 2 trial, which has been approved to move forward by the Food and Drug Administration. The trial was done in partnership with the National Institute of Allergy and Infectious Diseases.

Stock-market bulls also gained confidence following U.S. central bank chief Powell’s remarks that the Fed would continue to support the economy and financial markets through the viral outbreak.

In an interview with CBS’ “60 Minutes” program, Powell said that the road to recovery for the U.S. may take a while and consumers may lack conviction until efforts to find a vaccine for the illness derived from the novel strain of coronavirus are successful.

That said, the monetary-policy maker struck a cautiously sanguine tone about the likelihood for a rebound for an economy that has shown signs of the extreme toll taken on it by measures put in place to limit the spread of the pathogen.

“In the long run and even in the medium run, you wouldn’t want to bet against the American economy,” Powell said during the television interview. He did caution that a second wave of infections could rattle confidence further.

Powell also acknowledged that the unemployment rate could hit as high as 25%, marking levels not seen since the Great Depression. But the Fed boss said that he didn’t fear a second depression for the U.S., forecasting that an economic rebound would start to take shape in the second half of the year.

Meanwhile, data on Monday showed Japan’s economy, shrank by an annualized 3.4% in the three months ended March 31 after a 7.3% contraction in the previous quarter, meeting the commonly accepted definition for a recession.

Still, plans to restart stalled economies inside and outside the U.S. have continued to act as a support for markets which have mostly been stuck in a narrow trading range since rising from March 23 bear-market low.

“The good news is economies across the globe are starting to reopen, suggesting that some activity will begin to recover compared with the full lockdown experienced in April,” wrote Hussein Sayed, chief market strategist at FXTM in a note. “However, will there be a price to be paid for the easing of restrictions?”

Rising cases in the U.S., however, where there are more than a third of the 4.7 million world-wide infections, has underpinned fitful trade in assets considered risky. Deaths in the U.S. rose above 89,500, more than a quarter of the more than 315,000 world-wide, according to figures from Johns Hopkins.

Which stocks are in focus?

  • Tesla Inc. US:TSLA was given the green light from local officials to resume operations at its Fremont, Calif., auto plant, according to the San Francisco Chronicle in a Sunday report, ending a battle with Alameda County officials, who had barred the opening of factories and manufacturing facilities to slow the spread of coronavirus.
  • Uber Technologies US:UBER shares will be in focus after food-delivery company Grubhub Inc. US:GRUB said it rejected a recent buyout offer from the ride-sharing company.
    SoftBank Group Corp. JP:9984 is in talks to sell a significant portion of its T-Mobile US Inc. US:TMUS stake to controlling shareholder Deutsche Telekom AG US:DTEGY as the Japanese technology conglomerate scrambles to raise funds.
  • Shares of Moderna US:MRNA were up more than 30% after the company’s report on its experimental vaccine.
  • Hertz Global Holdings Inc. US:HTZ said Monday it has named Paul Stone as the new chief executive to replace Kathryn Morinello.
  • Occidental Petroleum Corp. US:OXY shares were trading sharply higher after French oil company Total canceled its plan to buy Occidental’s assets in Ghana.
    Apple Inc. shares US:AAPL rose after the iPhone maker said it would reopen more than 25 stores this week.

How are other markets trading?

The global rally in risk assets weighed on haven assets, with the 10-year Treasury note yield BX:TMUBMUSD10Y rising 4 basis points to 0.678%. Bond prices move in the opposite direction of yields.

In precious metals, gold futures for June delivery US:GCM20 fell 0.5% to $1,747.70 an ounce. Meanwhile, crude prices continued to show steady gains as June oil futures US:CLM20 rose 10% to $32.44 a barrel, around a two-month high.

In global equities, the Stoxx Europe 600 index XX:SXXP climbed 3%, while Japan’s Nikkei JP:NIK rose 0.5%.

The greenback weakened against a basket of its major rivals, with the ICE U.S. dollar index US:DXY trading down 0.3%.

Author: Mark DeCambre

Source: Market Watch: Dow soars more than 700 points, after favorable, early results for coronavirus vaccine candidate

Tom McClellan, market technician and publisher of the McClellan Market Report, says investors are fleeing one of the most popular exchange-traded funds on Wall Street, even as stocks rally off their March lows.

The State Street-sponsored SPDR S&P 500 ETF Trust SPY, +1.30%, which offers investors exposure to S&P 500 index stocks, is widely considered the most liquid and frequently traded ETF, boasting assets of $254 billion. It has risen more than 29% since touching a bear-market low on March 23, coinciding with the low of the broad-market index that it tracks.

However, funds have been flowing out of the popular ETF recently, despite a rally that has helped the S&P 500 SPX, 1.24%, the Dow Jones Industrial Average DJIA, 1.41% and the Nasdaq Composite Index COMP, 1.19% retrace more than half of its late-March nadirs.

Indeed, the SPY, referring to the fund’s popular ticker symbol, has seen net outflows in 11 of the past 15 sessions as of May 6, according to FactSet data (see attached chart).

McClellan writes, that as the “rally has proceeded further, investors have started getting shy and pulling out of SPY,” and he notes that the number of total shares outstanding for the ETF has touched one of the lowest readings “of the past few years.” Over the past 30-day period, the SPY has seen net outflows of $9.7 billion, an outflows of more than $22 billion in the year to date.

Meanwhile, the popular technology-laden Invesco QQQ Trust Series I QQQ, +0.92%, which tracks the biggest 100 components in the Nasdaq Composite, has seen net inflows of nearly $5 billion of the past 30-days, and more than $8.6 billion so far in 2020.

The technical analyst says that the number of shares outstanding will change up or down as investors are more or less interested in owning those funds. so tracking flows can offer a lot of insight into investor sentiment in his view.

Here’s what he says about what the fund flows might signify, he said in a research note dated May 7 (see attached chart):

RIGHT NOW, WE ARE SEEING A PECULIAR CIRCUMSTANCE WHERE PRICES ARE RISING, BUT THE NUMBER OF SHARES OUTSTANDING HAS FALLEN RAPIDLY, DROPPING BELOW THE LOWER BAND. THIS CONVEYS THE MESSAGE THAT INVESTORS ARE NOT BELIEVING IN THE UPTREND,

However, McClellan said that the negative flows for the popular ETF may be a good sign for bullish investors.

Indeed, because inflows are used to support lending for the purpose of market bears betting on price falls in equity ETFs, negative flows may point indicate that the uptrend for stocks may continue to ride higher. “This conveys the message that investors are not believing in the uptrend, which of course is a sign familiar to every contrarian, that the uptrend should continue,” he said.

Indeed back in March, during the height of the coronavirus-induced panic selling, the SPY saw its highest inflows at $11 billion, the Wall Street Journal wrote, citing data from CFRA First Bridge ETF.

A number of strategists. however, have scratched their heads at the recent market move in stocks, given that the COVID-19 pandemic is creating a deep recession in the U.S. and elsewhere in the world, with some 33 million Americans out of work over the past six weeks.

Author: Mark DeCambre

Source: Market Watch: As the S&P 500 surges from March lows, investors fled the most popular stock-market fund—here’s what one analyst says that means

It’s times like these that get Peter Schiff’s blood running hot.

The polarizing Wall Street prognosticator says that the Federal Reserve’s latest move, an emergency half-a-percentage-point interest rate cut on Tuesday to a 1-1.25% range for fed funds, may be the pin that ultimately pricks what he believes is a raging stock-market bubble.

“The problem isn’t the pin, the problem is the bubble and once the bubble is pricked, the damage is done and the air is coming out of this bubble,” he told MarketWatch during a Tuesday afternoon phone interview.

“If it wasn’t the coronavirus, it would have been something else,” Schiff said.

The Fed on Tuesday cited growing risks to the economy tied to the spread of COVID-19, the infectious disease that originated in Wuhan, China in December which has sickened more than 90,000 people and claimed more than 3,100 lives and now threatens to disrupt global supply chains and economies.

Schiff, the chief executive of Euro Pacific Capital, is a longtime market pundit and well-known gold bug and his admonitions to investors have been pilloried at times because his persistent and unrealized crisis narratives haven’t always played out. He once predicted that gold would head to $5,000 an ounce, though he didn’t offer a specific time period.

However, he believes this time that calls for a stock-market and bond-market implosion and a collapse of the U.S. dollar DXY, +0.36% are more likely than ever.

“We are going to have a collapse of the bond market and the financial crisis that’s coming will be much worse than the one we had in 2008,” he said. The bond market wasn’t quite collapsing on Tuesday but the 10-year Treasury note did establish a fresh historic low yield beneath 1%, while the U.S. dollar, as measured by the ICE U.S. Dollar Index, has fallen 1% this week and gold GCJ20, -0.39%, Schiff’s favorite asset, has gained 4.4% over the same period.

It is hard to be too dismissive of Schiff’s predictions as one of his calls—that the collapse of the housing market in 2008 would lead to a global crisis of historic proportions—was dead on, and, perhaps has fortified his status as an investor and commentator who demands some attention on Wall Street.

U.S. equity markets appear to agree with Schiff’s skepticism of the Fed’s recent emergency action on Tuesday ahead of their planned March 17-18 meeting.

The Dow Jones Industrial Average DJIA, +1.78% lost nearly 800 points, or 2.9%, to around 25,917, while the S&P 500 SPX, +1.51% gave up 89 points, or 2.8%, to end at 3,003. The Nasdaq Composite Index COMP, +1.53% retreated 3% at 8,684, with losses increasing for equity markets in the aftermath of a news conference the U.S. central-bank chief held to explain the emergency policy measures.

Criticism of the Fed’s action runs the gamut from those who believe the Fed has limited ability to stimulate an economy infected by the novel coronavirus as well as those who believe the Fed should wait for further economic data before opting to inject a dose of confidence in markets that have been prone to wild 1,000-point swings in the Dow in the past two weeks.

The Fed has said that the U.S. economy remains strong and that acknowledgment has puzzled those wondering why the Fed is reducing benchmark interest rates with U.S. unemployment rate hanging around a 50-year low at 3.5%.

Schiff says the move to cut interest rates while the economy is strong supports his theory that the Fed can’t get away from interest rates at historically low levels, after attempting to do so at the end of December 2015. Last year the Fed cut rates three times in succession in the face of intensifying pressure from a U.S.-China trade war.

The Euro Pacific Capital chief says this is the new normal for markets and it doesn’t end well for the average investor. “The Fed never allowed the economy to heal,” he said of monetary policy in the aftermath of the 2008 financial crisis.

What does Schiff say to those who proclaim him a broken clock who is right twice a day?

“They are betting on a losing hand and I am betting on a winning hand and I want to go home with everybody’s chips,” he said.

Stock-market bulls should hope he isn’t correct this time.

Author: Mark Decambre

Source: Market Watch: Man who predicted the 2008 financial crisis says coronavirus may mean his bets of stock-market carnage are finally beginning to crystallize

The S&P 500 has shed more than $1.7 trillion in value in the past two days

The U.S. stock-market rally is unraveling, with a period of historic gains coming to a screeching halt, as fear that the coronavirus epidemic may reach America rattles Wall Street.

The Dow Jones Industrial Average DJIA, -3.15% was off 929.92 points, or 3.3%, at its Tuesday nadir, at 27,030.88, a day after the blue-chip benchmark suffered a drop of more than 1,000 points, representing the third worst one-day point drop in the index’s 124-year history.

The Dow finished Tuesday down nearly 880 points to mark its sharpest-ever two-session slide in point terms, losing about 1,910 points, according to Dow Jones Market Data.

The fall also marked the largest two-day percentage slide for the index since the period ended Feb. 5, 2018. The skid puts the Dow 8.4% away from its Feb. 12 record-high close of 29,551.42. That means the Dow is approaching correction territory at 26,596.28, defined as a drop of at least 10%, but not greater than 20%, from a recent peak.

Meanwhile, the S&P 500 SPX, -3.03% and the Nasdaq Composite COMP, -2.77% finished sharply lower. The S&P 500 is off 7.6% from its recent record high on Feb. 19 and has shed nearly $1.74 trillion this week, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, in a Tuesday research note.

The Nasdaq is off 8.6% from its Feb. 19 all-time closing high. Put another way, its recent decline is 1.4 percentage points from representing a correction. That would occur at the 8,835.46 level.

Here’s are 5 reasons that the market is falling:

COVID-19

Fear of the COVID-19 disease infecting the U.S. is intensifying. The illness derived from the novel coronavirus, SARS-COV-2, which originated in Wuhan, China, late last year, is starting to affect global trade and travel and taking a bite out of confidence about earnings and economic growth.

Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases at the Centers for Disease Control and Prevention, said on Tuesday that “the disruption of daily life might be severe.”

The World Health Organization hasn’t declared the viral infection a pandemic, but the disease, from the family of viruses known as SARS, or severe acute respiratory syndrome, has sickened people in China, South Korea, Japan, Malaysia, Italy and Iran. And according to Reuters, Austria, Spain, Croatia and Switzerland have also confirmed their first cases.

The virus has virtually crippled swaths of manufacturing in China, the second largest economy in the world, and the country is a big buyer of products and services from other countries. U.S. technology companies such as Apple Inc. AAPL, -0.03% depend on Chinese supplies.

Investors don’t know how long the outbreak will last, and it is too early to determine to what degree it will hurt corporate earnings, but a number of companies, including Hasbro Inc. HAS, -4.68%, HP Inc. HPQ, -0.30% and Mastercard Inc. MA, -0.59%, have already said that they think it will.

The 2020 election

Uncertainty about the U.S. presidential election’s outcome is also starting to drive markets, strategists and analysts argue. A number of them think that if Sen. Bernie Sanders, an independent from Vermont who characterizes himself as a democratic socialist, wins the Democratic presidential nomination, and possibly even the presidency, stocks would take a hit as he is perceived by some as an antibusiness candidate. “The risk to U.S. stocks is pretty significant if Bernie gets the nomination,” said Ed Moya, a senior market analyst with OANDA.

Lofty valuations

Even before the market slump this week, the value of stocks has been viewed as rich.

One measure of stock-market values showed that the S&P 500 index was trading at 18.9 times the weighted aggregate consensus forward earnings estimate among analysts polled by MarketWatch. That is up from 16.2 a year ago, and, aside from a brief point early in 2018, it is the highest forward price-to-earnings ratio for the benchmark index since May 2002.

The bond market

Government bonds yields have been sliding steadily as investors seek safe havens, and thus drive up bond prices, amid doubts about global economic growth in the wake of the coronavirus outbreak.

The 10-year Treasury note yield TMUBMUSD10Y, +0.43% carved fell to a record low below 1.32% earlier Tuesday, and the 30-year Treasury note TMUBMUSD30Y, +1.06% rate notched its all-time low last week.

Recession fears

Bond investors fear that the coronavirus might result in a global economic slowdown that might wash up on U.S. shores as a full-fledged recession. MarketWatch economics writer Rex Nutting explained the potential for an uncontained outbreak of COVID-19 this way: “Much of the immediate economic impact of a pandemic can be traced to the efforts to contain it, rather than from the effects of the disease itself. As we attempt to quarantine those who might spread the disease, we shut down a lot of economic activity.”

A Congressional Budget Office study found that a pandemic “could produce a short-run impact on the worldwide economy similar in depth and duration to that of an average postwar recession in the United States.”

Author: Mark DeCambre

Source: Market Watch: The Dow just logged its worst 2-day percentage drop in two years — here are 5 reasons the stock market is tanking, and only one of them is the coronavirus

The fund that Simons founded in 1982 added 3.3 million shares of Tesla in the 3-month period ended Dec. 31

Renaissance Technologies, added more than 3 million shares of Tesla to its holdings in the fourth quarter of last year, as the electric-vehicle maker’s shares catapulted higher, according to public filings.

The hedge fund founded by James Simons, considered the premiere quantitative-driven investor, owned 3.9 million shares of Tesla at the end of Dec. 31, with the company’s stake in Renaissance’s portfolio jumping from 0.1% in the prior quarterly period to 1.3%, according to file-tracking site Whalewisdom.

The purchases would have come as Tesla’s shares TSLA, -1.48% were zooming higher, punishing a number of investors with short positions who had bet that the Elon Musk-run Silicon Valley darling would see its price collapse soon. Instead, Tesla’s shares have surged 142% in the past three months and has more than doubled since the beginning of 2020, according to FactSet data.

By comparison, the Dow Jones Industrial Average DJIA, +0.40% has gained 4.2% over a three-month period, and 2.4% so far this year, while the S&P 500 index SPX, +0.47% has climbed 7.9% in the past three months and 4.2% in the year to date. The technology-laden Nasdaq Composite COMP, +0.87% has advanced nearly 14% in the past three months and boasts a 8.3% gain in 2020 so far.

By some reckonings, Simons is one of the most famous quantitative traders ever. He retired from the firm’s day-to-day operations of Renaissance a decade ago, but is still involved with the firm.

For his efforts, he ranks No. 21 on the Forbes list of the wealthy, with a net worth of $21.6 billion.

Renaissance’s main investment offering is the flagship Medallion Fund, which has generated a 39% average annual return from 1988 to 2018, that is despite rich fees, which currently include a 5% management and 44% performance fees.

Those costs haven’t prevented Medallion from outperforming Warren Buffett’s Berkshire Hathaway BRK.A, +1.25% BRK.B, -0.04% over the same 30-year period writes Nick Maggiulli of Ritholtz Wealth Management.

The Medallion Fund limits its assets to roughly $10 billion and is only available to Renaissance employees.

For its part, Tesla completed a $2 billion secondary offering on Friday and analysts have continued to hold a bullish view on the company. Bernstein analyst Toni Sacconaghi nearly doubled his price target, describing the vehicle maker as the “ultimate ‘possibility’ stock.” Sacconaghi raised his price target to $730, which was still below current levels at $845, from $325. “Revenue in 2020 is expected to rise by 30.3% to approximately $32 billion, and earnings are forecast to rise to $8.68 per share from $0.20 per share in 2019,” Whalewisdom researchers wrote.

Beyond Renaissance Tech, JPMorgan Chase & Co. JPM, -0.50% was seen purchasing roughly 2.2 million shares of Tesla in the most recent period, bringing its position to 2.5 million, according to Whalewisdom data.

Author: Mark Decambre

Source: Market Watch: The hedge-fund investor who has beaten Warren Buffett by 200x likely made a killing on Tesla

Dalio advocates maintaining a diversified portfolio of stocks despite huge rally

If there are investors who believe cash is king amid this market bull run, they ought to think again, suggests Ray Dalio.

The billionaire founder of the hedge fund Bridgewater Associates said during a CNBC interview on Tuesday on the sidelines of the World Economic Forum in Davos, Switzerland, that investors should be buying this market, rather than seeking safety in cash.

“Cash is trash,” said the hedge-fund luminary, who founded Westport, Conn.–based Bridgewater in 1975. The investment-management firm looks after some $160 billion.

Dalio’s comments, to be sure, echo others he has made previously. In fact, at Davos back in 2018, the honcho famously said investors were going to “feel pretty stupid” if they were holding cash as stocks climbed toward records. Markets tumbled soon thereafter on the back of increasing worries about Sino-American trade tensions, but they later recovered.

However, the decline came uncannily close — within a few short weeks — to Dalio’s 2018 cash bashing.

This time, the investor, who is worth $18.7 billion, according to Forbes, says that he’s advocated that investors maintain a diversified portfolio of stocks. He didn’t, however, specify his ideal makeup for a diversified portfolio, which has traditionally been one that holds 60% stocks and the rest in fixed-income assets.

Dalio’s market commentary comes as the Dow Jones Industrial Average DJIA, +0.36% , the S&P 500 SPX, +0.41% and the Nasdaq Composite COMP, +0.55% indexes are trading near all-time highs, though equities were retreating from those record heights early Tuesday.

Recent gains have caused some concern among strategists, analysts and traders that stocks have run up too far and too fast, amid optimism about a so-called Phase 1 trade pact between China and the U.S., and monetary stimulus from the Federal Reserve.

There is some reason to believe, however, that investors have grown too sanguine on equities.

The Bridegewater founder isn’t the only high-profile investor waxing optimistic about stocks. A monthly fund-manager survey conducted by Bank of America found that managers were holding on to their lowest proportion of cash since 2013, even though the percentage of managers expecting global economic growth to improve rose seven percentage points to 36%.

That survey comes as the International Monetary Fund on Monday published an economic forecast that was slightly weaker than one published in October.

Last week, David Tepper, a prominent hedge-fund manager, known for a number of correct calls, told CNBC’s Joe Kernen that he “has been long and will continue that way.” He equated the stock market to a horse and said: “I love riding a horse that’s running.”

Author: Mark Decambre

Source: Market Watch: Founder of world’s largest hedge fund says ‘cash is trash’ as the Dow soars to records

Blackstone’s Byron Wien says gold ‘has a chance to be an interesting investment’

Gold has a chance to be an interesting investment in the coming year, says Blackstone investment luminary Byron Wien:

That is how the veteran investor, whom U.S. News & World Report report described as a modern-day cult figure on Wall Street and one of the most influential investors, described the outlook for the yellow metal in the coming 12-month stretch, during a CNBC interview, ahead of the release of his well-read list of market surprises.

Wien didn’t provide further clarity on his gold estimates or the precise direction of gold trading in 2020.

However, his comments came as the precious commodity was on pace to enjoy one of its strongest daily gains since late November and its highest finish since early last month, rising past a psychologically significant level above $1,500 an ounce. Gold for February delivery GCG20, +0.58% was most recently trading up $14.20, or 1%, at $1,503.10 an ounce on the Comex exchange.

Gold has gained 17.3% so far this year, based on the most active contract, according to FactSet data. That is a relatively healthy run-up for the metal considering that stocks, which tend to move in the opposite direction of gold, have been trading near all-time highs.

Indeed, the Dow Jones Industrial Average DJIA, -0.13% has gained 22.3% so far in 2019, the S&P 500 index SPX, -0.02% has climbed nearly 29% over the same period and the Nasdaq Composite Index COMP, +0.08% has advanced nearly 35%, putting those indexes on track for their biggest annual gains in years.

What’s keeping gold afloat at the same time that stocks are riding high? Partly, worries that the equity market could turn lower after a mostly bullish 2019.

But commodity experts also say that a détente between the U.S. and China on the trade front could be helping to build bullish sentiment around gold appetite.

Meanwhile, seasonal trends could also be set to help gold push higher in January. Since 1980, January marks one of the best months for gold, with an average gain during the month of 1.53%, according to Dow Jones Market Data.

The best month for gold, however, is August, when the precious metal averages a gain of 1.57% (see table below):

January, however, tends to be a strong period of gold buying, with Asian investors usually taking a shine to the commodity around Lunar New Year, when gold is offered as a gift.

Author: Mark DeCambre

Source: Market Watch: ‘Watch gold in 2020,’ says one of Wall Street’s most influential stock-market investors

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