It has been a painful start to the year for equity investors. The S&P 500 is down 10% YTD and the smaller Russell 2000 is down 14%. Corrections are never fun when you are in the midst of one, but it is from corrections and bear markets that profound opportunity arises. The S&P hasn’t fallen enough from its May 2015 high to enter official bear territory yet—that would take another 7% from current levels, but there are many individual stocks that have. The chart below shows the percentage of Russell 3000 stocks (the largest 3,000 US stocks) that are down more than 20% from their … [Read more...]
Transportation Index in a Bear Market
Over the last year, the Dow Jones Transportation index is down over 20 percent. The Transports index is loaded with companies that move goods across the country. It is a price weighted index meaning the highest priced stocks have the greatest influence on its direction. When I think of moving the goods, and how it relates to my family, I think of Christmas. This year, as in years past, Becky and I did a ton of our Christmas shopping online using Amazon Prime—with all those boxes our front hall felt like a fulfillment center. The leading components of the Transportation index are FedEx Corp … [Read more...]
Transports Signal Trouble
Transportation stocks tend to be a leading economic indicator. The theory goes that before you can sell the goods you have to move the goods. Train, plane, and truck businesses are some of the first to see a pickup in demand or a drop in demand. When transportation stocks break down, it is an indication of potential trouble for the market and economy. The Dow Transports have been in a relative downtrend versus the Dow Industrials for the last year and half, and Young Research’s Moving the Goods Index—a measure of the performance of non-airline transportation stocks has also been in a … [Read more...]
The Year of the Speculator
If you are a serious long-term investor you are no doubt delighted to bid 2015 adieu. Last year was without question a year that favored speculators, traders, and rank amateurs. The big-cap U.S indices managed to eke out positive total returns for the year, but it was a handful of stocks (many of the most speculative variety) that carried the market. The average U.S. stock was down more than 4% last year. Take away Amazon, Netflix, Google, and Facebook and the S&P 500 would have finished in the red. The misery was widespread. The only U.S. equity mutual fund strategy that delivered … [Read more...]
The Monday Melee: 2016, Outlook Not So Good
Markets' Debbie Downer Opening Day Reading through today's headlines on CNBC would give any investor a bit of a stomach ache. Words like stagflation, plunge, burst, shaking, and slowdown were prominent among the titles. There were a few hopeful headlines, but nothing as powerful as the downers. CNBC's Bob Pisani laid out a smorgasbord of reasons the market was down today: 1) A poor U.S. close to 2015. Momentum traders were sure to press the indifferent, lackluster close to what is normally a positive time of the year. 2) China. Not just the disappointing manufacturing numbers, but the … [Read more...]
The 2016 Stock Market Outlook
Where are stocks headed in 2016? Will one of the longest bull markets on record finally come to an end in 2016 or is there enough gas left in the tank to push the market to higher highs? According to the strategists at Wall Street’s biggest banks, you should expect moderate stock market gains in 2016. The average estimate according to Wall Street strategists is for the S&P 500 to close the year at 2200—an 8% increase from yesterday’s close and a 10% gain from the time the estimates were made. If an 8% to 10% gain sounds like a familiar forecast from this crowd, that’s because it is. The … [Read more...]
This Chart Should Scare You
Below you are looking at a chart of the S&P 500 versus the Merrill Lynch High Yield Index. High yield bonds have had a dismal year. The Merrill Index is down almost 10% from its highs earlier this year, while the top heavy S&P 500 is only down a couple of percentage points. Bonds are higher in the capital structure than stocks. In the event of a default, bond holders get their money back before stock holders get a dime. So if investors are selling high-yield bonds because they are concerned about the prospect of default, shouldn’t they also be selling stocks? Historically, big losses … [Read more...]
The Monday Melee: Waiting for the Santa Claus Rally?
Is Janet Yellen Mrs. Claus? Will U.S. stocks see a Santa Claus Rally after the Fed decision on interest rates? Bloomberg reports: Investors waiting for an end-of-year rally just got a present from Janet Yellen. The Standard & Poor’s 500 Index began the second half of December with gains that nearly wiped out its loss for the month, setting it up to close out the year in positive territory with 10 trading sessions to go. The 1.5 percent increase Wednesday nearly equaled the gauge’s average advance in the last two weeks of the year since 1995. The benchmark slipped 0.2 percent as of … [Read more...]
The Monday Melee: Low Returns in 2016?
Jack Bogle Predicts Low Returns for a Decade The End of the Beginning? While he projects continued bull markets for years to come, Adam Parker, Morgan Stanley's US Equity analyst is quoted by BusinessInsider.com as writing: "While a high percentage of companies were able to show year-over-year margin expansion this year, the combination of muted revenue and negative factors in industrials, energy, and materials, and less benefits from lower oil in terms of consumer spend and lower input costs, have caused us to reduce our 2015 EPS outlook from $124 to $120.5," the analysts added. "We also … [Read more...]
This is why Pfizer is Spending $155 Billion on Botox
Pfizer, the makers of Viagra have agreed to buy Allergan, the makers of Botox for $155 billion. It sounds like destiny. Pfizer isn’t buying Allergan only for the drugs though. A big motivation for the deal is the tax savings. Post-acquisition, Pfizer will shift its tax base from the U.S. to Ireland. Ireland has one of the lowest corporate tax rates in the world at 12.5%. The U.S. has one of the highest. The pols will of course demagogue Pfizer for abandoning America, but our tax code is a national disgrace. How are American companies supposed to compete with their foreign counterparts when … [Read more...]
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