Archive for Market Indicators

Fading Magazine Covers….

Just passing along an observation here from John Hussman’s latest weekly letter.  He cites the extreme bullishness of the Barrons Big Money Poll which set an all-time high (via John Hussman):

“The stock market isn’t the only thing that has set records this spring. Barron’s semiannual Big Money poll of professional investors also is setting a record — for bullishness, that is. In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for U.S. stocks — an all-time high for Big Money, going back more than 20 years.”

“Dow 16000!” – Barron’s Magazine Big Money Poll 4/20/2013

A few reminders…

“Still Bullish! (Dow 13000)” – Barron’s Magazine Big Money Poll, May 1, 2000

The May 2000 Big Money Poll was published with the Dow Jones Industrial Average at 10733.91. The Dow hadalready peaked nearly a thousand points higher in January of 2000, and would go on to lose about 40% of its value in the 2000-2002 bear market, with the S&P 500 and Nasdaq faring far worse.

“Dow 14000?” – Barron’s Magazine Big Money Poll, May 2, 2007

The May 2007 Big Money Poll was published with the Dow at 13264.62. The Dow did advance another 6% to reach 14000 by October 2007. By November (the poll is semi-annual), bulls were outnumbering bears by 2-to-1, and the headline ran “The Party’s Not Over.”  In fact, the market had already peaked, and proceeded to lose over half its value in the 2007-2009 bear market.

The Barron’s Big Money Poll is typically bullish, on balance. This is Wall Street, after all. But variations in the tone and extent of that bullishness can be informative, especially when the consensus is extremely optimistic at new highs of mature bull markets, and defensive at new lows of mature bear markets. I can’t really throw stones about 2009, as I had my own concerns at the time (relating to the need to stress-test against Depression era outcomes, despite our favorable views of valuation). But it’s worth noting that the 2009 Big Money Poll questioned the advance from the March lows, noting “good reason not to jump in with both feet yet.” The 2003 Big Money Poll – already well into a new bull market – was bullish on balance, and up from just 43% bulls in an October 2002 poll near the market lows. Still, the 2003 poll noted “the bulls’ views have been tempered by the market’s losses in recent years. Consequently their expectations for the Dow, the Standard & Poor’s 500 stock index, and the Nasdaq Composite have been ratcheted down from past surveys.”

This certainly isn’t a criticism of Barron’s itself. I grew up on Barron’s Magazine, and will remain a devoted reader at least as long as Alan Abelson provides a worthy counterbalance to the more short-sighted views of Wall Street and the Market Lab section remains in print. Still, the Big Money Poll is most useful as a contrary indicator.

Rule o’ Thumb: When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips.”

huss

Bullish Sentiment Declines

By Charles Rotblut, CFA, AAII

Neutral sentiment is at highest level since December 22, 2011 in the latest AAII Sentiment Survey. The rise in neutral sentiment is occurring as both short-term optimism and pessimism are falling among individual investors.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.9 percentage points to 35.5%. This is the third consecutive weekly decline. It also puts optimism at its lowest level in a month. The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.4 percentage points to 36.3%. As noted above, this is the highest neutral sentiment has been in more than 16 months. It is also the first time neutral sentiment has been above its historical average of 30.5% on consecutive weeks since October 4 and October 11, 2012.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.5 percentage points to 28.2%. This is a nine-week low for pessimism. The historical average is 30.5%.

The last time both bullish and bearish sentiment were below their respective historical averages on consecutive weeks was August 2 through August 16, 2012. The second-most-recent occurrence was on February 25 and March 4, 2010.

The declines in optimism and pessimism are not significant as both bullish and bearish sentiment remain close to their historical averages. While the major indexes continue to trade near record or multi-year highs, AAII members are mixed about what the next six months will bring in terms of market direction. Some members are encouraged by this year’s gains, while others fret that stocks are overbought and are due for a pullback. Also impacting sentiment are mixed views about the pace of economic growth and ongoing frustration with Washington.

This week’s special question asked AAII members which industries and sectors they like right now. Energy, including master limited partnerships, received the most votes, listed by 30% of respondents. Health care came in second with 23% of respondents favoring the sector, technology was a close third (21%) and financials came in fourth (14%). When we asked the same question last September, AAII members favored energy, health care, commodities and technology.

This week’s AAII Sentiment Survey results:

· Bullish: 35.5%, down 2.9 percentage points

· Neutral: 36.3%, up 3.4 percentage points

· Bearish: 28.2%, down 0.5 percentage points

Historical averages:

· Bullish: 39.0%

· Neutral: 30.5%

· Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

 

Rail Traffic Continues 2013 at a Positive Pace

Rail traffic is continuing to show positive signs here as we head deeper into 2013.  Intermodal traffic was up 5.3% year over year which brings the 12 week moving average to a very healthy 4.84%.  That’s up from 1.3% earlier this year.

Here’s the AAR with more details:

“AAR also reported mixed rail traffic for the week ending Feb.16, 2013, with total U.S. weekly carloads of 278,596 carloads, down 1.2 percent compared with the same week last year. Intermodal volume for the week totaled 251,078 units, up 13.6 percent compared with the same week last year.  Total U.S. traffic for the week was 529,674 carloads and intermodal units, up 5.3 percent compared with the same week last year.

Three of the 10 carload commodity groups posted increases compared with the same week in 2012, with petroleum products, up 56.1 percent, and nonmetallic minerals and products, up 12.1 percent. Commodities showing a decrease were led by grain, down 14.3 percent.

For the first seven weeks of 2013, U.S. railroads reported cumulative volume of 1,891,569 carloads, down 5 percent from the same point last year, and 1,664,387 intermodal units, up 6.8 percent from last year. Total U.S. traffic for the first seven weeks of 2013 was 3,555,956 carloads and intermodal units, up 0.2 percent from last year.”

Chart via Orcam Investment Research:

Buffett’s Favorite Valuation Metric Surges Over the 100% Level

For the first time since the recovery began, Warren Buffett’s favorite valuation metric has breached the 100% level.  That, of course, is the Wilshire 5,000 total market cap index relative to GNP.  See the chart below for historical reference.

I only point this out because it’s a rather unusual occurrence and the recent move has been fairly sizable.  It happened during the stock market bubble of the late 90’s, but then occurred again just briefly during the 2006-2007 period when the valuation broke the 100% range in Q3 2006 and stayed above that range for about a year.  We all know what followed the 2007 peak in stock prices.

Here we are in this wonderful new world where everyone values nominal stock prices more than they value the actual output that underlies it.  If this indicator isn’t a sign that we are still residing in this Fed driven asset targeting mania then I don’t know what is.

To me, the whole thinking is backwards and more disruptive than anything else, but the party must go on.  Lord knows the Fed isn’t taking the punch bowl away any time soon.  So drink up.  Maybe you’ll get so drunk you’ll sleep through the inevitable bad parts when they arrive.

Chart via Orcam Investment Research:

China PMI Expands at Fastest Pace in 19 Months

More signs of stabilization in one of the world’s largest economies.   Today’s Chinese PMI rose to a 19 month high and solidly in expansionary territory (via Markit):

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 51.5 in December, up from 50.5 in November, signalling a modest improvement of
operating conditions in the Chinese manufacturing sector. Moreover, it was the highest index reading since May 2011.

Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“December’s final manufacturing PMI picked up for the fourth consecutive month to a 19-month high, thanks to the faster new business flows and the end of destocking. Such a momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilise. This, plus Beijing’s reiteration of keeping pro-growth policy in place into the coming year, should support a modest growth recovery of around 8.6% y-o-y in 2013, despite the ongoing external headwinds.”

Bullish Sentiment Rises to its Second Highest Level of the Year

By Charles Rotblut, CFA, AAII

Note: Our offices will be closed next week in observance of the holidays. I will be out from December 24 until January 7.

Bullish sentiment rose to its second-highest level of the year, as bearish sentiment fell for the fourth time in the past five weeks in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.2 percentage points to 46.4%. This is the highest level of optimism registered by our survey since February 9, 2012. It is also the fourth consecutive week that bullish sentiment has been above its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, rose 2.1 percentage points to 28.8%. Even with the increase, neutral sentiment remains below its historical average of 30.5% for the 10th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 5.3 percentage points to 24.8%. This is the lowest level of pessimism registered by our survey since February 9, 2012. It is also the first time bearish sentiment has been below its historical average of 30.5% on consecutive weeks since August 23, 2012.

Though bullish sentiment is near its high and bearish sentiment is near its low for the year, both remain well within their typical long-term ranges. Optimism seems high right now because pessimism has been above average for most of this year.

Individual investors’ short-term outlook for stock prices has improved over the past few weeks, however. A rebound in stock prices, monetary stimulus, continued economic growth and seasonality are all playing a role. Likely also helping is the crowding out of other potentially negative news headlines by the ongoing fiscal cliff negotiations.

This week’s special question asked AAII members how the Federal Reserve’s announcement of more bond purchases and introduction of an unemployment rate target impacted their sentiment towards stock. About 40% of respondents said it helps the stocks. Roughly 20% thought it would not have much of an impact. Some respondents said they thought the market has become dependent on monetary stimulus, inflation is a worry or that the recent announcement is bad for bond prices. A few respondents said the fiscal cliff negotiations are having a bigger impact on their short-term outlook.

This week’s AAII Sentiment Survey results:

· Bullish: 46.4%, up 3.2 percentage points

· Neutral: 28.8%, up 2.1 percentage points

· Bearish: 24.8%, down 5.3 percentage points

Historical averages:

· Bullish: 39.0%

· Neutral: 30.5%

· Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

What is FedEx Telling us About the Global Economy?

Everyone always thinks that Alcoa kicks off the earnings season, but I don’t see it that way.  The real earnings season kicks off with FedEx who usually reports well in advance of Alcoa and gives us a much more meaningful look into the state of the economy.  So what’s the global bellwether telling us?  Here are some of the key highlights from their earnings report yesterday and the conference call:

  • Guidance for the full-year was in-line with expectations after last quarter’s big cut.  That could mean things are a bit more stable.  The outlook certainly isn’t deteriorating much.
  • Mike Glenn said they still see growth in the global economy:

“We continue to see modest growth in the global economy with our forecast for U.S. GDP calling for 1.9% growth in calendar year ’13. For industrial production, we expect a growth rate of 2.4% in calendar year ’13. This is slightly lower than our prior forecast, primarily reflecting a lower entry point in FY ’13 due to Hurricane Sandy. Our global GDP forecast is 2.5% in calendar year ’13. And finally, I just want to emphasize that the calendar year ’13 outlook could swing either direction depending upon policy outcomes, especially with the fiscal cliff issues in the U.S. and certainly issues in Europe.”

  • The European economy remains “weak”.  
  • High oil prices remain a big risk to their expenses and margins.  
  • Political uncertainty is not helping matters:

“the mounting uncertainty in the U.S. related to fiscal policies and their potential to impact earnings by further restraining economic growth is a concern.”

  • Operating margins were down just slightly. 
  • Revenues were decent at 5% year over year.   
  • Total US Domestic package shipments were down -2%.  This is an improvement over the last two quarters and more consistent with the low, but not negative economic growth we’re seeing in the US at present.  

Rail Traffic: Economy Continues to Soften

More weakness in this week’s rail traffic report.  The AAR reported a -0.3% reading in intermodal.  This is the second consecutive negative weekly reading.  This brings the 12 week moving average down to 1.3%.  That’s about in-line with the consensus Q4 GDP predictions and indicative of an economy that is growing, but just slightly.

Here’s more via AAR:

“The Association of American Railroads (AAR) today reported declines in weekly rail traffic for the week ending December 8, 2012, with U.S. railroads originating 292,206 carloads, down 1.6 percent compared with the same week last year. Intermodal volume for the week totaled 240,098 trailers and containers, down 0.3 percent compared with the same week last year.

Twelve of the 20 carload commodity groups posted increases compared with the same week in 2011, with petroleum products, up 59.5 percent; lumber wood and products, up 18.6 percent, and metallic ores, up 16.6 percent. The groups showing a decrease in weekly traffic included grain, down 15.3 percent; metals and products, down 11.9 percent, and coal, down 9.7 percent.

Weekly carload volume on Eastern railroads was down 0.5 percent compared with the same week last year. In the West, weekly carload volume was down 2.4 percent compared with the same week in 2011.

For the first 49 weeks of 2012, U.S. railroads reported cumulative volume of 13,888,035 carloads, down 3.0 percent from the same point last year, and 11,619,432 trailers and containers, up 3.2 percent from last year.”

(Chart via Orcam Investment Research)