Archive for Market Indicators – Page 2

Pessimism Falls to Lowest Level Since August

By Charles Rotblut, CFA, AAII

Bearish sentiment fell to its lowest level since last August, as bullish sentiment increased for the fourth consecutive week, according to the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, increased 1.0 percentage points to 43.2%. This is the highest level of optimism registered by our survey since March 15, 2012. It is also the third consecutive week that bullish sentiment has been above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 3.5 percentage points to 26.7%. This is a seven-week high. Even with the increase, neutral sentiment is below its historical average of 30.5% for the 11th time in 13 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 4.5 percentage points to 30.1%. This is lowest level of pessimism registered by our survey since August 23, 2012. It is also just the fifth time in the past 36 weeks that bearish sentiment is below its historical average of 30.5%.

The market’s rebound off of its mid-November lows is causing individual investors to be more optimistic about the short-term direction of stock prices. Also playing a role are further signs of economic growth, such as the November jobs report, and seasonality. It should also be pointed out that this week’s readings are fairly close to the historical average, implying that individual investors are neither unusually bullish nor bearish.

This week’s special question asked AAII members what influence the ongoing lack of a resolution to the fiscal cliff is having on their short-term outlook for stock prices. About one-third of respondents said the stalemate was having a negative impact, while another equally sized group said it wasn’t having any impact. Other respondents said the lack of resolution is causing them to be more cautious or that they expected stocks to stay range-bound until a resolution is reached. A few AAII members said they would view any fiscal cliff-related drop in stock prices as a buying opportunity. Several members expressed frustration with the politicians in Washington.

Here is a sampling of the responses:

· “This [the fiscal cliff negotiations] just adds to the volatility. Long-term investors should just ignore the noise.”

· “I’m a long-term investor. The so-called fiscal cliff has no impact on my investment decisions.”

· “Very bearish! It’s unbelievable our elected officials cannot come to some closure on this.”

· “I will hold off on buying; I believe the market will go down without a satisfactory solution.”

· “It makes me think the short-term (next month or so) will be volatile for stocks.”

· “I believe stocks will be down in the short term, but the fiscal cliff will be resolved and the market will go up.”

This week’s AAII Sentiment Survey Results:

· Bullish: 43.2%, up 1.0 percentage points

· Neutral: 26.7%, up 3.5 percentage points

· Bearish: 30.1%, down 4.5 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 is Slowing With the Economy

Rail traffic is taking a turn for the worse in recent weeks as the economy appears to be slowing even further into Q4.  The latest reading on intermodal traffic came in at -1.1%.   That brings the trailing 12 week average to 1.65%.  The US economy appears to be just barely treading water at this point.   This is also consistent with my latest update for Q4 GDP which is tracking at 1.1% (available via Orcam Investment Research).

Here’s more via the AAR:

“AAR today also reported declines in rail traffic for the week ending Dec. 1, 2012.  Last week U.S. railroads originated 305,708 carloads, down 2 percent compared with the same week last year, while intermodal volume for the week totaled 241,411 trailers and containers, down 1.1 percent compared with the same week last year.

Fourteen of the 20 carload commodity groups posted increases compared with the same week in 2011, with petroleum products, up 65.3 percent; metallic ores, up 27.2 percent, and iron and steel scrap, up 20.2 percent. The groups showing a decrease in weekly traffic included coal, down 12.7 percent; waste and nonferrous scrap, down 5.6 percent, and primary forest products, down 5 percent.

Weekly carload volume on Eastern railroads was down 2.1 percent compared with the same week last year. In the West, weekly carload volume was down 1.9 percent compared with the same week in 2011. “

Small Investor Optimism at Highest Level Since March

By Charles Rotblut, CFA, AAII

Bullish sentiment rose to its highest level since March 29, 2012, even as bearish sentiment stayed above its historical average for the 15th consecutive week in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.3 percentage points to 42.2%. This is both the highest level of optimism registered by the survey and the first time bullish sentiment has been above its historical average of 39% on consecutive weeks since last March.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.5 percentage points to 23.2%. This is the 10th time in 12 weeks that neutral sentiment is below its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, edged up 0.2 percentage points to 34.6%. This is the 15th consecutive week and the 31st out of the last 35 weeks that bearish sentiment is above its historical average of 30.5%.

The short-term outlook among AAII members has improved dramatically since November 15, 2012, with bullish sentiment jumping 13.4 percentage points. A good start to the holiday shopping season and the market’s ability to hold steady despite continued uncertainty about the outcome of budget and tax negotiations in Washington are helping to boost optimism.

Seasonality may also be playing a role. In a report last week, Sam Stovall, the chief equity strategist for S&P Capital IQ, said December has the highest monthly average bullish sentiment readings. According to Stovall, since our survey started in 1987, bullish sentiment has averaged 41.8% in December. December also ranks number one in terms of S&P 500 performance. Stovall calculates an average December monthly gain of 1.36% for the S&P 500, using data dating back to 1900.

Even with the improvement in bullish sentiment, it is worth noting that bearish sentiment continues to stay at above-average levels. Failure by Congress and the president to avoid the fiscal cliff would likely have a damaging impact on individual investors’ moods, especially if it seemed that the standoff would be protracted. Furthermore, many AAII members remain concerned about the pace of economic growth, ongoing political gridlock and Europe’s sovereign debt crisis.

This week’s special question asked AAII members for their opinions about companies declaring special dividends or paying their typical first-quarter dividend before the end of this year. The majority of survey respondents said such actions were a good idea given the possibility of higher tax rates next year. Several respondents differed, however, saying that the actions benefited executives and large shareholders, were a ploy to attract new shareholders or may not be the best use of company resources. A small group of respondents were indifferent, saying these actions will have no lasting impact. Several AAII members pointed to the ongoing gridlock over the fiscal cliff as the reason for the special dividends and the accelerated dividend payments.

Here is a sampling of the responses:

· “Given the uncertainty about tax reform, this may be a good approach for both the companies and investors.”

· “Great. Less potential tax to pay to the IRS.”

· “I think it is fine so long as the companies are not borrowing to make the dividend payments.”

· “I’m not against it. I really wish, though, we had a political system that absolutely worked for all of us citizens.”

· “It is more in the interest of the CEOs and board of directors than in the interest of the average shareholder.”

· “I think it is short-sighted and a bad idea.”

This week’s AAII Sentiment Survey results:

· Bullish: 42.2%, up 1.3 percentage points

· Neutral: 23.2%, down 1.5 percentage points

· Bearish: 34.6%, up 0.2 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.

The Wall of Worry in Inflation

There’s a popular saying that stocks climb a wall of worry.  But one could also say that bonds also climb a wall of worry.  A wall of worry over inflation.  For years (really decades), there have been persistent fears of surging inflation.  And those fears just never come to fruition.  That doesn’t mean they can’t come to fruition in the future, but I do find these comments by Richard Bernstein apt:

“There appears to be a wall of worry with respect to inflation as well. It is unfortunate that investors have listened to politicians because printing money does NOT cause inflation. Economic textbooks say that printing money and using it to create excess credit causes inflation. The US is certainly printing money, but credit creation could hardly be called active let alone excessive. Thus, we view the risk of meaningful inflation as still quite low.

However, investors continue to perceive inflation risk to be very high. Our models currently suggest that investors are pricing nearly 6% inflation over the next twelve months into the valuation of the stock market. As Chart 5 shows, such expectations have nearly always been too pessimistic. The stock market appears to be climbing the inflation wall of worry as well.”

Goldman Sachs Cuts Q4 GDP Forecast to 1%

By Walter Kurtz, Sober Look

As discussed earlier (see post), US manufacturing data for November shows shrinking inventories. This is true for both the ISM survey as well as the Markit PMI index (see figures below).

Goldman looks at the change in private inventories (also called “inventory investment”) as a good predictor of GDP growth. The Q3 GDP exhibited relatively strong inventory accumulation, which is being reversed this quarter (as the charts above show).

GS: – Inventory investment is often an important contributor to quarterly fluctuations in real GDP. Most recently, real GDP growth in Q3 saw a sizable boost from inventory accumulation. … Given the soft early indicators from business sentiment surveys to date, and our own econometric analysis, we expect that the boost to GDP growth from inventory investment seen last quarter will not persist into Q4. Inventories will probably be a moderate drag on GDP growth into year-end.

The recent decline in the series is consistent with a moderation in inventory investment in the current quarter, and hence a decline in the contribution from inventory investment to real GDP growth. A simple regression of quarterly inventory investment on our indicator [R-squared = 0.8] suggests that inventory accumulation could fall by $34 billion in Q4 ($135 billion at an annual rate) to $27 billion, enough to detract roughly a full percentage point from Q4 real GDP growth if taken at face value.

This reduction of inventories (which to a large extent is driven by the impasse in Washington) resulted in Goldman’s downgrade for Q4 GDP forecast to 1% (annualized rate). What makes this anemic growth projection particularly painful is that it is likely caused (see discussion) by the political gridlock over issues that have been well telegraphed for quite some time (see discussion). The irresponsible behavior of politicians is not surprising, but sad nevertheless.

ISM Inventories index (source: ISM)

US Markit PMI Inventories Index (orange line, source: JPMorgan)

 

The ISI Tech Survey Weakness Not Yet Reflected in the Market

By Walter Kurtz, Sober Look

The ISI Tech Company Index (see discussion) shows continuing weakness. The survey, which is heavily weighted towards US semiconductor firms, is now at the lows of 2008/09. It seems that firms have been postponing spending on equipment and to a lesser degree on software. The obvious explanation is the uncertainty in Washington.

So far this weakness has not been reflected in the equity markets. The PHLX Semiconductor (SOX) index is definitely off the highs but is still up for the year. At some point (probably within the next couple of months), either the sentiment in the industry will begin improving or we will see a selloff in the tech sector. Companies manufacturing and servicing business tech equipment (as opposed to retail) are particularly vulnerable.

Source: ISI Group

 

Bullish Sentiment Jumps Above 40%

By Charles Rotblut, CFA, AAII

Bullish sentiment registered above 40% for the first time since August 23, 2012 in the latest AAII Sentiment Survey. Bearish sentiment continues to stay above its historical average, however.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 5.1 percentage points to 40.9%. This reading ends a 13-week streak of optimism coming in below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, edged up 1.3 percentage points to 24.7%. Even with the increase, this is the 10th time in the past 11 weeks that neutral sentiment is below 30%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.4 percentage points to 34.4%. This is an eight-week low. Even with the drop, pessimism is above its historical average of 30.5% for the 14th consecutive week and the 30th out of the last 34 weeks.

More individual investors are describing themselves as bullish than bearish for just the second time in the past 10 weeks. The bull-bear spread, which measures the difference between bullish and bearish sentiment, is also at its most positive level since August 23, 2012. The current bull-bear spread is 6.5.

Though this week’s survey signals an increase in the level of optimism, it is important to note that this is only the second time since March 29, 2012, that bullish sentiment is above its historical average of 39%. Individual investors remain cautious and failure by Congress and the president to avoid the fiscal cliff would likely have a damaging impact on individual investors’ moods. Though some AAII members are encouraged by signs of continued economic growth and the preliminary holiday shopping data, many remain concerned about the pace of economic growth, ongoing political gridlock and Europe’s sovereign debt crisis.

This week’s special question asked AAII members what this year’s holiday shopping trends are saying about the economy. Responses were mixed, with the largest group of respondents saying the early data shows signs of an improving economy, or at least better consumer sentiment. Several members thought consumers are either ignoring the macro environment (including the possibility of the fiscal cliff fears) or are just tired of not spending. Some respondents are worried that consumers are spending money they do not have. There were also several who thought the initial data did not provide much insight into the overall health of the economy.

Here is a sampling of the responses:

“With holiday spending up slightly, consumers are not letting the fiscal cliff threat spoil their holidays.”
“I’m encouraged by the volume of shoppers reported by the media, but I hope that folks are not spending themselves back into difficult situations.”
“Consumers have become more willing to spend.”
“Consumers don’t have much “extra” money, so they are shopping for the lowest priced products.”
“It is very hard to tell as of now, but aside from Black Friday, I feel that people are being careful with their money.”
“Black Friday does not a shopping season make.”

The historical average for neutral sentiment was adjusted down by a half a percentage point this week, from 31% to 30.5%. The historical average for bearish sentiment was revised up, from 30% to 30.5%. These revisions reflect a trend we have seen develop in the weekly readings. Over time, we make additional adjustments to the historical averages as the data warrants.

This week’s AAII Sentiment Survey results:

Bullish: 40.9%, up 5.1 percentage points
Neutral: 24.7%, up 1.3 percentage points
Bearish: 34.4%, down 6.4 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: Still No Signs of Recession

Rail traffic continues to be a bright spot in the US economy though growth has definitely slowed some in recent months.  This week’s traffic trends showed a rise in intermodal traffic at a 2.4% year over year rate.  That brings the 3 month average to 2.35%.  I think this data is one of many indicators that continues to point to a sluggish, but expanding US economy.

Here’s more via the AAR:

“The Association of American Railroads (AAR) today reported mixed weekly rail traffic for the week ending November 17, 2012, with U.S. railroads originating 288,717 carloads, down 4.3 percent compared with the same week last year. Intermodal volume for the week totaled 249,115 trailers and containers, up 2.4 percent compared with the same week last year.

Eight of the 20 carload commodity groups posted increases compared with the same week in 2011, with petroleum products, up 54.2 percent; motor vehicles and equipment, up 16.3 percent, and primary forest products, up 14.8 percent. The groups showing a decrease in weekly traffic included metallic ores, down 15.8 percent; grain, down 13.4 percent, and nonmetallic minerals, down 12.4 percent.

Weekly carload volume on Eastern railroads was down 4.5 percent compared with the same week last year. In the West, weekly carload volume was down 4.1 percent compared with the same week in 2011.

For the first 46 weeks of 2012, U.S. railroads reported cumulative volume of 13,037,190 carloads, down 3 percent from the same point last year, and 10,943,385 trailers and containers, up 3.4 percent from last year.”

(Chart via Orcam Investment Research)