Sunday, January 25, 2015

S&P Sales Growth Is Fine, But EPS Margins May Have Flattened

US corporates have started reporting their financial results for the 4th quarter of 2014. So far, it looks horrible.

Bearing in mind that just 18% of the S&P has reported, this is how the quarter is tracking: EPS growth of 0.3% versus an expected growth rate of 8.5% on September 30 when the quarter began; sales growth of 0.6% versus an expected rate of 3.7%.

The question is whether these results indicate that the trend in earnings and sales growth is changing. The answer is no for sales but yes for earnings.

It should be no surprise that the energy sector has been hard hit by falling oil prices. The average price of oil was roughly $95 in 3Q; it fell 30% to an average of roughly $65 in 4Q.  The year-over-year fall is about the same. As a result, EPS for the energy sector fell by 24% and sales by 17% (data from FactSet).


Saturday, January 24, 2015

Weekly Market Summary

After falling three weeks in a row for only the third time since June 2012, US equities bounced strongly this week. NDX led, rising by 3.3%. SPX rose by 1.6%.

SPX started the week by again piercing its weekly 20-ma. This was the third week in a row it has done so. As we have said, a close below likely leads to the 190 area in SPY. That is the prior pattern (yellow). The 20-wma (200.5) remains an important line in the sand going forward.



The blue trend line has been resistance for the past 4 years. A return to that line now implies upside of 3-4% (to 212).

Tuesday, January 20, 2015

Fund Managers' Current Asset Allocation - January

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 last month (post).

Let's review the highlights from January.

Fund managers dropped their cash levels to 4.5%. 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. 


Saturday, January 17, 2015

Weekly Market Summary

US equities have now fallen three weeks in a row. At its low on Friday, SPX was 5% off its high on December 29.

The lows a week ago pierced the 20-weekly ma. Strong uptrends remain above this line (arrows).  This week, the market fell through again and then recovered, again. In the past, a close below the 20-wma has often led to a touch of the weekly Bollinger band bottom, currently at 189 (yellow). The key 20-wma level is now 200.5.



Friday, January 9, 2015

Weekly Market Summary

After hitting new all-time highs in the days after Christmas, US equities have now fallen two weeks in a row, an auspicious way to start the new year.

The lows this week pierced the 20-weekly ma. Strong uptrends remain above this line (arrows). A quick return to this level in the weeks ahead likely leads much lower. In the past, a close below the 20-wma has often led to a touch of the weekly Bollinger band bottom, currently at 189 (yellow).