Wednesday, December 11, 2013
2:59 PMIndustrials and homebuilders lead market decline
- The two worst-performing sectors on a down day are industrials (XLI -1.4%) and homebuilders (XHB -1.5%), (ITB -1.9%).
- Industrials are taking a hit after Joy Global (JOY -6.3%) missed earnings estimates and provided disappointing guidance. "With a limited number of projects that can book in time to help 2014, we continue to see both the need and opportunity to lower the cost base in our business," says the company. Caterpillar (CAT -1.2%).
- Homebuilders continue to digest Toll Brothers' (TOL -1.8%) "leveling in demand" comments from yesterday's earnings results - in the 19 weeks since August 1, business has been flat vs. last year, and in the first 5 weeks of FQ1 (beginning Nov. 1) business has also been flat from 2012 (though Hurricane Sandy makes a tricky comparison).
- CEO Doug Yearley on the earnings call (transcript): "There's just not a lot of action [this time of year]. We still feel like pent-up demand is building, demographics are on our side, affordability is in place, and we are cautiously optimistic about the spring season, which begins the end of January."
- Lennar (LEN -2.3%), D. R. Horton (DHI -3%), KB Home (KBH -3.1%), Hovnanian (HOV -3.3%)
2:59 PMFBR starts Cameco at Market Perform amid favorable long-term outlook
- Cameco (CCJ -1%) is initiated with a Market Perform rating and $24 target price at FBR Capital, driven by CCJ's leading position in the nuclear energy industry, solid production growth profile, high-quality asset base and a strong long-term contracting book.
- FBR has a favorable longer-term outlook for the uranium industry, given the 71 nuclear reactors under construction, which alone reflect ~23% of the current annual demand.
- In the near term, however, the industry remains plagued by an oversupply situation, idled nuclear reactors in Japan reducing demand and building up utility stockpiles, all of which could keep pricing below economic return levels and lead to industry-wide production cuts.
- ETFs: NLR, NUCL
2:42 PMGold producers' balance sheets would weaken below 1250/oz., TD says
- Gold producers' balance sheets appear relatively stable with gold prices at ~$1,250/oz. but would weaken further on lower prices, TD Securities says in an analysis of miners' sensitivity to changes in gold prices.
- At $1,100/oz, companies with the highest forecast ratio of net debt to total capitalization include Barrick Gold (ABX -2.5%), Newmont Mining (NEM -1.9%), Agnico Eagle Mines (AEM -2.5%) and Detour Gold (DRGDF +3.3%).
- TD's top picks include Eldorado (EGO -3.1%), Goldcorp (GG -1.5%), B2Gold (BTG -3.7%), Primero Mining (PPP -0.6%) and Silver Wheaton (SLW -2%).
- ETFs: GDX, GDXJ, NUGT, DUST, GLDX, GGGG, RING, PSAU, JNUG, JDST.
1:37 PMRetail shopping traffic poor last week: ShopperTrak
- Brick-and-mortar retail sales fell 2.9% Y/Y for the week following Black Friday, according to ShopperTrak.
- The mark is less than impressive with the compact holiday shopping season supposed to make the comparable to last year a bit easier. Even worse, the consumer research firm reports a 21.6% drop in retail shopper traffic for the week of December 2 to December 8.
- Though post-Cyber Monday letdown, wintry weather, and an early Hanukkah played a factor in the poor retail sales week - forward momentum appears lacking with only two weeks left before Christmas.
- Related ETFs: XLP, XLY, VDC, XRT, VCR, RTH, PBJ, RETL, PEJ, IYK, FXG, IYC, SCC, FXD, RHS, UCC, PMR, UGE, RCD, PSL, PSCC, SZK, FDIS, FSTA, PSCD, PEZ.
1:26 PMLow-volatility not as cheap as it used to be
- An MSCI study argues the low-volatility trade is a long way off from being a crowded one and says scalability isn't an issue, but the report, says Brendan Conway, didn't examine the market impact - i.e., the real world friction a large money manager might see moving in and out of positions.
- Then there's valuations - the study found low-volatility stocks had an average P-E ratio of 18.1x vs. 19.5x for all stocks from 1992-2012. But now the stocks making up the iShares MSCI USA Minimum Volatility ETF (USMV) trade at 18.5x earnings vs. the S&P 500 at 16.5x. Globally, it's similar, with the iShares MSCI All Country World Minimum Volatility ETF (ACWV) at 18.5x earnings vs. the MSCI ACWI ETF (ACWI) at just 16.5x.
- "[O]ver the past 10 years, the cheapness or 'valueness' of developed market low volatility stocks seems to have diminished. As of May 1, 2013, the earnings yield and B/P ratio data indicate that low volatility strategies have become more expensive than the market cap-weighted core indices," says Research Affiliates' FeiFei Li.
- Related: SPLV
1:04 PMBond outflows surpass all-time record
- Investors have pulled $70.7B from bond mutual funds YTD, according to TrimTabs - that's more than the $62.5B pulled amid the serial Fed rate hikes and bond market rout of 1994.
- Since June alone, investors have pulled $164.5M out of bond funds, and three of the four largest monthly outflows ever have occurred this year.
- Broad fixed-income ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, ISTB, GBF, GVI, MINC, FWDB, GIY
12:36 PMIshares' actively-managed short-term bond fund gets nearer to launch| Comment!
12:08 PMBlackRock: Stay nimble
- "2014 is the year to squeeze more juice out of risk assets. But investors should be ready to discard the fruit when it starts running dry," says BlackRock's Ewen Cameron Watt in the firm's 2014 Investment Outlook. "Beware of traffic jams: easy to get into, hard to get out of."
- Behind the view is the idea central banks (U.S., U.K, Canada, China, to name a few) are poised to begin tightening monetary policy.
- BlackRock doesn't believe stocks are yet in a bubble, but its "risk indicator" - measuring enterprise value against earnings adjusted for volatility - is nearly as high as just before the dotcom bust. "The ratio of the two is the key. High valuations combined with low volatility can make for a lethal mix. This market gauge sounded the alarm well before the Great Financial Crisis."
- Broad large-cap ETFs: PRF, VUG, VTV, SDOG, VV, SCHX, MGK, DEF, SCHG, SCHV, PWV, FLAG, MGV, DOD, JKD, FEX, EQL, IWY, EZY, JKE, PWB, IWX, FTC, JKF, EEH, SPXH, TRSK, SFK, FWDD, PXLC, ALTL, PXLV, GVT, RWG, FNDX, PXLG, IELG
11:27 AMBig stock gains this year bode well for next ... or not
- 2014 could be a good year for stocks if history going back to 1927 holds, says LPL's Jeffrey Kleintop, who finds double-digit average positive returns in the years following 25-30% gains for the S&P 500. In fact, he says, most big years were followed by several years of strong advances.
- Mark Hulbert - focusing on the DJIA and going back to the late 1890s - finds the advantage following 20% plus gains disappears. "The stock market’s odds in a given year are almost completely independent of what it did in the previous year."
- S&P 500 and DJIA ETFs: SPY, SH, DIA, SSO, SDS, IVV, SPXU, UPRO, VOO, DOG, RSP, DXD, RWL, EPS, UDOW, SDOW, DDM, BXUB, TRND, SFLA, BXUC, BXDB
10:56 AMBulls way on top in latest II poll
- This week's Investor's Intelligence poll nearly tips over with bulls - the Bulls minus Bears read rising to a nose-bleed 43.9%, the 96th percentile of reads going back to 1972.
- It's a bearish signal as previous prints in this range have pointed to losses in the weeks following, but Ryan Detrick points out the declines - on average - have tended to be minor.
- S&P 500 ETFs: SPY, IVE, SH, SSO, SDS, IVV, SPXU, UPRO, VOO, RSP, RWL, EPS, IVW, SPYG, RPG, SPYV, BXUB, RPV, VOOG, VOOV, TRND, SFLA, BXUC, FTA, BXDB
10:02 AMBAML sees shift to industrial names
- "Warehouses over townhouses" is one of BAML's ten themes for 2014 - highlighting a potential shift away from consumer-driven stocks to industrial and commercial names.
- "If revenue growth continues to accelerate as we expect, corporations are likely to invest in their businesses by spending some of the cash accumulated on their balance sheets. This capex cycle, combined with improving global economic growth, is likely to benefit stocks in more industrial and cyclical parts of the economy over those that are more dependent on the consumer. In our view, this has already started, but probably is in its early stages."
- An attached chart shows this outperformance beginning to creep in in Q3.
- If the thesis is correct, investors may want to be sellers of Consumer Discretionary (XLY), Health Care (XLV), and Financials (XLF), and buyers of Tech (XLK), Energy (XLE), Industrials (XLI), and Materials (XLB).
- Related ETFs: FAS, XLF, IYH, FAZ, XLE, XLV, ERX, XLI, XLY, XLB, OIH, VHT, VDE, ERY, UYG, DIG, DUG, VFH, VCR, UYM, VAW, IYE, CURE, VIS, IGE, IYM, IYF, RXL, FXH, SEF, SMN, PXJ, IYG, PXI, IYJ, FXO, PFI, PSCH, KBWB, PSCE, FXD, UXI, MATL, PYZ, PRN, FXN, FXZ, RYE, RWW, FINU, FHLC, RYH, DDG, FXR, RCD, RTM, RYF, FIDU, SBM, SIJ, PSCF, PTH, FDIS, FENY, RGI, FNCL, RXD, PEZ, PSCD, PSCI, PSCM, FMAT, FINZ
9:25 AMThe NRF pushes for quick passage of budget deal
- The National Retail Federation issues a statement in which it says it approves of the early (relatively) short-term budget agreement in Congress. The organization says it urges a quick passage of the legislation.
- The retail industry faces a significant risk if a budget stalemate were to occur. A swipe of President Obama's pen on the spending bill could offer some late holiday season support to consumer sentiment.
- Related ETFs: XLY, XRT, VCR, RTH, RETL, IYK, IYC, SCC, FXD, UCC, PMR, UGE, RCD, FDIS, SZK, PEZ, PSCD
7:08 AMFutures edge lower
- Stock index futures are slightly lower in what - at the moment - is looking like a 3rd consecutive slow day of action.
- Europe's up moderately and Asia posted sizable losses overnight, the Nikkei, the Hang Seng, and Shanghai all off more than 1%.
- The 10-year Treasury yield is up one basis point at 2.82%, and gold's flat at $1,258 following yesterday's big rally.
- Index ETFs: SPY, QQQ, IVE, SH, DIA, SSO, SDS, PSQ, IVV, SPXU, UPRO, VOO, QID, TQQQ, DOG, RSP, SQQQ, DXD, QLD, RWL, EPS, UDOW, SDOW, DDM, IVW, SPYG, RPG, SPYV, BXUB, RPV, QQEW, VOOG, QQQE, VOOV, TRND, SFLA, BXUC, QQXT, FTA, BXDB, TNDQ
4:56 AMStates' income to edge up this fiscal year
- States' revenues are projected to increase 0.8% in FY 2014 - which began in October - sharply down from a 5.7% rise in FY 2013, the National Association of State Budget Officers says.
- Major reasons for the slowdown include tax cuts and a one-time surge in revenue last year following a change in federal laws.
- Spending is poised to rise 3.6% vs 4.3% a year earlier, with both increases below the historical average growth rate of 5.6%.
- The level of "rainy day funds" for emergency spending will decline to $56.7B in states that have passed their budgets from $67B. Hiring is not expected to increase. (PR)
- Muni ETFs: MUB, HYD, PZA, MUNI, TFI, ITM, MLN, HYMB, XMPT, SHM, SUB, PRB, SMB, PVI, SMMU, VRD, GMMB, RVNU
4:36 AMEU agrees on plan for dealing with failing banks
- European finance ministers could be creating the conditions for a future run on banks after agreeing on a framework for winding down failing firms in the sector.
- Crucially, major depositors will be a first port of call if a bank needs cash to shore up its finances, as happened in such brutal fashion in the bailout of Cyprus earlier this year.
- Money could then be taken from a country's national resolution fund, which could request assistance from the funds of other nations. Eventually, a common European-wide fund would be created.
- ETF: EUFN
4:13 AMFDIC OKs plan for taking over failing financial firms
- The board of the Federal Deposit Insurance Corp. (FDIC) has authorized a draft plan on how the agency would break up large financial firms that are about to collapse and without a taxpayer bailout.
- The FDIC has the authority to take over failing banks under the 2010 Dodd-Frank rule in order to limit the impact of any collapse on the financial system; the regulator would keep the operating parts of an institution open, prioritize creditor repayments - although this includes imposing losses as well - and it would recapitalize a firm.
- The agency is now seeking public comment on the plan.
- ETFs: FAS, XLF, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, PFI, KBWB, RWW, FINU, RYF, PSCF, FNCL, FINZ
3:44 AMGM to end Australian production in four years
- GM (GM) intends to follow in Ford's footsteps and halt manufacturing in Australia by 2017.
- GM will take pretax charges of $400-$600M in Q4, while 2,900 workers will lose their jobs.
- "The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market, and arguably the most competitive and fragmented auto market in the world," outgoing GM CEO Dan Akerson said.
- GM's decision will leave Toyota (TM) as the last major car manufacturer in Australia, although the latter might now also leave. The move will "place unprecedented pressure on the local supplier network and our ability to build cars in Australia," Toyota said.
- The country's car industry is now in serious danger of collapse; it supports over 40,000 workers and 150 supplier companies. (PR)
- Australia ETFs: EWA, AUSE, FAUS
3:27 AMJapanese machinery orders recover smartly
- As expected, Japanese machinery orders rose 0.6% in October vs -2.1% in September.
- On year, bookings +17.8% vs +11.4% previously and consensus of +15%.
- The figures "should ease concerns that the fledgling recovery in business...(investment) has already come to an end," says Economist Marcel Thieliant. Q3 GDP was revised down earlier this week, partly due to lower-than-expected business expenditure.
- Core orders topped ¥800B for the third consecutive month for the first time since 2008. The trend "points to a renewed rise in capital spending" in Q4, says Thieliant.
- The Nikkei is -0.6%, while the USD-JPY is -0.2% at ¥102.60. (PR)
- ETFs: DXJ, EWJ, FXY, YCS, JGBS, JGBD, DFJ, JYN, NKY, DBJP, EZJ, EWV, YCL, SCJ, JSC, JPP, JGBL, ITF, DXJS, JGBT, JPNL, JPNS, FJP
2:23 AMGerman CPI returns to growth
- As expected, German CPI rose 0.2% on month in November following a drop of 0.3% in October.
- On year, inflation edged up to 1.3% from 1.2%.
- Harmonized CPI +0.2% on month vs -0.3%.
- On year, HCPI +1.6% vs +1.2%.
- All the figures are as expected.
- As in the previous months, the low rate of inflation was mainly due to the falling prices of mineral-oil products, although these contrasted with rising electricity costs.
- Food inflation was still substantial for some products, although the overall increase in expenses has slowed.
- The euro is flat at $1.3765. (PR)
- ETFs - Stocks: FGM, EWG, GERJ, EWGS, DBGR. Bonds: BUNL, BUNT, BUND, GGOV