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Stocks dip as earnings pour in, consumer discretionary lags

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 24, 2016.REUTERS/Brendan McDermid
By Chuck Mikolajczak | NEW YORK

U.S. stocks dipped in a choppy session after the latest round of earnings reports, as a decline in the consumer discretionary sector and interest-rate sensitive stocks outweighed gains in healthcare names.

The S&P 500 healthcare index .SPXHC rose 0.53 percent to help keep the S&P 500 near the unchanged mark, buoyed by strong results and forecasts from Bristol-Myers (BMY.N), up 5.4 percent and Celgene (CELG.O), up 6.4 percent. The two drugmakers were the top boosts to the S&P 500.

Profits at S&P 500 companies have largely exceeded analysts’ estimates for the third quarter so far, setting up the first profit growth since the second quarter of 2015. Thomson Reuters I/B/E/S data shows third-quarter earnings are now expected grow 2.6 percent, up from the 0.5 percent decline anticipated at the start of October.

Sectors linked to interest rates weighed, however, as yields on benchmark 10-year Treasury notes US10YT=RR touched a five-month high of 1.87 percent.

The S&P real estate sector .SPLRCR was down 2.5 percent, its worst decline in nearly six weeks, while utilities .SPLRCU shed 0.5 percent.

“If we can continue to see actual growth in revenue and growth in EPS, we may see this four-quarter drop in earnings growth come to an end. That would be really positive but we are too early in the earnings season to say that,” said Peter Kenny, senior market strategist at Global Markets Advisory Group in New York.

“To the extent that the 10-year has popped, that is also providing a bit of a headwind for equities.”

Comcast (CMCSA.O) was among the top drags on the S&P 500 and Nasdaq, falling 1.7 percent after Barclays and Deutsche Bank cut their price targets and cited increased competition from AT&T-owned DirecTV Now. The stock is down nearly 6 percent over the past three sessions.

Comcast, along with O’Reilly Auto (ORLY.O), whose quarterly earnings missed expectations, were the primary drags on the consumer discretionary index .SPLRCD, which lost 0.9 percent. O’Reilly shares touched a five-month low and were on pace for their worst day in over four years.

The Dow Jones industrial average .DJI fell 29.65 points, or 0.16 percent, to 18,169.68, the S&P 500 .SPX lost 6.39 points, or 0.3 percent, to 2,133.04 and the Nasdaq Composite .IXIC dropped 34.29 points, or 0.65 percent, to 5,215.97.

After the market close, Google parent Alphabet (GOOGL.O) rose 2.3 percent, while online retailer Amazon.com (AMZN.O) tumbled more than 6 percent after their quarterly results.

Declining issues outnumbered advancing ones on the NYSE by a 2.61-to-1 ratio; on Nasdaq, a 1.99-to-1 ratio favored decliners.

The S&P 500 posted 16 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 65 new highs and 120 new lows.

About 7.2 billion shares changed hands in U.S. exchanges, above the 6.35 billion daily average over the last 20 sessions.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)

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Published at Thu, 27 Oct 2016 20:33:44 +0000

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What It Takes To Truly Trade In The Zone

What It Takes To Truly Trade In The Zone

Greg Louganis’ quote speaks a vital truth about peak performance.  Many of us seek mindfulness through meditation when we are still, in a quiet environment.  Peak performance demands something yet greater: the maintenance of the clear, mindful “zone” while we are in motion–that is, while we are performing.  

A major challenge for traders is that we become so market-focused and caught up in chats and news flows that we lose the zone.  We become frenzy in motion, not meditation in motion.

The recent article I wrote for Forbes addresses this dilemma and offers a unique solution: using a simple calendar app to sustain deliberate practice and the peak performance mindset.

Imagine being a trader and reviewing your performance and setting goals each week.  Now imagine turning the wheel faster and creating rapid review and goal-setting processes each day.  Quite simply, to use a gym analogy, you’re getting more reps than the person who comes into the weight room only occasionally.  Learning has the potential to become elite development when every day of performance also serves as targeted practice.

Why is this important?  It’s because there is a mutually reinforcing relationship between peak performance and peak emotional experience.  It is when we push our boundaries and expand our competence across all areas of life that we are most likely to experience happiness, fulfillment, energy, and closeness with others.  And it is when we are most energized by positive experience that we’re most likely to channel that energy into meaningful development.

Many traders sense that it wouldn’t take much to bring them to that next level of performance.  I suspect they’re right:  they just need more and better reps in life’s gym.

Further Reading:  Turning Your Calendar Into A Peak Performance Tool

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Published at Sun, 23 Oct 2016 23:24:00 +0000

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MarketWatch.com – Stocks to Watch

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MarketWatch.com – Stocks to Watch

  • Stocks to Watch: DuPont, Nike, KB Home are stocks to watch

    SAN FRANCISCO (MarketWatch) — Among the companies whose shares are expected to see active trade in Friday’s session are DuPont, Nike Inc., and KB Home.

    DuPont DD, +1.22% : The chemical company late Thursday cut its second-quarter and full year profit outlook due to worse-than-expected performance of its agriculture unit. Shares fell 1.9% in extended trading.

    Getty Images

    Nike NKE, +0.37% : The footwear company reported better-than-expected fourth-quarter earnings. Shares rose 2.9% in after hours.

    Manitowoc Co. MTW, +2.20% : Shares surged 12% in after-hours trade on a New York Times report that an activist investment firm is seeking to break the company in two.

    KB Home KBH, -0.06%  is forecast to report second-quarter earnings of 21 cents a share, according to a consensus survey by FactSet.

    Finish Line Inc. FINL, -2.01%  is expected to post first-quarter earnings of 21 cents a share.

  • Stocks to Watch: Bed Bath & Beyond, GoPro, Nike are stocks to watch

    SAN FRANCISCO (MarketWatch) — Among the companies whose shares are expected to see active trade in Thursday’s session are Bed Bath & Beyond Inc., GoPro Inc., and Nike Inc.

    After Wednesday’s closing bell, Bed Bath & Beyond BBBY, -0.45%  reported quarterly earnings that fell short of analysts’ estimate. Shares fell 5.7% in after hours.

    GoPro

    GoPro GPRO, +2.42% a video camera maker, is expected to make its market debut after pricing its initial public offering late Wednesday. Channel checks by IPO Boutique indicate that the IPO is many times oversubscribed.

    Nike NKE, +0.37%  is projected to post fourth-quarter earnings of 75 cents a share, according to a consensus survey by FactSet.

    ConAgra Foods Inc. CAG, +1.85% is likely report earnings of 57 cents a share in the fourth quarter.

    Accenture PLC ACN, +0.58%  is forecast to report third-quarter earnings of $1.21 a share.

    Lennar Corp. LEN, +0.72%  is likely to post second-quarter earnings of 51 cents a share.

    McCormick & Co. MKC, +0.55%  is expected to post earnings of 62 cents a share in the second quarter.

MarketWatch.com – Stocks to WatchMarketWatch.com – Stocks to WatchStocks to Watch: DuPont, Nike, KB Home are stocks to watchStocks to Watch: Bed Bath & Beyond, GoPro, Nike are stocks to watchStocks to Watch: Google, Barnes & Noble are stocks to watch Wednesday

 

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Wall St. dips as energy, health stocks offset BofA boost

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2016. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2016.REUTERS/Brendan McDermid
By Chuck Mikolajczak | NEW YORK

Wall Street ended modestly lower on Monday as energy stocks retreated along with oil prices, while Amazon and Netflix weighed on the consumer discretionary sector.

Federal Reserve Vice Chairman Stanley Fischer warned that economic stability could be threatened by low interest rates and noted the central bank is “very close” to its employment and inflation targets, but said it was “not that simple” for the Fed to raise rates.

The comments from Fischer, a dove who has supported a rate hike, come as other Fed officials have recently said the current state of affairs may be about as good as it gets.

Conflicting statements on the timing of a rate hike from some Fed officials has been adding to uncertainty in markets, which have been grappling with changing dynamics in a tumultuous U.S. presidential election and nervousness regarding third-quarter earnings.

“Fischer’s stature is second only to Janet Yellen so when he speaks, people are going to pay closer attention to what he is saying,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“To me, it is different slices of the same apple – we’ve got a Fed that desperately wants to raise rates one more time this year and that probably happens in December.”

Energy stocks .SPNY were 0.6 percent lower as U.S. oil prices CLc1 settled down 0.8 percent at $49.94 while Brent crude LCOc1 settled down 0.8 percent at $51.52 a barrel. Oil prices were weighed down by oversupply concerns, although losses were curbed amid a projected drop in American shale output.

The Dow Jones industrial average .DJI fell 51.98 points, or 0.29 percent, to 18,086.4, the S&P 500.SPX lost 6.48 points, or 0.3 percent, to 2,126.5 and the Nasdaq Composite .IXIC dropped 14.34 points, or 0.27 percent, to 5,199.82.

Investors are looking for corporate profits to turn a corner in the third-quarter after a string of declines. With 7 percent of S&P 500 companies having reported through Monday morning, expectations are for a decline of 0.1 percent for the quarter, an improvement from the 0.5 percent decline expected on Oct. 1, according to Thomson Reuters data.

Bank of America Corp (BAC.N) shares edged up 0.3 percent as its profit rose for the first time in three quarters and topped estimates.

Netflix Inc (NFLX.O) fell 1.6 percent ahead of its expected quarterly results, while Amazon.com Inc (AMZN.O) lost 1.2 percent, for its third straight decline, which pulled the consumer discretionary sector .SPLRCD 0.8 percent lower.

After the close, shares of the subscription video service surged about 20 percent in the wake of its results.

Hasbro Inc (HAS.O), was a bright spot among discretionary stocks during the session, surging 7.4 percent after the toymaker’s better-than-expected quarterly report.

Declining issues outnumbered advancing ones on the NYSE by a 1.51-to-1 ratio; on Nasdaq, a 1.48-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 7 new lows; the Nasdaq Composite recorded 24 new highs and 89 new lows.

About 5.15 billion shares changed hands in U.S. exchanges, below the 6.54 billion daily average over the last 20 sessions.

(Reporting by Chuck Mikolajczak; Editing by Lisa Shumaker and Nick Zieminski)

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Published at Mon, 17 Oct 2016 14:04:34 +0000

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Surf, suds and stock tips: Millennials find place at Stocktoberfest

Millennial stock blogger and trader Rachel Fox, 20, is asked to take a picture with a fan after speaking to a group of investors, tech nerds and stock traders at StockTwits annual Stocktoberfest in Coronado, California, U.S. October 14, 2016. Picture taken October 14, 2016.    REUTERS/Mike Blake

Millennial stock blogger and trader Rachel Fox, 20, is asked to take a picture with a fan after speaking to a group of investors, tech nerds and stock traders at StockTwits annual Stocktoberfest in Coronado, California, U.S. October 14, 2016. Picture taken October 14, 2016. REUTERS/Mike Blake

Surf, suds and stock tips: Millennials find place at Stocktoberfest

 

By Melissa Fares
| SAN DIEGO

Actress Rachel Fox was just 15 when she made her first, and worst, stock market trade using money she had earned on “Desperate Housewives.”

 

“Never again. That was a one-time thing,” Fox said about the underperforming penny stock. “You gotta think long term.”

The actress, best known for playing the troubled stepdaughter Kayla Huntington on the hit ABC television show from 2006 to 2008, was one of dozens of millennials who turned up at “Stocktoberfest” at San Diego’s landmark Hotel del Coronado this weekend to give and get investment advice.

The weekend-long event run by online site StockTwits attracts a number of younger investors, who between presentations on fintech, fundamentals and the future of finance are known to don wet suits for a quick surf or party on the beach with beers.

At only 20, however, Fox was too young to be served alcohol. Instead, she spent her time drinking bottled water, refreshing her Twitter feed to monitor stock prices and googling unfamiliar financial terms that came up in conversation about the bond market and company debt.

 

Invited to speak on a panel with portfolio manager and former Yahoo Finance host Jeff Macke, Fox talked about Starbucks, Pokemon and Snapchat. The actress, who also writes a blog called “Fox on Stocks,” argued that investors – young and old – needed to harness social and digital content to make better financial decisions.

Being the “resident millennial” at Stocktoberfest didn’t bother Fox one bit. “It gives me leverage,” she said. “I have people coming up to me and asking: “What’s the millennial secret?'”

Patrick Dunuwila, however, was at least one millennial at Stocktoberfest happier to get advice than give it. Dunuwila, 23, said he manages $3 million of his family and friends’ money. During the keynote address of the conference, he thought he was off to good start when he opened up the StockTwits mobile app and made two trades that earned him a quick $300.

 

Then, in a networking session between panels, he said he was “torn apart” by Lee Munson, a former Wall Street stockbroker turned author and founder of Portfolio Wealth Advisors.

“He told me I need to be more aggressive with asking people for money. Get up there and say ‘I’m 23, I’m hungry,'” Dunuwila said. “You walk away from that, your ego gets slashed, but I needed to hear it.”

 

Munson, 41, said the harsh advice he gave Dunuwila was advice he had wish he had received when he was 23.

“I spent my whole life in New York not knowing that I needed to be aggressive early,” said Munson. “You come to a place like Stocktoberfest where you’ve got all the freaks and all the freedom to just talk. That’s what I was doing with Patrick.”

Later, Dunuwila said thanks by buying Munson a tequila at the hotel bar after midnight. Fox, on the other hand, had already headed home to work on a new investment app.

(Editing by Leela de Kretser and Mary Milliken)

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Published at Sun, 16 Oct 2016 20:22:22 +0000

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SEC approves fund liquidity rules, goes easy on ETFs

 

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011.REUTERS/Jonathan Ernst
By Lisa Lambert and Trevor Hunnicutt | WASHINGTON/NEW YORK

The top U.S. securities regulator on Thursday approved major new rules designed to protect mutual fund investors from the effects of a sudden sell-off, but it left for another day some of the dicier issues involved.

The U.S. Securities and Exchange Commission’s new rules take aim at liquidity issues of the $18 trillion traditional mutual fund market. But the agency deferred action on a separate plan to regulate the use of derivatives in funds and carved out significant exemptions for exchange-traded funds. It also put off a vote on electronically delivering funds’ written materials to investors.

The rules are part of a sweeping set of reforms that SEC Chair Mary Jo White has sought in the asset management industry, which includes the open-end fund market. On Thursday, the commission also approved increased information reporting from the funds and allowing them to use swing pricing during unstable market conditions.

White said the SEC will finish rules on how the funds use derivatives “in the near term” and is working on annual stress testing for large investment advisers, as well.

The new rules have been strengthened since they were first proposed more than a year ago, White said. They are “better tailored to the liquidity risks faced by different kinds of funds, with an improved classification scheme for the liquidity of fund investments and a more targeted approach to ETFs,” she said.

But the mutual fund and ETF industry did win some major concessions.

Under the final rules approved unanimously by the SEC’s three commissioners, funds will have to classify investments into the categories of highly liquid, moderately liquid, less liquid and illiquid.

The first draft had proposed a stricter system of categorizing investments, with six levels, or “buckets,” defining their liquidity.

“There was a lot of positive – the classification system seems much more practical and realistic,” said David Blass, general counsel for the Investment Company Institute, the funds’ trade group.

The final rules also exempt “in kind” exchange-traded funds, those that honor redemptions in securities instead of cash, from requirements on how many highly liquid and illiquid assets they can hold.

The final version still requires funds to keep on hand a certain level of assets that can be converted into cash in three days, those considered “highly liquid.” But it left the funds’ boards to decide how to rectify dips below that threshold. The original proposal had blocked funds from buying any more assets until they got back up to the minimum. ETFs had said that could run counter to their investment strategy.

In the same vein, the rules kept a requirement that no more than 15 percent of assets could be classified as illiquid, but did not prescribe a fix for passing that bar.

Several ETF issuers had asked to keep their products exempt from the rules because they often meet redemption requests from large sellers by handing over stocks or other securities, rather than cash. The issuers had said the proposal better fits mutual funds that face pressure to raise cash when investors head to the exits.

ETFs have faced fears that they cannot manage rampant selling. On Aug. 24, 2015, heavy demand to sell U.S. ETFs pushed many of their market prices far below the value they could have fetched if they had been redeemed by the issuer.

But ETFs operate differently from mutual funds because most individuals sell them in the public market and cannot redeem them directly with the issuers.

The rules go into effect on Dec. 1, 2018 for larger funds, and June 1, 2019 for smaller ones.

(Reporting by Lisa Lambert; Editing by Bill Trott and Lisa Shumaker)

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Published at Thu, 13 Oct 2016 19:26:49 +0000

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Asian stocks at three-week lows on weak China data; dollar strong

Asian stocks at three-week lows on weak China data; dollar strong

A man stands next to an electronic board showing stock prices in Tokyo, Japan, August 18, 2016.REUTERS/Kim Kyung-Hoon
By Herbert Lash | NEW YORK

Global equity markets slumped to a three-month low on Thursday after disappointing Chinese trade data renewed concerns about the world’s second-largest economy, but rebounding oil prices and the dollar’s market role led U.S. stocks to pare losses.

Stocks on Wall Street fell almost 1 percent and in Europe a bit more at their lows, following data that showed Chinese imports in dollar terms had contracted and exports dropped by a sharper-than-expected 10 percent.

The unexpected trade figures pointed to weaker Chinese demand both at home and aboard while deepening concerns over the latest depreciation in China’s yuan currency, which hit a fresh six-year low against a firming U.S. dollar.

“If the Chinese economy is struggling it is a problem for the global economy and you’re seeing that reflected in the capital markets, whether it be the strength in the dollar or the volatility in equities,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Oil prices rebounded after an initial bearish reading from a U.S. Energy Information Administration report soon focused on sharp inventory drawdowns in distillates, including diesel and heating oil, and a decline for gasoline.

The reversal in oil prices helped turn markets that have traded inversely to the dollar. In recent weeks that dollar has strengthened on growing expectations of a Fed rate hike, which had weakened stocks, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“As you’ve seen the dollar pull back today and oil rally off its lows, the two of those combined have seen some macro money rotate into long equity positions,” James said.

“That’s why the (stock) market has rallied off its lows.”

The Dow Jones industrial average fell 38.48 points, or 0.21 percent, to 18,105.72. The S&P 500 slid 4.85 points, or 0.23 percent, to 2,134.33 and the Nasdaq Composite lost 19.10 points, or 0.36 percent, to 5,219.92.

In Europe, the FTSEurofirst 300 index of leading regional shares closed down 0.91 percent to 1,323.95. MSCI’s all-country world stock index of equity markets in 46 countries fell to lows last seen on July 12 before paring some losses to trade 0.34 percent lower.

In London, mining stocks BHP Billiton and Rio Tinto fell 4.4 percent and 4.9 percent, respectively, due to the trade data from China, the world’s biggest metals consumer.

The dollar tumbled from a seven-month high as risk appetite took a turn for the worse on the soft Chinese data, which rattled markets that expect the Fed to boost rates by year-end.

The U.S. currency also fell from a more than two-month high against the yen and Swiss franc, two safe-haven currencies that benefit in times of political or financial stress.

The dollar was last down 0.59 percent against the yen at 103.57 yen. The euro fell briefly below $1.10 for the first time since July, but quickly recovered to trade 0.39 percent higher on the day at $1.1049.

A hard landing in China, if that were to occur, would pose a bigger problem to the global economy than a “hard exit” by Britain from the European Union because of China’s greater economic size and trade profile around the world, Arone said.

China concerns could also deter the Federal Reserve from raising U.S. interest rates in December as minutes released Wednesday from a September policy meeting suggested, he said.

Oil prices initially fell more than 1 percent after U.S. government data reported the first domestic crude inventory growth in six weeks, a build above market expectations.

Brent crude rose 22 cents to settle higher at $52.03 per barrel, while U.S. West Texas Intermediate crude rose 26 cents to settle at $50.44.

The weak Chinese data pushed investors to buy safe-haven government debt after two straight days of selling.

The 10-year note rose 11/32 in price to yield 1.7394 percent.

Europe’s benchmark government bond yield retreated from one-month highs after the latest signals from the world’s central banks soothed fears that monetary stimulus could be petering out.

German 10-year yields – the euro zone’s benchmark – fell 3.6 basis points to 0.03 percent, pulling back from a one-month high hit on Wednesday, according to Tradeweb.

(Reporting by Herbert Lash; Editing by Nick Zieminski)

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Published at Thu, 13 Oct 2016 05:53:14 +0000

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Wall Street lower as tech, energy stocks drag

Wall Street lower as tech, energy stocks drag

Traders work on the floor of the New York Stock Exchange (NYSE) as the market closes in New York, U.S., October 3, 2016.REUTERS/Lucas Jackson
By Sinead Carew

The S&P 500 and the Dow Jones industrial average indexes ended Wednesday’s session with small gains as expectations for timing on a rate hike were largely unchanged after U.S. Federal Reserve minutes and investors waited on earnings reports.

Several voting policymakers judged a rate hike would be warranted “relatively soon” if the U.S. economy continued to strengthen, according to minutes from the September policy meeting released Wednesday afternoon.

While keeping rates low has risks, the Fed decided it was more risky to raise rates when they are concerned we might be seeing a slowdown in economic growth, said Kate Warne, investment strategist at Edward Jones in St. Louis.

“Unfortunately, they also didn’t provide a lot of clarity,” Warne said.

Traders have priced in small odds of a rate increase next month as the meeting falls days ahead of the Nov. 8 U.S. presidential election. The odds were still in favor of a December move, but down to 66 percent from 71 percent the day before, according to CME Group’s FedWatch tool.

With little news from the Fed, investors will see what earnings look like before they buy more stocks, said Steve Massocca, Chief Investment Officer, Wedbush Equity Management LLC in San Francisco.

Overall, S&P 500 third-quarter earnings are currently expected to fall 0.7 percent, marking the fifth quarter of negative earnings in a row, according to Thomson Reuters data.

The Dow Jones industrial average .DJI rose 15.54 points, or 0.09 percent, to 18,144.2, the S&P 500.SPX gained 2.45 points, or 0.11 percent, to 2,139.18 and the Nasdaq Composite .IXIC dipped 7.77 points, or 0.15 percent, to 5,239.02.

The biggest weight on Nasdaq was Cisco Systems (CSCO.O), which fell after rival Ericsson (ERIC.O) (ERICb.ST) reported a huge profit decline

Eight of the 11 major S&P 500 indexes closed higher, led by real estate’s .SPLRCR 1.3-percent rise and a 1 percent increase in utilities .SPLRCU.

Investors in both yield-sensitive sectors may have feared a more hawkish Fed, according to Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Healthcare and energy were the weakest sectors with an 0.55 percent decline in the S&P 500 healthcare index .SPXHC and an 0.41 percent decline for energy .SPNY percent. Oil prices fell after OPEC reported its September output at eight-year highs.

Humana Inc (HUM.N) was the biggest loser on the S&P. The insurer said a U.S. government health department cut its quality rating on Humana Medicare plans, a move that could affect how much the government pays it in 2018. Advancing issues outnumbered declining ones on the NYSE by a 1.10-to-1 ratio.

About 5.6 billion shares changed hands on U.S. exchanges, below the 6.77 billion daily average over the last 20 sessions.

(additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D’Silva and Nick Zieminski)

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Published at Wed, 12 Oct 2016 14:10:33 +0000

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Q3 Review: Ten Economic Questions for 2016

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By PublicDomainPictures from PixabayQ3 Review: Ten Economic Questions for 2016

by Bill McBride on 10/10/2016 09:59:00 AM

Q3 Review: Ten Economic Questions for 2016

by Bill McBride on 10/10/2016 09:59:00 AM

At the end of last year, I posted Ten Economic Questions for 2016. I followed up with a brief post on each question. The goal was to provide an overview of what I expected in 2016 (I don’t have a crystal ball, but I think it helps to outline what I think will happen – and understand – and change my mind, when the outlook is wrong).

By request, here is a quick Q3 review. I’ve linked to my posts from the beginning of the year, with a brief excerpt and a few comments:

10) Question #10 for 2016: How much will housing inventory increase in 2016?

Right now my guess is active inventory will increase in 2016 (inventory will decline seasonally in December and January, but I expect to see inventory up again year-over-year in 2016). I don’t expect a double digit surge in inventory, but maybe a mid-single digit increase year-over-year.  If correct, this will keep house price increases down in  2015 (probably lower than the 5% or so gains in 2014 and 2015).

According to the August NAR report on existing home sales, inventory was down 10.1% year-over-year in August, and the months-of-supply was at 4.7 months.  It now appears inventory will decrease in 2016.  I changed my view on this earlier this year.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

9) Question #9 for 2016: What will happen with house prices in 2016?

Low inventories, and a decent economy suggests further price increases in 2016. However I expect we will see prices up less in 2016, than in 2015, as measured by these house price indexes – mostly because I expect more inventory.

If is early, but the recently released Case-Shiller data showed prices up 5.1% year-over-year in July. The price increase is a little lower than in 2015 (prices were up 5.25% nationally in 2015), even with less inventory.

8) Question #8 for 2016: How much will Residential Investment increase?

My guess is growth of around 4% to 8% in 2016 for new home sales, and about the same percentage growth for housing starts. Also I think the mix between multi-family and single family starts will shift a little more towards single family in 2016.

Through August, starts were up 6.1% year-over-year compared to the same period in 2015.  New home sales were up 13.3% year-over-year.  My guess is starts will increase about 4% to 8% this year (as expected), new home sales will be little higher.

7) Question #7 for 2016: What about oil prices in 2016?

It is impossible to predict an international supply disruption, however if a significant disruption happens, then prices will move higher. Continued weakness in Europe and China seems likely, however sluggish demand will be somewhat offset by less tight oil production. It seems like the key oil producers (Saudi, etc) will continue production at current levels. This suggests in the short run (2016) that prices will stay low, but probably move up a little in 2016. I’ll guess WTI will be up from the current price [WTI at $38 per barrel] by December 2016 (but still under $50 per barrel).

As of this morning, WTI futures are at $51 per barrel.

6) Question #6 for 2016: Will real wages increase in 2016?

For this post the key point is that nominal wages have been only increasing about 2% per year with some pickup in 2015. As the labor market continues to tighten, we should start see more wage pressure as companies have to compete more for employees. I expect to see some further increase in nominal wage increases in 2016 (perhaps over 3% later in the year). The year-over-year change in real wages will depend on inflation, and I expect headline CPI to pickup some this year as the impact on headline inflation of declining oil prices fades.

Through September, nominal hourly wages were up 2.6% year-over-year. This is a pickup from last year – and wage growth appears to be trending up. It looks like Wages will increase at a faster rate in 2016.

5) Question #5 for 2016: Will the Fed raise rates in 2016, and if so, by how much?

I’ve seen several people arguing the Fed will be cutting rates by the end of 2016 – I think that is unlikely. Instead I think the Fed will be cautious – and they will not want to reverse course. Right now I think something around three rate hikes in 2016 is likely.

Events have pushed the Fed to delay rate increases, and it now looks like zero or one are the most likely number of rate hikes in 2016.  My guess right now is the Fed will hike rates in December.

4) Question #4 for 2016: Will the core inflation rate rise in 2016? Will too much inflation be a concern in 2016?

Due to some remaining slack in the labor market (example: elevated level of part time workers for economic reasons), I expect these measures of inflation will be close to the Fed’s target in 2016.

So currently I think core inflation (year-over-year) will increase further in 2016, but too much inflation will not be a serious concern in 2016.

It is early, but inflation has moved up close to the Fed target through August.

3) Question #3 for 2016: What will the unemployment rate be in December 2016?

Depending on the estimate for the participation rate and job growth (next question), it appears the unemployment rate will decline to around 4.5% by December 2016. My guess is based on the participation rate declining slightly in 2016 and for decent job growth in 2016 (however less in 2016 than in 2015).

The unemployment rate was 5.0% in September, unchanged from 5.0% in December.  I still expect the unemployment rate to decline later this year.

2) Question #2 for 2016: How many payroll jobs will be added in 2016?

Energy related construction hiring will decline in 2016, but I expect other areas of construction to be solid. For manufacturing, growth in the auto sector will probably slow this year, but the drag on manufacturing employment from the strong dollar should be less in 2016.

As I mentioned above, in addition to layoffs in the energy sector, exporters will have a difficult year – but probably not the severe contraction as in 2015, and more companies will have difficulty finding qualified candidates. Even with some boost from lower oil prices – and some additional public hiring, I expect total jobs added to be lower in 2016 than in 2015.

So my forecast is for gains of around 200,000 payroll jobs per month in 2015. Lower than in 2015, but another solid year for employment gains given current demographics.

Through September 2016, the economy has added 1.6 million jobs; or 178,000 per month.  It now appears employment gains will be lower than in 2015 (as expected), and somewhat below 200,000 per month in 2016.

1) Question #1 for 2016: How much will the economy grow in 2016?

In addition, the sharp decline in oil prices should be a net positive for the US economy in 2016. And, hopefully, the negative impact from the strong dollar will fade in 2016. The most likely growth rate is in the mid-2% range again …

GDP growth was sluggish again in the first half (just up 1.1% annualized), and GDP is now tracking 2.1% in Q3.

Currently it looks like 2016 is unfolding mostly as expected with some key exceptions (one of the reasons I write down what I think will happen).  I changed my view on Fed rate hikes earlier this year, and now I expect only 1 hike in 2016.  I’ve also revised down my outlook for GDP and existing home inventory is declining again this year.

Residential investment, house prices, oil prices, inflation, wage growth and employment are unfolding about as I expected.

Read more at http://www.calculatedriskblog.com/2016/10/q3-review-ten-economic-questions-for.html#wJhtHIuzl8jPRA9A.99

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Published at Mon, 10 Oct 2016 13:59:00 +0000

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Schedule for Week of Oct 2, 2016

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By PublicDomainPictures from PixabaySchedule for Week of Oct 2, 2016

Schedule for Week of Oct 2, 2016

by Bill McBride on 10/08/2016 08:01:00 AM

The key economic report this week is September Retail Sales on Friday.

A key focus will be on the second Presidential debate on Sunday, Oct 9th.

—– Sunday, Oct 9th —–

At 9:00 PM ET, the Second Presidential Debate, at Washington University in St. Louis, St. Louis, MO

—– Monday, Oct 10th —–

10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

—– Tuesday, Oct 11th —–

6:00 AM ET: NFIB Small Business Optimism Index for September.

—– Wednesday, Oct 12th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

image: https://1.bp.blogspot.com/-iU_MYSuPOLk/V9AfIzW_7iI/AAAAAAAAotQ/SusAMjVlgpQCMv5JLVw78KU_O7pZAm9gQCLcB/s320/JOLTSJuly2016.PNG

Job Openings and Labor Turnover Survey10:00 AM: Job Openings and Labor Turnover Survey for August from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in July to 5.871 million from 5.643 million in June.

The number of job openings (yellow) were up 1% year-over-year, and Quits were up 9% year-over-year.

2:00 PM: The Fed will release the FOMC minutes for the September meeting.

—– Thursday, Oct 13th —–

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 254 thousand initial claims, up from 249 thousand the previous week.

—– Friday, Oct 14th —–

8:30 AM: The Producer Price Index for September from the BLS. The consensus is for a 0.2% increase in prices, and a 0.1% increase in core PPI.

image: https://2.bp.blogspot.com/-VzftSzizsus/V9qW8hQt-QI/AAAAAAAAowQ/ObvFU5zD_WQTtxRmDMEobKdMD4_o6PWCgCLcB/s320/RetailAug2016.PNG

Retail Sales8:30 AM ET: Retail sales for September will be released.  The consensus is for 0.6% increase in retail sales in September.

This graph shows retail sales since 1992 through August 2016.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for August.  The consensus is for a 0.1% increase in inventories.

10:00 AM: University of Michigan’s Consumer sentiment index (preliminary for October). The consensus is for a reading of 92.0, up from 91.2 in August.

1:30 PM: Speech by Fed Chair Janet Yellen, Macroeconomic Research After the Crisis, At the Federal Reserve Bank of Boston’s Annual Research Conference: The Elusive “Great” Recovery: Causes and Implications for Future Business Cycle Dynamics, Boston, Massachusetts

Read more at http://www.calculatedriskblog.com/2016/10/schedule-for-week-of-oct-2-2016_8.html#KyY1ITx1ds3Y0hlg.99

by Bill McBride on 10/08/2016 08:01:00 AM

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Published at Sat, 08 Oct 2016 12:01:00 +0000

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Stock Buybacks Fueling the Stock Market? By How Much?

Stock Buybacks Fueling the Stock Market? By How Much?


Here’s the question of the day: are corporate stock buybacks fueling the stock market?

Let’s look at a couple of charts and a news report to help determine the answer.

Quarterly Stock Buybacks

Quarterly New Stock Buybacks

Stock buybacks are at a nine-quarter low according to an Email TrimTabs press announcement.

“Buybacks have been trending lower for the past two years, which is a cautionary longer-term signal for U.S. equities,” said Winston Chua, analyst at TrimTabs. “Along with central bank asset purchases, buybacks have been a key pillar of support for the bull market.”

“The U.S. stock market isn’t likely to get as much of a boost from buybacks as it did in recent years,” noted Chua. “Apart from big tech firms and the too-big-to-fails, fewer companies seem willing to use lots of cash to support share prices.”

There are numerous references to that announcement, but until now, nobody checked to see if the relationship was in fact true.

S&P 500 vs. Volume Lows in Share Buybacks

S%P500 versus Volume Lows in New Buybacks

If there is a relationship, I fail to see what it is, at least by looking at the chart.

That does not mean there is no relationship. Rather, it does not show up.

Logic would dictate that share buybacks lower P/E ratios thereby boosting earnings, making stocks look more reasonably priced.

But if reasonable P/E logic was in play, P/E’s would not be as ridiculous as they are. Then again, Wall Street charlatans point buybacks and forward P/Es as evidence the stock market is cheap.

Competing Theories

  1. Stock buybacks are still sufficient to fuel the stock market
  2. Something else is happening, such as another Fed-sponsored mania

#2 is a given. #1 certainly doesn’t hurt. But market sentiment is so strong now, stock buybacks just may not matter much at all.

When stock market sentiment turns, I strongly suspect buyback announcements will be meaningless.


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Mike Shedlock

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Mike Shedlock

Michael “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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Published at Fri, 07 Oct 2016 00:29:05 +0000

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Goldman’s September NFP Preview

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Goldman’s September NFP Preview

by Bill McBride on 10/06/2016 12:45:00 PM

A few excerpts from Goldman Sachs’ September Payroll Preview by economist Elad Pashtan:

We expect a 190k increase in nonfarm payroll employment in September, above consensus expectations for a 172k gain, and up from our preliminary forecast of 175k. Although payroll growth slowed to 155k last month, subdued employment gains are not uncommon in August, and the trend growth rate in payrolls still looks solid, with the trailing 3- and 6-month averages at 232k and 175k, respectively.

The unemployment rate is likely to decline to 4.8%, while average hourly earnings likely rose 0.3% in August and 2.7% over the past year.

Our above-consensus payroll forecast primarily reflects improving underlying labor market fundamentals during the course of the month. Initial jobless claims continued trending down towards post-crisis lows, and nearly all other employment indicators from the various regional and national manufacturing and service sector surveys turned up.
emphasis added

Here is my preview of the September employment report.

Read more at http://www.calculatedriskblog.com/2016/10/goldmans-september-nfp-preview.html#Rvp6cU8cKmMCd1DA.99

by Bill McBride on 10/06/2016 12:45:00 PM

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Published at Thu, 06 Oct 2016 16:45:00 +0000

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