Have we gone too far, too fast?
The spread between analyst forecasts and stock prices is less than half what it was when the S&P last peaked in Oct, 2007. Average estimates for individual equities implied gains of 12 % at the time, data compiled by Bloomberg show. The Dow exceeded its record on March 5th, erasing losses from the financial crisis, and has advanced 2.3% since then on signs the U.S. housing and job markets are recovering. Home prices increased the most since June 2006 in January, a report last month showed. First-time jobless claims unexpectedly fell the week ended March 9.
“The move we’ve had so far does not mean it cannot continue,” said Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles. “When we see this dislocation between a near-term analyst opinion and what we believe is longer-term and better potential that’s already being reflected in the price, we look at that as an opportunity.”
Meanwhile, as Dave Fry notes, the ISM Mfg Index fell sharply (51.3 vs 54 exp. & prior 54.3), signaling slower growth, which may also indicate that there may be disappointing first quarter earnings reports ahead, which begins in earnest next week. We discussed China's PMI and Japan's Tankan Index in yesterday's post – also items that make us wonder what everyone is so excited about in the markets.
The Fed dumped $3.1Bn in POMO money on the markets yesterday on top of the $4.7Bn no one used on Thursday so it would be pathetic if we can't get a move up today, even though "only" another $1.5Bn is scheduled for today. Tomorrow is another $3.5Bn but then Thursday and Monday are weak ($1.5Bn) with no Monday so, if we're going to get a dip, look for it at the end of the week and into the next. Front-loading the month can be dangerous but next week the Fed gives us $3Bn on Thursday and a whopping $5Bn on tax day (15th) but then earnings come out and they mostly fizzle in the 2nd half.
According to Bloomberg, Spreads between stocks and price projections have narrowed as analysts cut forecasts for S&P 500 earnings. They predict profits among companies in the benchmark gauge will fall 1.8 percent in the first quarter from a year earlier, compared with estimates for a 1.2 percent gain at the start of the year. Five companies issued earnings forecasts below analyst estimates last month for each that predicted results above the average projection.
We're going to be very nervous going into earnings. The broad markets may not be selling off but some names are and look at the VIX (13.69) and TLT (18.50) and you can see a bit of worry creeping back into the market. As I neted yesterday, other commodities are crashing but oil is being pushed higher and higher but those fake orders are building up at the NYMEX and what happens if that sector runs into reality at the same times as early industrial earnings begin to disappoint (10 days)? This market is simply not prepared for bad news.
We got a whopping jump in ICSC Retail Sales this morning (4.7%) but don't get excited – it's largely due to the timing of Easter this year and ICSC has, in fact, CUT it's forecast for March Sales by 25% – from 3.5-4%, down to 2.5-3.5% due to "cold weather." Television shipments fell 6.3% Y/Y to 238.5M units in 2012, according to a report from IHS iSuppli. The firm isn't overly bullish on the industry with its forecast that TV shipments won't return to 2011 levels until 2015 with the global market saturated. Car registration in France fell 16.4% in March to extend a long losing streak in the nation for the auto industry. Sales at Peugeot were off 23.6% on its home turf
Moody's is placing 6 Russian banks on review for downgrade as it assesses the willingness of the government to provide systemic support in case they need it. At issue is the price of oil – the government needs $100 crude to break even, making support of the banks in a crisis susceptible to a break in oil prices. We talk about Europe all the time but what happens if Russia goes bust? Eurozone PMI fell to a 3-month low this morning (46.8) – still firmly in contraction mode but, on the bright side – things are now so bad in Europe that perhaps the austerity madness will end – so look out for rumors to that effect. Even the German PMI dropped to 49 in Mach (contraction) from 50.3 in Feb.
We have Redbook Sales later this morning and Factory Orders at 10 but still mostly in watch and wait mode this week. AAPL was downgraded by GS and GS was downgraded by DB so all's fair in love an war, I suppose.
Be careful out there!
