Stock bounce? Don’t ‘lower your guard’ where this big risk is concerned
Those betting that this post-December bounce for stocks is for real had to walk away from Thursday’s action feeling pretty upbeat.
The S&P 500 and Dow battled out of bear-market territory, marking the best start for stocks in 13 years, though some caution is creeping in Friday. Some of that could be down to next week’s earnings season kick off, featuring big names like Goldman GS, -0.27% and Netflix.
Thank Fed capitulation for sending investors on that equity shopping spree as of late, says Bank of America Merrill Lynch, which has just tallied up the numbers after its own ”time to buy” advice a week prior. For the week to Jan. 9, global equities saw the biggest inflows in 11 weeks of $6.2 billion, with $3.8 billion pouring into exchange-traded funds, and $2.4 billion into mutual funds, says the bank.
But the rebound has brought the BofAML Bull & Bear indicator back to neutral, so the green light is currently tinged with yellow:
That leads us to our call of the day from CFRA Research, whose latest note bears this headline: “Don’t let your guard down on guidance.” Investment strategist Lindsey Bell says while fourth-quarter results should be solid, it’s less clear lower guidance has been fully priced in, even after the December meltdown.
The S&P 500 is down 7.4% since the start of Dec. (as of Jan. 9), and the last time the market fell by that much headed into a reporting period was for fourth quarter 2015 results, says Bell. The S&P had dropped 8% in the month and a half before Jan. 11, 2016, yet the next month it fell another 3.7% because companies cut growth estimates for the rest of the year.
“The results from Q4 2015 remind investors that individual stock and overall market reaction will primarily be driven by management guidance for the first quarter or full year 2019, says Bell. Here’s the CFRA chart that lays out S&P performance a month after earnings kickoff:
Last word goes to Irrelevant Investor’s Michael Batnick, who with Reformed Broker’s Josh Brown surmises that history isn’t much of a guide when it comes to trying to determine whether stocks will keep bounding off that big December low:
Batnick’s advice: “If you were very scared in December but didn’t do anything, and now you’re like ‘The coast is clear, thank God it’s over,’ I would suggest you seriously revaluate how you will behave if we do retest those lows and it gets worse. If we don’t great, but if we do and you sell, that is not good.”
“Maybe now is a good time to reassess your risk tolerance. If you were 70% stocks and freaking out that you didn’t sell, maybe that was too much,” he says.
Opinion: These three ETFs have beaten S&P indexes while cutting risk
Dow YMH9, -0.22% S&P 500 ESH9, -0.25% and Nasdaq NQH9, -0.35% futures are struggling some. That’s after Thursday’s action that pushed the Dow DJIA, +0.51% and S&P 500 SPX, +0.45% out of correction, though the Nasdaq COMP, +0.42% is still there.
The dollar DXY, -0.26% is off on the heels of Thursday’s dovish talk from Fed Chairman Jerome Powell, and the poundGBPUSD, +0.5883% spiked on a report that said U.K. cabinet ministers see a Brexit delay as increasingly likely. Gold US:GCU8 and crude US:CLU8 are moving higher.
Europe stocks SXXP, -0.15% have turned lower, while Asia finished mostly higher.
To 2,600 and beyond. Our chart of the day comes from Adam Kobeissi, founder and editor in chief of The Kobeissi Letter, whose bullish S&P 500 call showed up here on Christmas Eve. He remains upbeat, on the view that weak earnings are well priced into markets and “expectations will be exceeded.”
“There’s a ton of money on the sidelines and as sentiment continues to shift, retail institutions and individuals will begin buying again and start the next move higher,” argues Kobeissi, in emailed comments.
“We also expect that level to break as momentum continues higher and the S&P 500 to rise to the top Bollinger Band at around 2,700. The [Relative Strength Index] on the index is also indicating that there is more room to go as a double bottom in the RSI formed and it now stands in fairly neutral territory,” he said. The Bollinger Band measures market volatility and the strength of moves in one direction or the other.
The Wall Street Journal is reporting that Apple AAPL, +0.32% will push out three new iPhones this autumn, which comes days after a shock (for some) revenue warning revenue warning. Citing sources, the report says Apple will debut a successor to the struggling cheaper XR and a higher-end model with a triple-rear camera. Meanwhile, two of Apple’s big suppliers in China reportedly dropped prices by more than a fifth owing to poor iPhone sales.
Late-night tweeting again, Tesla TSLA, +1.90% CEO Elon Musk showed off SpaceX’s massive Starship test rocket.
A lawsuit has been filed against Alphabet GOOGL, -0.26% alleging that Google co-founders Larry Page and Sergey Brin, among others, covered up sexual harassment and discrimination. The big outcome may be to shake up a smug board of directors.
Activision ATVI, +1.02% is taking a hit after news it has cut ties with the studio responsible for one of its top videogames, “Destiny.”
Netflix NFLX, +1.47% is getting a bump up after UBS upgraded the streaming company to buy and lifted its price target to $410.
On the trade front, Treasury Secretary Steven Mnuchin said Chinese Vice Premier Lieu He will “likely” visit the U.S. later this month for more trade talks.
Data showed consumer prices fell for the first time in 10 months.
Government workers affected by the shutdown will miss their first paycheck on Friday. Pilots took to DC to demand the shutdown’s end and warn of risks to air safety.
1,000 times — That’s how much energy the Earth’s oceans have absorbed annually, over what the entire population uses each year, says new study.
Missing Wisconsin teen found alive months after her parents were murdered
POTUS pleas for border-wall in South Texas, surrounded by intercepted items from legal points of entry
Soon to be available, swag from the doomed Frye Festival disaster
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