(Mike Larson, editor of the Safe Money Report, is on assignment in Europe. Mike Burnick, editor of Martin’s Ultimate Portfolio and Ultimate Stock Options, is filling in.)
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The rally leaves investors scratching their heads about what’s next because the rebound has seemed to defy both gravity and reason, in spite of plenty of red flags signaling caution.
First, the economic data has been dreadful. Starting with the disappointing September jobs report that missed expectations by a mile, there has been a long list of negative reports one after another.
The foundation of the housing market shook last week with new home sales falling to the lowest level in over a year as consumer confidence missed expectations …
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| Even weak new home sales couldn’t dampen the rise in equities. |
Factory orders slipped 1.2% last month, continuing a nearly unbroken string of disappointing data on the industrial sector. In fact, all five regional Federal Reserve surveys are sub-zero, signaling broad based contraction …
And third-quarter GDP rose at an anemic annual rate of just 1.5%, below expectations and less than half the 3.9% growth rate during the second quarter.
Second, corporate profit results have been nothing to cheer about either. Even as stocks zoomed higher last month, 53% of stocks in the S&P 1500 have reported sales falling short of estimates, and profits are on track to decline over 2% year-over-year. What’s worse, negative earnings guidance regarding fourth-quarter prospects is beating positive guidance by more than 2-to-1 this quarter, which tells me the profit picture isn’t about to get better anytime soon. And here’s the latest red flag that’s especially troubling.
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| While the S&P 500 Index is surging higher, the S&P Buyback Index (blue line)Â struggles below its 200-day moving average and could break below recent lows. |
Third, a major prop under stock prices for the past several years is slipping: stock buybacks. On Friday, CNBC reported that stocks with the highest buyback ratios have been lagging behind the overall market, as you can see in the graph above, just like small and mid-cap stocks are doing.
Look, share buybacks have been a major support for stocks in recent years. In fact, reducing shares outstanding is the main factor holding down P/E ratios, by making up for anemic earnings per share growth. Otherwise, this market would already look richly valued.
What’s even more troubling is that similar negative divergences in the performance of the S&P Buyback Index happened twice before: just before the market peaks in 2000 and again in 2007. Yikes!
Are you seeing red flags in the market? Or are you optimistic and just riding along with the stock surge? Add your views to the conversation by clicking here.
Good investing,
Mike Burnick
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Mike Larson will return from Europe tomorrow and review your comments over the past couple of days and respond to as many as possible. Click here to join the conversation on today’s subjects or any others from last week.
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The mystery deepened over the tragic crash of a Russian charter airline over the weekend. All 224 aboard were killed. Company officials ruled out human error or technical issues, which raised the concern over whether terrorism could be blamed in the crash of the plane bound for St. Petersburg from the Egyptian resort of Sharm el-Sheikh. But Metrojet officials also dismissed claims by the Islamic State that it shot down the plane. They said a blurry video supposedly showing a missile strike on the plane appeared to be fake. The black boxes from the plane have been recovered and experts from Russia, France, Germany, Egypt and Ireland were participating in the investigation. The U.S. has offered to help as well.
Already? Yes, the holiday selling season is getting underway. Amazon said it had launched a “Countdown to Black Friday” sale, with discounts on electronics, video games and other items. “We didn’t want you to wait until the day after Thanksgiving for Black Friday deals, so we kicked off the savings a little early,” Amazon said on its website. “We are counting down to the big day with even more deals, all day, every day.”
Sprint Corp. (S) became the first U.S. wireless carrier to sign a direct roaming deal with the Telecommunications Company of Cuba (ETECSA), the U.S. company said. No further details about costs and policies were immediately available. The market could be substantial, Sprint said. More than 3 million people from around the world are expected to visit Cuba this year. Within 10 years, that number is forecast to grow to more than 5 million annually.
If the crash of the Russian airliner turns out to be from ISIS terrorists, will the Russian military become more involved in battling the group? Do you plan to increase the amount of Christmas shopping you do this year with online sellers? Or will you stick to the old way – browsing and buying in brick-and-mortar shops? Do you think more commerce with Cuba will pay off — both for Americans and Cubans? Share your views with your fellow readers. Jump to the website to add your comments.
Best wishes,
The Money and Markets team
Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.
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Could you please provide the graph of the S&P 500 Buyback index going back to 2000 and 2007 so we can see the graph to support your point on divergence signaling problems historically?
Thank you.
Good job MIKE I really enjoy this segment.!
Maybe Larry is right. Overseas investor money pouring in sending the Dow Jones Index on its way to 31000. Don’t overlook the foolish low interest rates causing folk to dabble into equities. Maybe they’ll loose their shirts or maybe double their money- time will tell.
Balance is the key. Some cheap Boitechs, some cheap lithium shares, some undervalued gold shares, some cheap semi conductor share companies. A bush block as well as a cheap rental property which you renovate yourself but you must buy cheaply in the first place. Some silver 1 oz coins, in fact as many as you can afford. When paper money is finally burned, silver coins will sky rocket. Don’t tell ANYBODY about your purchase- not a soul.
Greg,just me
Yes, Larry predicted Dow 31,000 but that would happen after a US market sell off first and a collapse of Europe’s economies, markets and the euro which would drive European investors to the US. None of those things have happen yet so he was wrong about that. I agree that the bullish nature of the markets do not make a lot of sense in view of the many red flags but buying bearish positions here looks very risky. Larry may be right about gold and silver as they look likely to fall to new lows soon. Eventually there will be a bear market in equities but even techical analysts and advisory services like Weiss haven’t done too well in that regard.
Larry Edelson doesn’t agree with you Mike. He predicts money from Japan and Europe will head to the USA and buoy up our markets for at least the next year. As You’re both under the Weiss banners I would expect you know of his prediction. Is he right?
Mike,
You mention that stock buybacks are one factor that is keeping the market up. But I’m not so sure you can compare things with how they were in 2000 and 2007. Today’s market is awash in cash, but there’s not really anything to buy. Companies are reluctant to increase capital spending because there’s just not that much demand out there. If that’s the case, you can either increase the dividend, let cash pile up, or buy back stock. You can’t earn anything on cash, and I don’t understand markets well enough to understand the pros and cons of increasing the dividend. So perhaps buying back stock works better for you than increasing the dividend. The question is, do you expect things to change anytime soon that would cause companies to change their behavior? I don’t think so, so it might be reasonable to expect that companies will continue to buy back stock, which would keep the market going up.
Broomy,Maybe Larry is correct,DOW 31,000 minus the dip.Do not ask me to comment on anything,Im in cash and dont understand the system but someone is buying lots but it aint me.Its getting really scary now.Dont believe anybody not even Jim,where is he by the way,come back Jim,I miss you.
The trend is your friend? How the heck could I know where The Market is going next. Jim
I love things people hate and are scared of. Fear is so pervasive now stocks have nowhere to go but up. Stocks have not been this much feared since 1998 after a 20 per cent correction that sent everyone heading for the hills. The bull was just getting started. The Nasdaq promptly went for 1500 to 5000. The S&P went up 60 per cent. We just had a great big 12 per cent correction that should be viewed as perfectly normal. Keep your cash and miss the next big run up. Buy the SSO. The only thing more hated than stocks now is gold and silver. For exactly the same reason I’m buying Central Fund of Canada and the GDXJ. By all means don’t do what I do (disclaimer). Jim
Stock buybacks are fine, when the money comes from earnings. When it is borrowed, maybe even to pay dividends (some companies are doing that), it makes management look good, and they collect big bonuses, but the companies financial positions are certainly harmed, not helped. More companies than you’d believe are doing that, especially in petroleum. The national debt is not the only place where borrowing is happening, and not the only place where something must eventually reach the point of no return. Can the Dow drop 6000 or 8000 points in one day? Percentagewise, it has done it before. No reason it couldn’t happen again. Ian may be the smart one.
very concerned. all indicators seem to be headwinds…stock market fall
You and Harry Dent both make Logical Assumptions on a Large Market Selloff that just continues to NEVER Materialize ! I went SHORT in Most Positions in Early October, only to Experience [7-9%] losses in my Portfolio during the Month of October ! Maybe Bonds are the Better Bet since the FED appears to NEVER AGAIN raise interest Rates !!
TexasStud66
Based on Weiss pessimism, I bought options on inverse etf’s in September. Although not large investments, all are disasters. Since even the Weiss subdivisions don’t agree on the future of the markets (they’re not even right on global markets, not just USA), stay away from the “double and triple your money” come ons.
I agree Phil. I just don’t like taking a negative approach to anything. It’s depressing. There is always a bull market somewhere. e.g. Even in the crummy energy sector refiners and tankers have done fine. Jim
In the middle of August the Dow 50/200crossed which is commonly know as the death cross. We are still in the death cross but have been bullish in a bear market since the 28th of August. We are also facing the same demographic cliff the Japaneses experienced some time ago, this is due to aging population. Demographically we are almost two decades behind them, which means we are just heading into our cliff. It remains to be seen if we become a zombie economy like Japan. There is a chance we as a country could do poorly but the stock market does great very much like 1932-1937. However, we have a huge debt now. This debt is not as big as a percentage as Japanese, so personally I am waiting to see what my technical indicators tell me. I am currently 75% in cash and 25% long. I was short for the last two wks of August and then took my current positions. I am at wait and see.
Retired. Helping family members financially who are unemployed and/or low income.Christmas will be small.
You guys amaze me. The market’s climbing its usual Wall of Worry while I’m sitting with “Supercash” as you advised and am short the Euro and Junk Bonds. You keep telling me things are going to hell while the opportunity cost of staying liquid or going short keeps rising. When will your constant bearishness be reflected in the market place so I can put all that cash to work? Ever?
re Income Superstars 10/2015 Nilus addressed concerns about KMI but missed the most important one – the dividend payout is roughly 100%. This leaves no safety margin in case of revenue downturn or interest rate increase (KMI has 10B+ short term debt to refinance over the next couple years). I think the market is saying that KMI needs to have a reasonable payout (say 60%) which leaves lots of flexibility to pay down debt, fund capex internally, and handle revenue variations. This implies a dividend cut to $1.2-1.4 and a stock price in low 30s yielding 4%
There are too many variables, so one needs to return to the basics, such as the teachings of Professors Friedman and Hayek. A number of elementary factors prognosticate economic doom:money supply, government debt, government interference in a free and competitive market, trade balance, ….
You don’t have to watch a hammer to know that when you let it go it will hit the ground.
All these negative comments tell me one thing. No inflation in sight, at all. This hot conversation concerning the Fed raising rates is just that. Conversation. If one looks back into history, historically, USA always had low interest rates. Check it out yourself! That grows the economic engine of this country.
I always keep healthy cash on hand in the event of a rainy day. And I read all the advice that you guys send out but I take it with a grain of salt. No inflation in sight. Buy everything you like and wait. Decide for yourself. Make your own mistakes. That’s my advise to my self.
There is absolutely no Rule of Law in Cuba today so what the Tyrants say at any time is what will count. Anybody that is thinking of investing in this environment is totally nuts.
In the past there have been a number of Europeans that have started businesses in Cuba and once the rulers decided that that was enough they simply shut them down.
There are still a number of Spanish run hotels in Cuba but they have only been allowed a maximum of 49% participation. The employees they use are provided by the Castro,s after they have been previously approved by the party and then the foreign investors can only reject some of them. The investors then pay the government, not directly the employees, whatever rate they have demanded, then they take a large percentage of that money and only pass a smaller amount to the workers. That is how a ruthless communist tyranny works my friends and any $$$ you spend over there will basically help to maintain the barbaric abuse of the Cuban population that has now lasted 56 years.
PLEASE DON’T EXPOSE YOUR MONEY WHILE CONTRIBUTING TO ENSLAVEMENT.
In the interest of full disclosure, I’m shorting this market. I got killed today – unrealized – for reasons that are beyond my comprehension. The ONLY explanation I can imagine is there is too much liquidity thanks to QE (and folks and their money managers don’t know where to put the money) or the Fed (conspiracy theory granted) is propping up prices similar to what bankers attempted in 1929. It didn’t work then, it won’t work now.
I GUESS YOU DID NOT HAVE THE GUTS TO INCLUDE MY COMMENTS LIKE THE OTHERS AS REQUESTED!!!
It’s time to run when nothing makes sense. I realized this Friday and Monday when VRX closed after market at 92.50 on negative news and opened again on Monday with more negative news at 99.00. It’s all wrong……….
Scaryyy…
One more thing, what happens when we continue to raise the debt ceiling with no improvement to reduce debt? It’s a broken system that will implode and it’s just a matter of time. Individuals do the same and it results in default and bankruptacy. Believe whatever you want but it’s pretty easybto see wats coming if you look at it in simple terms. When our country continues to increase debt as a run away train, that train will eventually crash and burn. Bull market, Bear market, interest rates, earnings, it doesn’t matter in the en if you cannot pay your debt we all will lose.
Mike, In all the decades I have been following the capital markets I have NEVER seen so many economic/demographic/fundamental/technical/cyclical imbalances, mis-allocations of capital, levels of DEBT, levels of DERIVATIVES, levels of Financial Engineering (stock buybacks, cost cutting, accounting gimmicks, profit over revenue focus etc.etc) combined with spreading Deflation as I do right now. In fact all these extremes are in the process of peaking/already peaked this year. This next market crash, that WILL get here very shortly, is going to be the straw that breaks the world’s economic back. It will have severe consequences for the middle/upper middle class, the glue to the world’s economy. Very, very sad to see this already unfolding to a tee!. October equity rise was nothing more than a dead cat bounce/short squeeze, that has just about run its course. The next wave/cycle down will be severe and make the 2007-2009 downturn seem like a cake walk…Your article bringing up the S&P Stock Buyback Index falling below it’s 200 DMA, is just one of MANY MANY canaries in the coal mine. There are red flags EVERYWHERE…
Many Weiss articals over the last 6 years have advised the share market is going to collapase and gold will soar. Years ago we were told the share market would drop tp 900 and gold would go to $5000 an ounce and neither has happened.
I am confused
Simple to understand. The big boys are in complete control. They will make what they want to happen to their advantage, and screw the little guy. Stocks go up and down as they desire. It need not make sense. Earnings, PE ratio etc mean nothing. That is the explanation for the mess in the pass, and in the future. It has truly turned into a parallel to Las Vegas because of crooked money. At least tax the large offenders until they squeal like a stuck pig.
The atmosphere in the stratosphere takes your breath away; and so it is with the stock market at these heights. The higher the market rises the harder it can fall. If you have to be in the market then get back to earth and go bottom fishing for gold, energy and basic resources where the thud will be less loud than from a falling asteroid. But that is just my opinion, which may not be right for someone else.
Yes, I do see Red Flags in the market. Yes, I do believe we are going down again to test the recent lows. Where we end, nobody knows!!! But I do believe just above or just below the recent lows. And, yes, until the past 2 trading days I was just riding the surge. Now it’s time for some INSURANCE. Nothing drastic at this point. If the S &P runs into resistance near the 2140 mark and is turned away and begins to retreat I will immediately enter two exactly equal orders. One for the SPXL and the other for the SPXS. If I remain patient the market will tell me which one to retain and which one to dispose of. I am very bullish through the election season in 2016. NO. I’m not bullish because of the ridiculous hype about which years tend to be more bullish. Bottom line is that i see Dow 31,000 before this bull has taken its last snort. Good luck to all.
eric
Some news from France that you will find interesting-
https://www.youtube.com/embed/u0j4Vm-XVIY?feature=player_detailpage
Think of al the 1950’s era American cars just waiting to come home. Think of the trade in newer cars being traded for the classics. Just think trading a 2013 Dodge for a 1956 DeSoto or a Rambler. Yeah. And then there is the cigars for those who want to ruin their health.
About Cuba, I believe that increasing interaction, including trade, between Cubans and Americans will influence changes in the island. Some good, some bad, some indifferent just changes. Likely good changes are economic benefits to both from trade, allowing each to travel and enjoy tourism and visiting family and friends. Longer term improved communication will trump propaganda and increase truth in the press all around.
Bad changes likely will include increasing illegal drugs in Cuba and Cuba arrests of visiting Americans for possession and sale. And overall an increase in violent crime and drug & weapons trafficking. Both the good and the bad will challenge the Cuban regime and they may react to both by reducing or shutting down the flow of people coming and going to/from Cuba and the U.S. Only time will reveal just how this turns out.
I’m optimistic it will turn out well and more good than bad will result.
If Americans are stupid enough to take illegal drugs into Cube, they SHOULD be arrested and imprisoned there.
Perhaps the best thing to do is follow shares in companies with strong earnings forecasts for q4 and for 2016-17. I HAVE A HIGH PROPORTION OFmy portfolio in carnival
David massiah
We started to invest in inverse ETF’s just before the4 market took a dive in August. It was a hedge. just insurance to balance out the Blue Chips and energy plays we have held on to that we have gotten clobbered with. Long term, energy will come back. But now that that market has clawed it’s ugly way back, we are now in the red. We were also told
CHINA was going to get in as a Global Currency this year sending currency shock waves around the world. We were told this market was going to do a Black Swan dive, and to prop up our holdings in cash. So we took a 25% hit on $100,000 invested, put our holdings
in cash, and then then market bounced back. So if we just sat and held, we would have had nothing but a paper loss. Instead we took a BIG HIT, no doubt thanks to our faithful writers that continue to tell us to invest in reverse EU ETFs now. RE WE GOING TO GET KILLED THERE TOO IF THE EU DOES NOT TAKE A FINANCIAL DIVE? – – Your thoughts on all of this………. Money & Markets, and Safe Money reports have both been way wrong. Could use a little help in trying to understand what is happening here? Thank you. SS Ettinger
SS Ettinger, if you need help i’ll be happy to offer my services at no charge to you. But this offer is just for the immediate time and forward for a bit. leave an email of phone #. eric
Sept. Factory orders, down 1% – more than expected. August factory orders revised downward to -2.1%. Aircraft orders down 35% – but these are volatile. Why are stocks rising?
The market is 40% over valued and has been for the last 7 years. The Fed printed $3 trillion in monopoly money to buy it’s own Treasuries to keep the market propped up. They also left the interest rate around zero meaning investments of retirees are not making anything. Housing sales down, lots of gold/silver being purchased, commercial real estate heading for a fall and lenders are taking sub-prime mortgages the last 3 years…..same stuff that popped the housing bubble in 2008. Walmart is buying back it’s own stock, laid off home office folks and are holding off opening new stores and may announce employee layoffs. We are headed for a fall bigger than 2008.
Maybe the Europeans are buying wildly without regard to fundamentals just to get their cash out of Europe?
maybe Europe is buying out of desperation?
There are amazing negative divergence on the monthly charts on the MACD, STOCHASTIC and RSI.
All this talk is mostly negative.so for guy like me who is depending on people who do this for a living,to keep me in the black.looks like hard assets like land,cows equipment for surviving.back to the basics.before it’s all gone.I think i’Lloyd get out.live like my elders did.this makes no sense.