So basically we are finally seeing blood in the streets after the weekend break for Easter. Currently the 10yr sits at 1.98 (Bear in mind this was touching 2.40 only a few weeks ago) and the S&P has smashed through support at 1373 and is on its way back towards the 1340 area where this run up started.
Staying out of the way is probably for the best at the moment. There is significant momentum to the downside as bond shorts are being squeezed pretty hard as 10yr's rally and anyone who started buying around the 1400 area in equities is now underwater and probably trying to get out. 1373 is now resistance going forward for awhile and I would think that 1340 is now support.
This seems like an overdue pullback considering renewed economic concerns over in Spain with a weak bond auction, selling only $2.6 billion on a max of 3.5. Yields over there are sitting at %5.85 and climbing, which isn't particularly good news. Along with renewed growth worries and a Eurozone which is on the brink (if not already in) of recession it seems this has been coming for awhile. Other thoughts?
Oil has been getting crushed as well along with precious metals. Metals are becoming more of a risk asset nowadays which track with the markets. 1. Economic Growth is not flying off the charts and inventories and supplies have been rising 2. Iran is not going to cut off supply through the hormuz/ global oil shocks are becoming less of a risk (for now) 3.
People are also realizing that the supply from the US is increasing very very quickly and at some point this country will wise up and build out the capacity to move it from Cushing so people can actually utilize it. What a novel idea! 4. last time I saw crude inventories reported I noticed that they were building pretty nicely so I expect that is weighing as well on the oil markets. Those are probably some of the larger macro factors affecting oil. I'd love to hear other explanations (seriously) as oil trading still baffles me much of the time.
Same pattern as the last two years. Rally hard into April, correct as "liquidity stimulus" dries up, chop until the FED feels compelled to act.
Nobody is saying this is the start of the next bear market, so my hunch is that it just might be.
That said, considering that the S&P 500 was trading at 30x earnings twelve short years ago, though, paying 13x earnings right now- and enjoying a roughly 7.5% earnings yield- the market is not a TERRIBLE deal right now. You can even find 6-8 PEs in the oil patch and the miners, resulting in a ridiculous 13% earnings yield that can generally be expected to grow with inflation as Bernanke continues to increase the money supply at a rate of 10%/year WITHOUT QE3.
I've been a long-term perma-bull since November 2008, but I'm starting to moderate a bit. P/Es below their historical average of 14 are not exactly expensive, but we could stay flat after dividends for five years.
I don't think we've gotten out of the secular bear market that began 12-13 years ago. Still feels like credit markets aren't clearing properly and I don't think we get a sustainable recovery until that happens. However, we are getting closer and secular bears don't last much longer than 15 years.
Would love to see us get our post-April 10% sell off out of the way early this year.
My one rule with equities is that when I sell an equity, I always replace it with another equity. If you stick to that rule near the tail end of a secular bear market and the beginning of a secular bull market, it's tough to lose out.
People are just too complacent. Eddie is not claiming that the world is going to end for equities and everyone on CNBC is saying "BUY". I say we go down another 10% on top of our current declines. That's not to say there's not some great deals out there. I am still confused about why miners and oil companies are trading with 6x PEs like the world is about to end when Brent is at $120 and gold is at $1700.
Bears start on complacency and all I am hearing today and tonight on CNBC is "the market's too cheap to need growth, keep buying." And while that's all true, there is absolutely nothing to stop us from going down another 15-20% in the short-term and hitting a P/E of 11. So if you are investing for the short-term, I'm not sure it's quite time to step in. If you are saving for retirement, though, you're probably not going to set two months' savings aside and then buy in at the cyclical bottom when the conventional wisdom is to get out. So just keep stuffing money into bricks-and-mortar dividend value stocks and try not to focus too much on the markets.
That said, I'm a long-term investor, so I don't have as much conviction on my short-term views.
I'm not surprised at all, I was just too fucking early in my double-leveraged volatility play (UVXY) that I'm sitting at break even right now instead of being up 50%.
I hate the expression, but it remains true, the markets can stay irrational longer then you can stay solvent. Everybody with half a brain had to know a correction was coming. The markets hadn't dropped since the October 3rd bottom.
Long term secular headwinds are as mediocre as they were two months ago (two years works too) but stimulus juiced corporate profits are still high and I'm hesitant to dump equities right as this earnings season starts.
IP = WSO's Jeremy Grantham.
Hahaha. Wait until IP gets started on how the upcoming fertilizer shortage will affect his beloved Illinois cornfields.
It's not much of a sell off if you look at a 5 year chart.
We're still ~+80% from the March 2009 lows.... in nominal terms.
I'm not a bull but I cannot fathom how the stock market can down when interest rates are at historic lows. Perhaps in real terms when adjusted for USD devaluation and for inflation (I'm not a believer in the CPI) then investors are getting housed. But what else can you do... buy bonds at ridiculously low yields that won't even beat inflation?
Also, IlliniProgrammer, is the P/E that you presented leading or trailing?
Seriously, take a look at the European oil majors. The valuations on huge dividend-paying energy stocks look like something out of March 2009.
Last week's deadly combo of unhelpful Fed stimulus news, a disappointing jobs report and spiking Spanish bond yields have all definitely created the sell-off that's kicking off this second quarter. The real story this week is going to be earnings - it's earnings season baby and thanks to last week's negative developments, analysts have already set the bar low. Alcoa surprised last night with better than expected revenues - now can other companies man up and set the tone for the next couple weeks? Let's see if the Fed's Beige Book report on the state of the economy today can throw some wind back in the ol' Dow's sails...
Check out yesterday's MarketSnacks post to read more about Alcoa, earnings season and why the markets are down:
http://marketsnacks.com/2012/04/10/spanish-bond-sell-off-leads-markets-…
What worries me the most is the Eurozone situation. Typically when bond yields rise for one of the PIIGS nations you see a steady rise in sovereign yields across the continent while the yields for Germany, the Netherlands, and the other safe havens fall. This happens until some major event occurs, like an EU Summit or a political change or some other perceived game changer. I don't see anything like this on the calendar and wonder what would convince investors that the European recession is going to end anytime soon. This kicking down the can down the road strategy that has gone on for the better part of two years only helps if it allows fundemantal changes to occur, like major labor reforms, but I am not seeing this in Italy or Spain...
Fortunately this morning a German auction for 10 year bunds did not go very well. They tried to set a record low 1.75% yield and investors thought it must have been some kind of a joke, seeing as inflation is 2% in Germany and who wants to buy bonds that offer a negative real return. This bold price setting by Germany was met with modest demand and the bids actually failed to cover what they were offerring. This is good because investors realized that it's tough to find decent yields in this bond market and Spain/Italy might be worth the risk. Their yeilds fell about 10 bps each this morning...This wasn't the game changing news that I beleive is necessary to put out Euro debt concerns, but it helps.
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