Category: Stocks

Is Weak IPO Market the Canary in the Coal Mine?

If the stock market is so healthy then why is the IPO market absolutely dead?  This is a question the WSJ addresses with IPOs off to their slowest start since the first quarter of 2009, in terms of deals and dollars raised.

“Either the IPO market is going to pick up, or the stock market is going to pull back, but it’s hard to envision both conditions peacefully coexisting,” said Jack Ablin, chief investment officer at BMO Private Bank.

In Q1 2016, there were only nine deals, raising a combined $1.2 billion.  This was the smallest since two IPOs combined for $890 million in the first quarter of 2009.

Off the nine deals, 3 are blank-check companies.  5 of the other 6 are higher, with Editas Medicine (NASDAQ: EDIT) leading the way with a 119% gain from its IPO price.

Yellen Gives Bulls Some Juice

Can you spot in the chart below where Fed Chairman Janet Yellen made dovish comments?

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In her speech today, Yellen indicated the Fed should proceed “cautiously” as it looks to raise interest rates again.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy. This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric. If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilize the economy. By contrast, if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero.”

Yellen also dismissed claims the Fed is out of bullets, saying even if rates return to zero the Fed has a ‘considerable scope’ to provide additional accommodation.

“One must be careful, however, not to overstate the asymmetries affecting monetary policy at the moment. Even if the federal funds rate were to return to near zero, the FOMC would still have considerable scope to provide additional accommodation. In particular, we could use the approaches that we and other central banks successfully employed in the wake of the financial crisis to put additional downward pressure on long-term interest rates and so support the economy–specifically, forward guidance about the future path of the federal funds rate and increases in the size or duration of our holdings of long-term securities. While these tools may entail some risks and costs that do not apply to the federal funds rate, we used them effectively to strengthen the recovery from the Great Recession, and we would do so again if needed.”

Calm Before the Volatility Storm?

BlackRock’s Global Chief Investment Strategist, Richard Turnill, warned that markets have become eerily quiet recently.  Now the firm is preparing portfolios for higher volatility.

U.S. equity market volatility is hovering around its lowest level since August 2015 and is well below its long-term average. This unusual calm follows declining market concerns about sliding oil prices, and the health of China’s economy and European banks. We do not expect this to last, and see a return to the higher-volatility regime that was the norm prior to QE.

The firm views Gold as a effective hedge if volatility spikes due to rising U.S. inflation fears.  They also like TIPS and similar instruments. Foreign-currency exposure can act as a diversifier as well.

 

Stocks to Remain Range Bound Until After Trump v Clinton – Strategist

Deutsche Bank equity strategist David Bianco sees the S&P 500 range bound between 1925 to 2100 until after the US general presidential election on November 8, 2016 (which more and more looks like a Donald Trump/Hilary Clinton showdown).

He does not expect the S&P to fall back into correction territory as a double-dip correction already happened. He said it would likely take clear signs of an impending US recession or a new global shock to cause renewed investor panic. Continue reading “Stocks to Remain Range Bound Until After Trump v Clinton – Strategist”

Goldman Sachs: Get Long Cash as Rally Might Fade

Goldman Sachs portfolio strategist, Christian Mueller-Glissmann, is getting more bullish on cash to position for and take advantage of expected elevated volatility.

“We upgrade cash to Overweight over 3 months to position for and take advantage of more volatility. With the potential for cross-asset correlations with oil to increase again should oil prices decline sharply, the potential for diversification is limited. Similarly, rateshock risk is difficult to diversify. Within cash we have a preference for the USD. We remain Underweight government bonds over 3- and 12-month horizons as inflation continues to pull yields higher and we still expect three Fed rate hikes this year. Over the near term, central bank easing, the dovish Fed, and lower oil prices might support bonds but we do not think US 10-year yields will trade below 1.75% for long.”

Continue reading “Goldman Sachs: Get Long Cash as Rally Might Fade”

Stocks to Repeat Nov-Jan Decline?

In January and early February all looked lost, but stocks have staged an impressive rally off the February lows that has lasted 26 trading sessions and gained just over 13%. However, market technician Jonathan Krinsky of MKM Partners notes that this rally is nearly identical in magnitude and duration to the Fall 2015 rally, which of course was followed by a sell-off.

“That is not to say the market is set up for a repeat of the November to January decline, but the symmetry is noteworthy,” he said. Continue reading “Stocks to Repeat Nov-Jan Decline?”