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Are U.S. Stocks Your Best Bet Right Now?

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Are U.S. Stocks Your Best Bet Right Now?

Stock Markets face more Political Instability

After the failed coup attempt in Turkey late last Friday, it remains unsure as to the level at which the stock markets will be affected.

As it stands, there has been little market impact seen from the coup as stock futures remain steady.

Although defeated, the coup in Turkey has added yet another potentially market-damaging event to a year already burdened with instability.

Citigroup Inc. (CITI) has said that recent events, such as the attack on Bastille Day and Britain’s decided referendum to leave the European Union, mark an increase in political risks.

A spokesperson for CITI has said that whilst many of these events were reckoned, they did not anticipate exactly how many of them would actually come to fruition – especially in such a short time-frame.

Until the dust settles, there is the potential for investors to run for shelter and stocks to be sold off amidst shocks to the Foreign Exchange Market and a potential risk-off environment.

Earning Season In-Motion

As Wall Street dives into Earnings season, hopes are high that there will be no more political events to be of a risk.

IBM, J&J, AT&T, Microsoft, Goldman Sachs, Morgan Stanley, and other corporations are all coming up, tested against the upwards movement that saw S&P 500 5.8% higher.

Whilst corporate earnings are expected to be down in the second quarter, the current political circumstances see a decline of around 5.3% as a positive.

According to S&P, the earnings recessions is expected to come to an end during the second half of this year, with earnings predicted to return to double-digit gains by the beginning of 2017.

What to Watch out for

All eyes will look to Europe this week as the European Central Bank will meet in Frankfurt to discuss interest rates and monetary policy.

The Chief Eurozone Economist for Italian lender UniCredit said that he does not expect ECB’s meeting to bring about any new policies.

After Brexit, it is unclear how affected the Eurozone will be.

U.S. companies have made many large investments into the United Kingdom, often viewing the sovereign state as a gateway to the rest of the European Union.

Having seen the pound drop to 30-year lows against the dollar, the possibility of the euro experiencing weakness could be of a real concern to the U.S., to whom a strong dollar is considered to be bad.

U.S. goods sold abroad would rise, and the value of profits would be reduced once their earnings are translated back into the dollar.

Given the political unsettle in the Eurozone and paying attention to the situation in Turkey, whose stocks and lira are not doing well, it is a good bet to say that the U.S. stocks can, at present, offer the most stability in the current climate.

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Facts and Figures

Some confidence has been lost as U.S. stock futures traded lower ahead of earnings.

Dow Jones Industrial Average dropped 25 points, S&P’s 500 index futures fell 4.25. NASDAQ 100 index saw a decline in futures by 10 points.

European markets have seen declines: The Spanish Ibex Index saw a drop of 0.63%; STOXX Europe 600 index fell 0.81%; the German DAX 30 index dropped 1.11%, and the UK’s FTSE index was trading lower.

Asian markets have born witness to a mixed few days. Nikkei Stock Average saw a gain of 1.37%, whilst Hong Kong’s Hang Send Index saw a decline of 0.6%.

China’s Shanghai Composite Index fell and India’s BSE Sensex rose by 0.23% and 0.15% respectively.

The dollar traded up 0.2% against the yen, up 1.3% from late last Friday.

GBPUSD, -0.55% sees the dollar down against the pound, however leading forecasts suspect the pound to dollar upward rate, since Brexit, is finally running out of momentum.

GBP/USD, alongside other sterling crosses, have stayed low despite the United Kingdom’s inflation rate results.

us-stocks

U.S. Stocks: Strength and Growth

European and Asian stocks have seemingly gone wild of late, with mixed closing prices in Asia most recently, to the shares in Europe’s banks dramatically falling 18% the day Britain decided to split from the EU.

Hopes are high that European stocks can be salvaged by 2016.

Bank shares have increased though still remain down by 12%.

Forecasts for bank profits are not overly promising and second quarter earnings are forecast to be down a fifth to what they were in this period of 2015.

U.S. stocks, however, may still be worth the higher prices they command since recent closes. 

Here’s why:

  • Stocks closed at all-time highs last Monday thanks to Bank of America’s quarterly results which gave many investors confidence as they enter earnings season.
  • Since 2009, MSCI is up 204.4%, a record high. The All Country World ex-U.S. MSCI increased, now up to 84.4% in local currencies and 82.4% in dollars.
  • The U.S. trumps the rest of the world in gains of 5.5% compared to a decline 2.5% in local currencies and a small increase of 0.1% in dollars.
  • S. forward revenues have remained steady since mid-year 2014, the same time that commodity prices began to drop. During that same period, over-sea developed and emerging economies saw revenues decline.

Up-and-coming markets continue to face a multitude of challenges; a developed market, such as the U.S., is a safe bet.

U.S. Closing Record Highs

Since stocks closed on Monday, the U.S. has seen some record highs.

The Dow Jones Industrial average ended higher than predicted, with a gain of 15 points; Home Depot and Goldman Sachs contributed the most gains between them.

Last week saw Citigroup and JPMorgan Chase top second-quarter profit predictions, now followed by the Bank of America, making for three big U.S. financial institutions to do so.

Hasbro shares are up, having surpassed forecasts of demand for Disney toys and reported better-than-expected earnings.

Netflix released their earnings report for the second quarter, having been among 2015’s top performing stocks, it saw its share prices drop during the past few months; many customers are thought to have canceled their subscriptions since the arrival of higher prices.

Still, the company pulled higher earnings than had been forecast.

The energy sector came out as the biggest strain on the S&P.

Rising U.S. crude oil inventories suggest a lack of demand, fueling fears in investors as prices may see a decline.

Coup-Caused Fragility

Emerging markets face a multitude of issues, as the recent coup in Turkey demonstrates.

Whilst the military coup was defeated, stocks are continually beaten down.

The main stock index, Istanbul’s Bist 100, fell over 7% on the Monday following the coup – the lowest level since the end of June.

Turkey XU100 index has seen a change of -6.12% in the last week.

Turkey has since seized over 6,000 people as suspect supports of the coup against President Recep Tayyip Erdogan.

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Political tension is expected to remain high in 2016.

The Turkish lira has since recovered slightly, performing slightly better against the dollar even though it has not made a full recovery since the recent military coup.

Resisting the coup

As investors have investigated the implications of the failed coup in Turkey last Friday, it seems as though global stocks have held their nerve, other than knocking the Borsa Istanbul 100 Index down.

The Turkish lira is poised to recover having already recuperated some of its losses following the instability after Friday’s events.

Volatility will remain high in Turkey amidst fears President Erdogan will use the coup as an excuse for a ‘crackdown’, though world leaders have stepped forward to encourage him not to do so.

The on-going terrorist threat and the unstable political situation may continue to pose a threat to the Turkish economy, corporate earnings, and the countries tourism industry.

A market analyst speaking for Forex.com has said that if the Turkish central bank intervened in the market and/or temporarily raised interest rates to raise up the currency, it would not come as a surprise.

Home Builder’s Index

Homebuilders in the U.S. have been left feeling less than optimistic as the National Association of Home Builders/Wells Fargo builder sentiment index released at the beginning of this week a fall of 1 point, now down to 59.

Considering the index has been stable at 58 for the majority of the year, excluding a rise to 60 last month, the drop is not being seen as a large concern.

Anything above 50 indicates a majority of homebuilders in the U.S. view sales conditions as good; anything under 50 implies that conditions may be poor.

Aside from the 1 point, a forecast of 3 points in decline within the next six months is the dampener leaving homebuilders slightly downtrodden.

This July, the Home Builder’s Index was based on the response of 304 builders.

Up by 3.42%, the average 30-year fixed rate mortgage saw an increase, however, it still remains close to its all-time low set in the November of 2012.

Regionally, the Northeast, Midwest, and South as a whole held a steady sentiment.

It rose by one point, however, in the West of the country.

On the contrary to this, housing prices in China slowed once more, the second straight month this June.

 More on U.S. Earnings.

Yahoo, being closely observed by investors anticipating its sale, were left underwhelmed as stocks stayed static and no news of a sale came to light.

Reportedly, the company beat expectations as its revenue was higher the projected.

It’s quarterly earnings, however, fell short of what was expected; earnings per share fell short by a penny, coming in at 9 cents.

IBM is doing well, making gains after hours and climbing 3.31% after reportedly seeing solid results for 2016’s second quarter.

The tech giant’s revenue has declined by 3% since 2014; however, it beat Wall Street expectations after coming in higher than $20.03 billion.

Big Names

SpaceX, a private company run by Tesla, funded by investors such as Google, Founders Fun, and Fidelity Investments, this Sunday achieved a successful launch and landing of its rocket.

Loaded with supplies and sent to the international space station, the rocket was able to return and land in Florida, rather than onto a barge in the Atlantic.

Microsoft has been in decline the past four years and, after expectations of its second quarterly sales, it looks as though it could be in for a fifth, consecutive year-over-year fall.

However, with analysts expecting a $22.14 billion on earnings per share of 58 cents, the smallest drop in revenue since the end of last year looks like it may be on the cards.

Heading in the right direction, the worst looks as though it is behind Microsoft.

Amazon NASDAQ: AMZN has achieved new, all-time highs on its stock, with its investors achieving a 9.3% return year-to-date.

A great example of progressing and climbing in value, Amazon has met its supporter’s expectations of high growth and proved its skeptics wrong; it would be justified now to think that this level of performance and growth can continue.

The earnings that will have the biggest impact are always closely monitored.

The high capitalized stocks of Apple, for example, has, in fact, gone nowhere in 2016.

Since its most recent trading day, its stocks moved up 10.41% from a 52-week low, however, it remains at a low compared to its 52-week high by -24.19%.

On Friday, shares dropped 0.01%.

Stock Surprises

Debt Specialist Marc Lasry, having appeared in an interview with CNBC, claimed that the recent pattern of record highs in the U.S. stock market ‘does not many any sense.’

Albeit that he questions the advance in stocks, he believes the market may be, in fact, signaling a stronger-than-predicted- U.S. economy.

Strong and Stable

In light of the tragic series of terror events that have taken place through Europe recently, alongside Turkey’s recent military coup, global markets have, in fact, show very little, or very short-lived reactions.

Developed markets can see such occurrences as one-off events, allowing them to recover quickly and to see very limited consequences economically.

In a time of political upheaval throughout Europe, the U.S. stock markets, whilst varied in results individually, is expected to continue up as the year goes on.

With some of its biggest threats, such as the buildup in Crude Oil Inventories, expected to balance out by the end of this year or the beginning of 2017, sticking with your U.S. stocks is the best thing to do right now.

The Big Players

Within a week, Pokemon go has swept across the world, causing everyone collectively to lose their minds in hopes of ‘catching them all’.

Standing for ‘pocket monsters’, the game places Pokemon in the real world via augmented reality, with the help of GPS and Google maps.

Whilst the game is definitely providing a popular user-experience, the game keeps on giving to the Japanese games makers.

Shares in Nintendo marked an increase after their most recent close, up by 14%, having gone up in value by more than double in the days since it was first launched.

Over $6.63 billion worth of shares in Nintendo were bought and sold this Tuesday, with the Tokyo Stock Exchange bearing witness to it’s biggest ever turnover for an individual stock.

The game is proving to be wildly popular, having set a record for having the most mobile users on a single day.

In Other News

Political turmoil was present in America this week as three police officers were killed as they were faced with skilled gunmen and ambushed, three others were injured.

A similar scene took place in Dallas within the same two-week period.

SWAT training kicked in during the attack in Baton Rouge, as the SWAT team performed perfectly under pressure in the response to the ambush on police officers.

In light of the tragic events that took place in Nice on Bastille day, the action filmed of the same name has been pulled from many theaters all over France.

The movie, based on the premise that a CIA agent must thwart a terror attack in Paris on the national holiday, has been removed from theaters in respect for the victims and families.

Posters and other advertisements have been removed, though the film’s distributors have left it to the cinemas themselves to decide whether or not to show the movie.

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Business

Stocks Soar Again, Yet Doubt Remains That This Rally is Real

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Stocks Soar Again, Yet Doubt Remains That This Rally is Real

Stocks climbed across the board on Monday, at least temporarily reversing the losses the market experienced last week.

The Dow Jones Industrial Average gained 1,627 points to close 7% higher, following a 7% gain for the S&P 500 and a 7.3% gain for the Nasdaq.

Coming off a week that saw the Dow lose ground for the third time in a month, Monday’s market rally was due to positive news in the fight to contain the coronavirus pandemic.

Stocks and Coronavirus Peak

Newly reported cases fell to 28,200 on Sunday. This reversed a trend that saw 30,000 new cases on Thursday, 32,100 on Friday and 33,260 on Saturday according to the latest data from Johns Hopkins.

While it is far too early to tell if the number of new cases has peaked, the market took the decline in new cases on Sunday as an indication that things could get back to normal much sooner than even the most optimistic predictions.

New York State reported the first daily decline in coronavirus-related deaths, with 594 new coronavirus deaths on Sunday after a reported 630 on Saturday.

“Incoming data suggests NY state might peak sooner than (Governor) Cuomo’s optimistic case,” said Tom Lee, head of research at Fundstrat. “With better visibility on the healthcare crisis in the US, particularly, on a potential to model a national peak, we believe buyers are now taking control.”

Billionaire Bill Ackman, who famously bet the coronavirus outbreak would tank the stock market and turned $27 million into $2.6 billion, has now turned bullish on stocks.

“I am beginning to get optimistic,” said Pershing Square’s Bill Ackman in a tweet on Sunday. “Cases appear to be peaking in NY. Almost the entire country is in shutdown.”

Peter Boockvar, chief investment officer at Bleakley Advisory Group added “It seems that each day that passes we seem to be getting to a better place on containment. It’s still a long road ahead, but some of the more dangerous places seem to be getting some control of it.”

Doubt Still Remains

Despite the growing optimism, many investors believe there’s still plenty of trouble to come for the markets.

Citigroup’s chief global equity strategist Robert Buckland says corporate earnings could fall by 50% in 2020 due to the coronavirus pandemic. He also mentioned that stock prices should drop an equal amount to reflect the expected decrease in profits.

“Typically, stock markets fall the same as EPS in a recession, but with a lead/lag relationship. With global equities currently down around 30%, we are not convinced they are pricing in the likely EPS collapse.”

Matt Maley, chief market strategist at Miller Tabak, believes another significant drawdown is in the cards.

“This is more a bear market trap. I just think we’ve had a first period of liquidation. But I think we could have more of it,” he told Yahoo Finance.

“We’re in a de-risking process and now we have to have the companies, which have loaded up to the gills in terms of debt over the last 12 years. As they de-risk and deleverage themselves, that is going to keep the economy from picking back up the way it did following the 2018 deep correction” he added.

For investors who do not worry about another significant decline, Maley does have some advice.

“With the market already down as much as it is, you can start dipping your toe back in. You just want to be able to go into the the high-quality companies with great management … that have great balance sheets.”

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Oil Prices Drop As Doubts Grow Over Oil Deal

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Oil Prices Drop As Doubts Grow Over Oil Deal

Oil prices dropped sharply yesterday after a meeting to discuss output cuts between the Organisation of the Pe­troleum Exporting Countries (OPEC) and its allies was delayed, dimming hopes of swift action to support coro­navirus-ravaged energy markets.

US benchmark West Texas In­termediate plunged eight percent at the open in Asia, but clawed back some ground and was trading 5.7 percent lower, at $26.72 a barrel.

International benchmark Brent crude was down 4.3 per­cent to trade at $32.64 per barrel.

Oil prices have tumbled to levels not seen for years due to the corona­virus pandemic and a price war be­tween Russia and Saudi Arabia, the kingpin of exporting group OPEC.

Business shutdowns, travel restrictions and other measures put in place to contain the virus out­break have battered demand.

Prices had bounced back from 18-year lows last week after US President Donald Trump said that Riyadh and Moscow would draw a line under their dispute and agree to major output cuts.

Analysts had been skeptical about a quick resolution, and doubts only grew when the meet­ing between OPEC and its allies, including Russia, was delayed.

They had been expected to meet via video conference to discuss oil production cuts on Monday, but the meeting has been postponed to Thurs­day, the government of energy-rich Azerbaijan said at the weekend.

Trump surprised investors last week by tweeting: “I expect & hope” Riyadh and Moscow will be cutting back “approximately 10 Million Bar­rels, and maybe substantially more”.

On Friday, Moscow said it was pre­pared to discuss a reduction in the vol­ume of about 10 million barrels a day.

But Stephen Innes, chief global markets strategist at AxiCorp, said that “traders remain extremely sceptical a deal will be forthcoming, and if one does occur, it will be woefully insuffi­cient to stem the oil supply gushers.”

(c) 2020 Daily Independent. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

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Investors Are Bullish Right Now, and That’s a Bad Sign for the Market

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Investors Are Bullish Right Now, And That’s a Bad Sign for the Market

A recent survey by Royal Bank of Canada showed that 58% of institutional investors are “bullish” or “very bullish” on the market right now. This could spell bad news for those hoping the worst of the drawdown is behind us.

The survey, conducted between March 25 and 31, shows that even after last month’s tumultuous ride, investors are more bullish today than they were back in December when everything was sailing along smoothly.

Even more concerning, 57% of investors say stock valuations are “attractive” or “very attractive” today. This is a new record for RBC’s survey.

“I’m concerned that we have not seen the lows yet,” said Lori Calvasina, RBC’s head of U.S. equity strategy.

“This surprisingly high level of bullishness supports our own view that we haven’t yet seen investor capitulation, echoing what we’ve seen in other data sets. We view capitulation as a necessary, though not sufficient condition for stock market bottoms in major drawdowns” she added in a note to clients last week.

These bullish investors believe that the Federal Reserve will continue supporting the economy with its zero-interest-rate policy and the $700 billion quantitative easing plan. They also believe that the economic impact of the coronavirus pandemic will be “manageable.”

The 58% “bullish” or “very bullish” reading is the highest the RBC U.S. Equity Investor Survey has had since it debuted in early 2018.

Perhaps the most surprising data from the survey shows that despite the record-level of bullish optimism, a significant number of respondents believe there’s still plenty of pain to be doled out by the market.

Possible Outlooks

Only 19% of those surveyed believe the market hit bottom in the first quarter. Meanwhile, 57% believe that we are going to see the market head lower and reach a new bottom this quarter. Additionally, 15% don’t anticipate stock bottoming until Q3 2020. The 9% of those surveyed believe we won’t see the bottom until Q4 2020 or later.

And despite all the chatter in the news about a quick economic recovery once new cases of coronavirus plateau, the RBC survey shows that investors aren’t quite as optimistic as some may hope.

Only 19% of respondents believe we will get a “V”-shaped recovery. 41% believe that we will see a ‘W’-shaped recovery and 35% see the country going through a slower “U”-shaped recovery.

Some banks on Wall Street are expecting massive GDP contracting as high as 30% during the second quarter. Those responding to the survey, however, weren’t quite so bearish.

Most believe that the country’s GDP won’t contract by more than 20% in any quarter. They also think that if we do get a recession, it will end in the fourth quarter.

It could be more bad news for the market if those numbers end up worse than predicted.

“If evidence that the most negative GDP quarter will be worse than 20% and that the contraction will last beyond 3Q emerges, it is likely to destabilize the market,” the RBC strategists wrote. “If evidence emerges that the impact will be less severe, it can help the stock market stabilize and move higher” they added.

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