Tag Archives: Markets

Stocks End Eight-Week Winning Streak With Tax Reform in Limbo

So the stock market actually can go down.

U.S. equities posted the first weekly loss in more than two months as investors turned leery after congressional Republicans made little progress in passing tax cuts. Shares that would benefit most from a lower levy burden led declines, though selling spread to economically sensitive stocks as credit markets flashed warnings signs about the pace of growth.

“Doubt starts to creep into investors’ minds about what the tax plan is going to be,” said Mark Kepner, managing director and equity trader at Themis Trading LLC in Chatham, New Jersey, noting the market still looks good, regardless. “This week’s dip is a healthy retreat given the rally we’ve had so far.”

The S&P 500 Index slumped 0.2 percent in the five days, finishing at 2,582.3. The bulk of the losses came in the final two sessions after the gauge closed at a fresh record high Wednesday, six points shy of 2,600. Small caps in the Russell 2000 Index fell 1.3 percent for a third week of declines. The Cboe VIX Index rose 23 percent, the most since the five days ended Aug. 11.

The S&P 500’s failed run at a new round-number milestone added to selling pressure Thursday, as investors concerned about the prospects for tax cuts took the chance to get out of an equity market that has gone longer than ever without a slump of 3 percent. 

While analysts debate how much the market has priced in tax reform, stocks reacted to headlines indicating cuts might not be as deep or come as soon as expected. The Senate’s version issued Thursday departed in meaningful ways from the House’s, especially on the timing for corporate tax cuts. That exacerbated weakness in small caps, which are poised to benefit most from a corporate tax reduction.

Bank stocks also took a hit, ending the week down more than 4 percent, as lower corporate taxes that bolster investment would be boon to lenders. Adding to troubles for the banks was the flattest yield curve in a decade, which would wear on already weak interest income at the nation’s largest lenders. At the same time, high-yield corporate bonds tumbled in the week, with yields spiking for some of the riskiest debt. An exchange-traded fund that tracks junk debt had its worst week since August.

Even with the first decline in weeks, strategists underline the fact that this week was far from awful. The S&P 500, Nasdaq, and Dow Jones Industrial Average all hit fresh highs Wednesday, but with most U.S. companies done reporting earnings and almost all bears already having turned bulls, the market may be short of reasons to continue the upward march for now.

“The uncertainty over the tax reform weighs on the market, but technically the market was prone for a pause as investor sentiment has been very optimistic for quite some time,” said Bruce Bittles, chief investment strategist at Robert W Baird. “The S&P isn’t much lower than where it was last Friday, I wouldn’t expect a major surprise to the downside as long as the interest rates in the long end of the curve behave.”

And while the Russell 2000 has fallen more than 2 percent in the past three weeks as tax reforms chances have dimmed, there are signs the selling may have peaked. The cost to hedge against losses in an exchange-traded fund tracking the smaller companies is at the lowest level since March.

Still, the selling later in the week unnerved investors who’ve grown accustomed to one of the calmest markets in history. Volatility rushed back, with the VIX, a gauge which uses options-trading data to measure implied volatility of S&P 500 stocks, ending the week just above its 2017 average after hitting a record low just last week.

This could be the beginning of a push to move back to normal from a year that has been characterized by freakish calm, according Eric Aanes, President of Titus Wealth Management in California.

“It’s just been calm, dead, the VIX is at all-time lows of history and now all of a sudden in the past couple days it’s spiking up,” he said by phone. And as long as tax reform contention continues, volatility could be here to stay.

“Is it going to spike up back to normal? Is it going to drop back down into calmness again? We don’t think so,” Aanes said. “The VIX spiking up is starting to tell the market things are not OK, and we need to have some serious caution moving forward.”

    Read more: http://www.bloomberg.com/news/articles/2017-11-10/eight-week-stock-market-rally-ends-with-tax-jitters-on-the-rise

    Gundlach’s Stock Market Warning Comes True

    Jeffrey Gundlach has been warning something’s got to give. Based on the past two days, looks like we have our answer.

    Stocks fell around the world a second day and high-yield bonds headed for a fourth straight loss, resuming a historic correlation that the hedge fund manager on Wednesday had warned was alarmingly out of whack. 

    “JNK ETF down six days in a row, closing near its seven month low,” the DoubleLine Capital LP co-founder wrote on Twitter Wednesday. “SPX up five of last six days, closing at an all time high. Which is right?”

    With high-yield bonds and the tech-heavy index of Nasdaq 100 stocks moving in tandem for most of their history, a recent breakdown in correlation suggests the selloff gripping junk is set to spread farther. True to Gundlach’s warning, Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google owner Alphabet Inc. — collectively known as the FAANGs — are tumbling too.

    As prospects for meaningful U.S. fiscal reform faded Thursday, the Nasdaq 100 fell 0.5 percent while the Bloomberg Barclays US Corporate High Yield Bond Index fell 0.4 percent to its lowest point in nearly two months. Previously, the mega-cap index had gained 1.5 percent since the start of the month while the high yield index fell 0.4 percent.

    “A material pullback would be something we need to watch for, as a deteriorating credit market has led each of the largest equity pullbacks since 2014,” said Frank Cappelleri, a senior equity trader and market technician at Instinet LLC. “With divergences once again apparent now, the bulls face their latest test.”

    Though one day of trading doesn’t make for a trend, that they both declined was an ominous sign that junk bonds may pull down equities further. Leading up to Thursday, one-month correlations between the Nasdaq 100 and SPDR Bloomberg Barclays High Yield Bond ETF, ticker JNK, had reached its lowest level since 2014.

    In the past decade, there were only three other instances where the relationship between JNK and mega-cap tech broke down to this degree. Each time, the two assets began to resume their positive correlation within four to 12 days, data compiled by Bloomberg show.

    As for Gundlach, he took to Twitter Thursday to express his validation.

      Read more: http://www.bloomberg.com/news/articles/2017-11-10/gundlach-s-warning-comes-true-with-ominous-faang-junk-bond-link

      Stocks, Dollar Fall on Senate Tax Plan Concerns: Markets Wrap

      U.S. stocks stumbled Thursday, with losses widening after the Senate revealed that its tax plan would delay cuts to the corporate rate until 2019. Treasuries turned higher and the dollar extended losses.

      All major U.S. equity gauges fell, with selling heaviest in technology shares that had been on a 10-day surge. Semiconductor stocks tumbled after Intel Corp. hired away a key executive at Advanced Micro Devices Inc. to run its new graphics chip business. 

      “The market wants to see tax cuts this year,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management in Dallas. “That’s the reason were seeing the selloff now.”

      The bond market took its main cue from technical factors, as sovereign debt halted a rally that started two-weeks ago. Corporate credit faltered amid a glut of year-end issuance, with the starkest declines coming among the lowest-rated companies. Volatility spiked as investors appear to be growing increasingly pessimistic about the prospects for meaningful fiscal reform with both houses of Congress struggling to put forward tax proposals that have reasonable chances of becoming law.

      “Policy makers hope to pass a tax plan by Thanksgiving,” said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank. “But the looming political trade-offs and divergence in House and Senate proposals argue this deadline is nothing short of a holiday miracle.”

      European equities fell the most since August as basic-resources shares dropped following a decline in industrial-metals prices. Inflation concerns also crept into markets, as the European Commission was the latest authority to raise growth forecasts. Sterling fluctuated amid a resumption in Brexit talks, while oil looked to halt a two-day drop.

      President Donald Trump wrapped up his visit to Beijing with little in the way of trade concessions and no agreement on how to handle North Korea. It’s been a year since Trump’s election win and investors are taking stock of his promises to get tough on trade, cut taxes and slash regulations. Meanwhile, reports of fresh arrests in Saudi Arabia’s crackdown on corruption added to geopolitical concerns.

      Terminal users can read more in our Markets Live blog.

      Here are the key events investors are watching:

      • The Philippines’ central bank announced its rate decision.
      • A number of central bankers were scheduled to speak Thursday, including the ECB’s Benoit Coeure, Yves Mersch, Vitro Constancio and Villeroy de Galhau and Sabine Lautenschlager.

      And these are the main moves in markets:

      Stocks

      • The S&P 500 Index fell 0.4 percent to 2,584.62, while the tech-heavy Nasdaq 100 Index dropped 0.5 percent.
      • The Stoxx Europe 600 Index sank 1.1 percent, the biggest decrease since July. 
      • The MSCI Asia Pacific Index gained 0.1 percent to the highest in about 10 years.
      • The MSCI Emerging Market Index dipped 0.1 percent.

      Currencies

      • The Bloomberg Dollar Spot Index declined 0.3 percent. 
      • The euro gained 0.4 percent to $1.1644, the largest increase in a two weeks. 
      • The British pound rose 0.2 percent percent to $1.3148. 
      • The Japanese yen gained 0.4 percent to 113.37 per dollar.

      Bonds

      • The yield on 10-year Treasuries fell less then 1 basis point to 2.3292 percent.
      • Germany’s 10-year yield climbed five basis points to 0.375 percent.
      • Britain’s 10-year yield advanced four basis points to 1.265 percent.

      Commodities

      • West Texas Intermediate crude increased 0.5 percent to $57.07 a barrel.
      • Gold gained 0.4 percent to $1,286.14 an ounce, the highest in three weeks.
      • Copper fell 0.3 percent to $3.09 a pound, the lowest in a month.

        Read more: http://www.bloomberg.com/news/articles/2017-11-08/u-s-stocks-rally-set-to-support-asia-kiwi-jumps-markets-wrap