|Day's range||28,843.31 - 29,288.79|
|52-week range||24,323.94 - 29,373.62|
A phase one U.S.-China trade deal, improving global growth signals and fading Brexit uncertainties have lulled many investors into believing the biggest economic risks have been taken fully off the table, according to Deloitte U.S. CEO Joe Ucuzoglu.
President Donald Trump has been cheering his new trade deal with China, calling it “momentous step” toward “a future of fair and reciprocal trade.” But global investors increasingly see China itself as the future.
On the downside, the key angle to watch into the close comes in at 28788. The Dow stopped just about this angle earlier today.
Based on the early price action and the current price at 29080, the direction of the March E-mini Dow Jones Industrial Average futures contract the rest of the session on Thursday is likely to be determined by trader reaction to the 50% level at 29050.
Skybridge Capital co-CIO Troy Gayeski weighs in on the markets from inside the World Economic Forum.
Global markets rebound after virus-related fears subside. Risk is still present so traders should be cautious with equity markets trading at all-time highs.
(Bloomberg) -- In many ways, Mexican President Andres Manuel Lopez Obrador has been just about as toxic for investors as his detractors warned he would be. Stocks have badly underperformed during his 14-month tenure, the state-owned oil company had its credit rating cut to junk and economic growth is stagnant at best.But there’s one corner of the market where the leftist leader has proven to be a staunch ally of investors, handing them a windfall that few anticipated: the carry trade. Investors following the typical strategy of borrowing cheaply in dollars and then plowing the proceeds into short-term peso notes have notched returns of 16% since the president’s inauguration in December 2018, far and away the best performance among major currencies. (The Canadian dollar is No. 2, with a mere 1% return in that span.) Lured by both the stability of the peso and Mexico’s high interest rates, investors keep piling in to the trade. Bullish positions on the peso are now near a record.The genesis for much of this appears to be Lopez Obrador’s obsession with the currency. It’s become his real-time tool to gauge the state of the economy and investors’ perception of his administration, not unlike the way U.S. President Donald Trump fixates on the Dow Jones Industrial Average. Early every morning, Lopez Obrador checks the latest market snapshot, and then, if he detects any significant price action, will point it out in glowing terms to the broad national audience that tunes into his daily news conference. The peso is up 8.4% since he took office, a rally driven in part by the surprisingly conservative budget bills he’s submitted to congress the past two years.To investors, a president so wrapped up in the day-to-day fluctuations of the peso is one that is unlikely to allow a rout.“The administration has been very market conscious,” said Danny Fang, a strategist at BBVA in New York who says that the low volatility Lopez Obrador fostered has helped the carry trade. “When the U.S. threatened tariffs over immigration, which shook the Mexican peso, the AMLO government responded almost immediately. When market volatility increased, we often heard officials address it.”The president, of course, isn’t alone in influencing the scope of carry-trade returns. The central bank’s decision to take a very gradual approach to cutting the benchmark rate -- it’s down to 7.25% from 8.25% shortly after he came to office -- is arguably the most important factor. But even there, Lopez Obrador has played a key role, opting not to meddle, as some feared he would, and to largely stay out of the central bank’s way as it moved hesitantly to cut rates and boost the economy.The peso’s three-month volatility is near the lowest level since 2014 and the currency has strengthened 8.5% since Lopez Obrador took office, ranking it tops among emerging-market peers in that span. Some of the gain is simply a reversal of the heavy losses seen in the leadup to the inauguration, when investors fretted that the left-wing populist firebrand would upend Latin America’s second-biggest economy.While some of the concerns proved well founded -- Lopez Obrador shocked investors by canceling an airport project in Mexico City, capital investment has fallen for nine straight months and in 2019 the economy created the fewest jobs since the global recession -- the widespread disaster that some predicted hasn’t materialized. In fact, Mexico has proven to be a beacon of stability in a region beset by political turmoil in Chile, Peru, Argentina and Brazil.For many, the stability undergirding the carry trade is surprising, and of course risks still abound. While oil company Pemex has shown early signs of steadying production declines and investors eagerly snapped up its latest debt offering, the company is struggling with over $100 billion in debt and may yet be hit by a downgrade and subsequent forced bond sell-off. Economic expansion has been sluggish under Lopez Obrador, and the central bank is expected to continue cutting rates amid slow inflation and low growth. Bank of America expects a pickup in volatility in the second half.Edwin Gutierrez, a London-based portfolio manager at Aberdeen Asset Management, says that the popularity of the carry trade makes it dangerous over the longer term. There’s a risk that investors could get spooked and rush to leave all at once, resulting in a sudden rout in Mexican assets.“Positioning has been heavy for a while,” he said. “That’s the biggest risk to the trade.”So far, it seems like most investors aren’t too concerned. Bullish peso positions are hovering near a record high, according to data published by the CFTC. Foreign purchases of peso-denominated assets have picked up recently, with overseas holdings of local notes climbing to a five-month high last month, according to data from the central bank.One-month implied volatility -- expectations of future price swings -- plunged in the fourth quarter as Mexico, Canada and the U.S. approved a final version of the USMCA trade deal. Fears about a possible downgrade for state oil company Petroleos Mexicanos -- better known as Pemex -- have also faded.At least in the short term, carry-trade bulls are in control. The peso will depreciate just a little over 2% by the end of the year, according to the median forecast of analysts surveyed by Bloomberg. And the most recent comments from central bank officials suggests there’s no rush to accelerate the pace of interest-rate cuts.“The Mexican peso stands out as a currency that offers very high carry for reasonably low volatility,” said Carlos Carranza, an analyst at JPMorgan Chase & Co. who was the top forecaster for Latin American currencies in the fourth quarter. “Mexico offers value.”\--With assistance from Sydney Maki.To contact the reporter on this story: Justin Villamil in Mexico City at email@example.comTo contact the editors responsible for this story: Carolina Wilson at firstname.lastname@example.org, ;David Papadopoulos at email@example.com, Brendan WalshFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Bank of America Merrill Lynch strategist Savita Subramanian explains why investors might be too bullish to start 2020.
Guggenheim Partners' Scott Minerd says the Fed's actions last year are similar to rate cuts from the '90s, which inflated internet stocks.
A strong domestic economy could springboard President Donald Trump to a second term in the White House, said private equity leader David Rubenstein, founder and co-executive chairman of the The Carlyle Group.
(Bloomberg Opinion) -- In 1999, James Glassman and Kevin Hassett created a sensation with their book “Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market.” The authors, who viewed stocks as undervalued, predicted the Dow Jones Industrial Average would quadruple in three to five years. Reviewing it at the time, I wrote, “The only thing missing from this halftime speech of an investment book is the exhortation to buy stocks for the Gipper.”Their headline assertion, of course, never came to pass; 1999 was the peak of the biggest bubble in U.S. stock market history. Stocks fell 44% in real terms over the next few years, then rose to almost 1999 real levels in 2007 before falling 50% in the financial crisis. The Dow has only recently hit 29,000, 25% short of 36,000 after 20 years.Although the book became a symbol of late 1990s mania,(1)its primary message — stocks return more than bonds and are less risky over long periods — is worth exploring. From the perspective of 20 years, it doesn’t look as silly as it did at the market bottoms in 2002 and 2009, but it still doesn’t fully make its case.Consider this hypothetical: Suppose at the end of 1999 an eccentric uncle gave a $36,000 portfolio of government bonds(2)to his nephew Fred and $11,497 — the level of the Dow at the time — of stocks to his niece Ginger. If the true value of the Dow were $36,000, as Glassman and Hassett essentially asserted, these should have been equal gifts.Over the subsequent 20 years, Fred received $26,000 of interest while Ginger received only $5,000 in dividends. But Ginger also received the indirect benefit of $7,250 of retained earnings, which the market thinks were reinvested to create an additional $7,250 of value. Given that interest income is fully taxable while dividends and capital gains have favored tax rates for some investors, Fred’s $26,000 might not be much different from Ginger’s $19,500 after taxes.If “Dow 36,000” is viewed as a prediction of investor opinions, it was decisively wrong. But if you take it as an assertion of long-term economic value, it may have been in the ballpark: $5,000 of Ginger’s return is hard cash; $7,250 is accountants’ opinions of her economic gain; and $7,250 is investor opinion about the returns earned on reinvested equity. That’s the least solid part of the estimate, but even if the market is off by 50% in either direction on that $7,250, that $36,000 in government bonds and $11,497 of stock might have had roughly similar after-tax results over 20 years.(3)Cash-to-cash comparison of $36,000 in government bonds in 1999 and $11,497 of stock depends on the choice of securities, the reinvestment of cash flows, taxes and 2020 stock market valuations. Cash-flow analysis makes “Dow 36,000” seem optimistic but not crazy.Nevertheless, the core thesis of “Dow 36,000” is wrong for three reasons. First, there are almost no pure long-term investors. Nearly everyone feels the pain when their portfolios crash 50% or more, and most people — including at least one author of “Dow 36,000” — sell at the wrong time as a result. Nearly everyone needs money in the short or medium term sometimes. Even if you are 100% sure stocks will provide more total after-tax real cash flow over 20 years than bonds, there is psychological and financial value to portfolio stability.Second, investors can’t be 100% assured that stocks will provide more real return than bonds, even over very long periods. That idea arose studying the U.S. in the 20th century, an exceptional one for stocks. (Even then, government bonds outperformed stocks over some periods, such as 1901 to 1932.) And although data from the 19th and 21st centuries, and non-U.S. stocks markets (including those markets wiped out by World War I, World War II or revolution), suggest that stocks are probably the best bet for the long run, there is no guarantee.Finally, while first-generation quantitative valuation models tended to assume investors demanded high expected returns on stocks to compensate for their volatility, subsequent research suggests that the return premium is mainly for the exceptionally bad performance that stocks give at the worst financial times. Because this seems likely to be true for stocks in the future, there seems little reason for investors to change their valuation principles over the next few years, or even the next few decades. The fundamental economic value of stocks based on cash flows may be triple their market prices, but investors would have to hold them over decades through thick and thin to realize that economic value. They won’t collect by selling to other investors anytime soon.“Dow 36,000” is not as comically wrong as it looked in 2002 or 2009. It makes one important point: Even buying at the all-time peak valuations in December 1999, the increasing stream of cash flow from holding stocks pays off over a long-enough period. Low-cost, well-diversified index funds of equities remain the main tool for most individual investors to earn their way to financial security. But the book misses one equally important point: Equity risk is real.(1) Glassman reversed himself and wrote “Safety Net,” advising investors to sell their stocks, move their money outside the U.S., buy bonds and short the market. Timing was against him again as the stock market proceeded to stage the longest bull market in history.(2) Equally weighted among six-month, one-year, three-year, five-year, seven-year, 10-year and 20-year securities; with maturing principal reinvested at the same maturity(3) This took place over 20 yearsin which stocks underperformed history (4.7% average annual real return compared with 8.5% for 1871 – 1999) and bonds outperformed (3.3% compared with2.9%). In an average 20 years for the two asset classes, Ginger might be significantly better off than Fred despite getting a gift worth less than a third as much in 1999.To contact the author of this story: Aaron Brown at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of "The Poker Face of Wall Street." He may have a stake in the areas he writes about.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Given the prolonged move up in terms of price and time, the direction of the March E-mini Dow Jones Industrial Average on Monday is likely to be determined by trader reaction to Friday’s close at 29279.
The better-than-expected economic data demonstrated the resilience of the U.S. consumer in keeping the current economic expansion alive, and the solid corporate earnings from U.S. banks points toward the importance of the Fed holding interest rates at favorable price levels.
A former Trump administration official says markets would prefer Joe Biden over more left wing Democrats who are running for president but that analysts and investors are overreacting.
(Bloomberg) -- In the court of investor opinion, the verdict is in. The Federal Reserve is guilty of quantitative easing.Never mind that Chairman Jerome Powell tells everyone his efforts to shore up funding markets are “in no sense” QE. Try as policy makers may, they’ve lost the ability to convince people that Treasury purchases aren’t at least partially why the Dow Jones Industrial Average is up almost 4,000 points since late August.Sure, it’s all labels. If you want to call it QE, you can. Or not. If you want to ascribe the rally to Powell, that’s up to you. Certainly the Fed thinks it’s on solid ground. Rather than trying to drive down long-term interest rates to stimulate the economy, a la QE, it’s simply buying T-bills to keep the financial system’s plumbing in order.The problem for policy makers is that perceptions matter in shaping sentiment. If everyone believes central bank largess is pushing up prices, what happens in the market when it’s turned off?“Whether the Fed’s liquidity injection impacted directly the economy or the pricing of assets or not, it’s certainly true that a lot of people think it did,” said Jim Paulsen, Leuthold Group Inc.’s chief investment strategist. “Whether anything is going to change if the Fed takes it away doesn’t matter. If enough people feel it will, then it’s going to impact markets.”In October, the Fed began buying $60 billion of Treasury bills per month, a move policymakers deemed as a “purely technical” way to improve control over the benchmark interest rate they use to guide monetary policy. Monthly purchases of Treasury bills will extend at least into the second quarter of 2020, officials reiterated last month.“Growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis,” Powell said when the program started.Except, the market’s straight-up trajectory is muddying efforts to distinguish the new program from the old one. The S&P 500 has soared 16% since its low in August, including the best fourth-quarter rally in six years. Inconveniently for Powell, even his lieutenants say the reaction in stocks isn’t coincidental.Low interest rates, a belief there is a high bar to future increases and expansion of its balance sheet are helping to lift asset prices, according to Dallas Fed President Robert Kaplan. “All three of those actions are contributing to elevated risk-asset valuations,” he said Wednesday on Bloomberg Television. “We ought to be sensitive to that.”The ranks of market pundits who agree seems to expand every day. Since the Fed started buying T-bills, the S&P 500 has gone up by almost 1% for every 1% increase in the Fed’s balance sheet, Deutsche Bank observed.“So in that sense, Fed balance sheet expansion has at least been correlated with the increase in the stock market we have seen since October,” Torsten Slok, chief economist at Deutsche Bank AG, said in a Bloomberg Radio interview earlier this month.QE refers to the crisis-era policy to boost money supply and lower long-term borrowing costs. It helped pull the economy back from the brink of ruin after the financial crisis. Three rounds of easing programs helped the stock market too, coinciding with a fivefold rally in equities.Data compiled by Bloomberg Intelligence show prior balance-sheet expansions were correlated with stock market gains, too. Through the latest cycle, the S&P 500 notched an annualized gain when the balance sheet was getting bigger that was 5.4 percentage points more than when the central bank was not buying Treasuries, data compiled by Gina Martin Adams, Chief Equity Strategist at Bloomberg Intelligence, show. Every time the central bank has mentioned trimming its holdings, a major equity correction followed, she said.In 2011, hints from the Fed that it wouldn’t expand its asset purchase program preceded a 19% drop in the S&P 500. In 2015, talk of balance-sheet shrinkage came before a 12% decline. In late 2018, a comment about a balance sheet unwind on “autopilot” coincided with the near death of the bull market.Skeptics say equating quantitative easing with the current program, where the Fed buys short-term debt, is extreme, as is believing that $60 billion worth of monthly Treasury bill purchases (and sundry other stimulus) holds sway over the direction of a $30 trillion U.S. stock market. Nevertheless, the wind-down of monthly purchases is the biggest risk facing investors face in 2020, strategists at John Hancock Investment Management said in December.“Powell went out of his way to explain that it wasn’t QE, but it doesn’t really matter,” said Krishna Memani, former vice chairman of investments at Invesco. “The Fed is in a bind. Effectively with policy initiatives they have, they have to increase reserves, and investors are aware of that. They will be in that mode for the foreseeable future.”\--With assistance from Sarah Ponczek.To contact the reporter on this story: Elena Popina in Hong Kong at firstname.lastname@example.orgTo contact the editors responsible for this story: Brad Olesen at email@example.com, Chris NagiFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
President Donald Trump on Thursday officially nominated former economic adviser Judy Shelton and St. Louis Fed economist Christopher Waller to the remaining two seats at the Fed.
The nearest upside targets are a pair of uptrending Gann angles at 29217 and 29315. This angles can continue to guide the Dow higher, but crossing to the strong side of these angles will put the market in an extremely bullish position.