All major U.S. indices finished last week in positive territory, led by the Russell 2000 and Nasdaq 100. As I said in last week’s report, this is always a near-term positive sign for the overall market as small-cap and technology stocks typically lead the S&P 500 both higher and lower. #-ad_banner-#​Outperformance by these areas of the market indicates that investors are in a “risk on” mode and are willing to buy riskier, more volatile stocks to capture a better return. Last week’s strong performance by the Russell 2000 puts it back into positive territory year to date for the first… Read More

All major U.S. indices finished last week in positive territory, led by the Russell 2000 and Nasdaq 100. As I said in last week’s report, this is always a near-term positive sign for the overall market as small-cap and technology stocks typically lead the S&P 500 both higher and lower. #-ad_banner-#​Outperformance by these areas of the market indicates that investors are in a “risk on” mode and are willing to buy riskier, more volatile stocks to capture a better return. Last week’s strong performance by the Russell 2000 puts it back into positive territory year to date for the first time since April 4. There, it joins the other major U.S. indexes, led by the Nasdaq 100, which is up 5.6% in 2014.  From a sector standpoint, last week’s broad market advance was led by industrials (+2.3%), financials (+2.3%) and consumer discretionary (+1.9%). Meanwhile, defensive sectors like health care and consumer staples were relatively weak.  Recent Breakouts Point to More Near-Term Strength In the May 27 Market Outlook, I said the rise above 3,617 in the Nasdaq 100 “clears the way for more near-term strength and a potential 2% rise to retest the 3,738… Read More

While I am not a “perma-bear” by any means, I must admit that I’ve been perplexed by this unrelenting, “to the moon” bull market, which hasn’t really cooled off since it began over five years ago. #-ad_banner-#New highs are the norm now, with the market shrugging off bad news and eating up any bit of good news. Nearly every index is outperforming, many without so much as a small pullback here and there. But notice that I said “nearly” — one index group in particular has recently cooled off, which makes me think that others could… Read More

While I am not a “perma-bear” by any means, I must admit that I’ve been perplexed by this unrelenting, “to the moon” bull market, which hasn’t really cooled off since it began over five years ago. #-ad_banner-#New highs are the norm now, with the market shrugging off bad news and eating up any bit of good news. Nearly every index is outperforming, many without so much as a small pullback here and there. But notice that I said “nearly” — one index group in particular has recently cooled off, which makes me think that others could follow suit by the end of this year. I’m talking specifically about indices made up of stocks with smaller market caps. It’s well known that small-cap stocks perform better than their larger counterparts over time, especially coming out of a recession, when growth is easier to come by. However, when the market slows down and investors turn to large-cap stocks for stability and dividends, small-caps are the first to get snubbed. Any downturn following that peak often sees small-caps getting beaten up at close to the same rate they grew in the first place. In the… Read More

A long period of slow economic growth and dormant inflation has led to almost universal complacency.  #-ad_banner-#Everyone continues to repeat the same mantra that the Federal Reserve will continue to support the economy through ultra-low interest rates well into the future. Yet beneath the surface, the economy is beginning to rumble, and such a benign view can catch the market off guard. And as soon as June 6, the investor chatter may start to take on a very different tone. That day will bring the all-important monthly employment report, which is likely to produce a gain of at least 200,000… Read More

A long period of slow economic growth and dormant inflation has led to almost universal complacency.  #-ad_banner-#Everyone continues to repeat the same mantra that the Federal Reserve will continue to support the economy through ultra-low interest rates well into the future. Yet beneath the surface, the economy is beginning to rumble, and such a benign view can catch the market off guard. And as soon as June 6, the investor chatter may start to take on a very different tone. That day will bring the all-important monthly employment report, which is likely to produce a gain of at least 200,000 net new jobs for the fourth month in a row. The four-week moving average of weekly unemployment claims has moved to its lowest level in seven years, underscoring the improving health of the job market. Yet economists at Deutsche Bank think the forward view is more important. They looked at a series of recent economic data points and then took a fresh look at the current 6.3% national unemployment rate. Their conclusion: “Based on its current trajectory, the rate should fall significantly further over the next year and a half.”  Quite suddenly, the U.S. economy is shaping up to… Read More

All major U.S. indices finished last week in positive territory, led by the Nasdaq 100. This is a positive near-term factor for the overall market because technology stocks typically lead the broader market both higher and lower. For 2014, all major indices are in positive territory except for the small-cap Russell 2000, which is down 2.5%. #-ad_banner-#Despite the strong showing from the Nasdaq 100, the three strongest sectors last week were all defensive ones: utilities (+2.4%), consumer staples (+1.7%) and health care (+1.3%). This suggests investor apprehension that, should it continue, may lead into an overdue corrective decline later this… Read More

All major U.S. indices finished last week in positive territory, led by the Nasdaq 100. This is a positive near-term factor for the overall market because technology stocks typically lead the broader market both higher and lower. For 2014, all major indices are in positive territory except for the small-cap Russell 2000, which is down 2.5%. #-ad_banner-#Despite the strong showing from the Nasdaq 100, the three strongest sectors last week were all defensive ones: utilities (+2.4%), consumer staples (+1.7%) and health care (+1.3%). This suggests investor apprehension that, should it continue, may lead into an overdue corrective decline later this summer. Russell 2000, Google Still Key to Market Direction In the May 19 Market Outlook, I pointed out that the Russell 2000 had just tested and held major support at 1,083, saying, “As long as the Russell remains above it this week, I would view this level as a potential springboard for a new leg higher in the overall market.”   The index has since risen as expected, by about 6% into last week’s highs. The benchmark S&P 500 has risen by 3% to new all-time highs during that time. The chart shows the Russell… Read More

All major U.S. indices were higher last week, led by the previously downtrodden Nasdaq 100 (+2.5%) and Russell 2000 (+2.1%). Both of these market-leading indices must continue to outperform the broad market S&P 500 if last week’s strength is going to become the next leg higher within the larger 2013 stock market advance. The major indices are now all in positive territory for 2014 except for the small-cap Russell 2000, which ended last week down 3.2% for the year. #-ad_banner-#From a sector standpoint, my own asset flow-based metric shows the largest inflow of investor assets over the past week went… Read More

All major U.S. indices were higher last week, led by the previously downtrodden Nasdaq 100 (+2.5%) and Russell 2000 (+2.1%). Both of these market-leading indices must continue to outperform the broad market S&P 500 if last week’s strength is going to become the next leg higher within the larger 2013 stock market advance. The major indices are now all in positive territory for 2014 except for the small-cap Russell 2000, which ended last week down 3.2% for the year. #-ad_banner-#From a sector standpoint, my own asset flow-based metric shows the largest inflow of investor assets over the past week went into consumer discretionary, which led all sectors with a 2.1% gain. The utilities sector had the biggest outflow of investor assets and, as would be expected, was the only sector to lose ground for the week. Is Technology Leading the Blue-Chip Stocks Higher? Beginning in the April 21 Market Outlook, and again in several subsequent issues, I have been discussing overhead resistance at 3,617 on the Nasdaq 100 and stating that a rise above this level was necessary to indicate that this market-leading technology index’s larger November 2012 advance was resuming.  After negotiating this… Read More

There are so many issues to ponder about the proposed link-up between AT&T (NYSE: T) and DirecTV (NYSE: DTV) that it’s hard to know where to begin. But let’s start with short sellers.  #-ad_banner-#For nearly a year now, a growing number of investors have become convinced that steady-as-she-goes AT&T was drifting into oblivion. By the middle of April, the short position in this stock had reached 197 million.  Though the short position shrank by 12 million two weeks later, AT&T was still the most heavily shorted stock on the New York Stock Exchange — by a very wide margin. (AMD… Read More

There are so many issues to ponder about the proposed link-up between AT&T (NYSE: T) and DirecTV (NYSE: DTV) that it’s hard to know where to begin. But let’s start with short sellers.  #-ad_banner-#For nearly a year now, a growing number of investors have become convinced that steady-as-she-goes AT&T was drifting into oblivion. By the middle of April, the short position in this stock had reached 197 million.  Though the short position shrank by 12 million two weeks later, AT&T was still the most heavily shorted stock on the New York Stock Exchange — by a very wide margin. (AMD (NYSE: AMD) is next at 115 million shares.) One of the key concerns for shorts: AT&T’s inability to sustain its dividend. I looked into AT&T’s myriad challenges two months ago, noting that “simply maintaining the dividend will eventually push the payout ratio above 100%.” In announcing the deal, AT&T’s management was quick to suggest that DirecTV’s impressive cash flow will help AT&T support its dividend (currently yielding 5%).  DirecTV generates around $8 billion a year in EBITDA (earnings before interest, taxes, depreciation and amortization), and a little less than $7 billion after interest expenses are covered. DirecTV also spends more… Read More

The major indices were mixed last week, with the Dow industrials and Russell 2000 showing losses, the S&P 500 unchanged, and the recently downtrodden Nasdaq 100 posting a modest gain of 0.9%. The tech-heavy Nasdaq 100 must continue to outperform the S&P 500 from here, ideally accompanied by outperformance by the small-cap Russell 2000, if the current 2013 advance is to remain intact and begin a new leg higher. #-ad_banner-#From a sector standpoint, my own asset flow-based metric shows that the largest inflow of investor assets over the past week, month and quarter has been into energy, despite the sector’s… Read More

The major indices were mixed last week, with the Dow industrials and Russell 2000 showing losses, the S&P 500 unchanged, and the recently downtrodden Nasdaq 100 posting a modest gain of 0.9%. The tech-heavy Nasdaq 100 must continue to outperform the S&P 500 from here, ideally accompanied by outperformance by the small-cap Russell 2000, if the current 2013 advance is to remain intact and begin a new leg higher. #-ad_banner-#From a sector standpoint, my own asset flow-based metric shows that the largest inflow of investor assets over the past week, month and quarter has been into energy, despite the sector’s modest weakness last week. As long as this positive asset flow continues, the recent trend of relative outperformance by energy, which has beaten the S&P 500 by 7% since February, is likely to continue into the third quarter. Friday’s Rebound in Small Caps May Be a Good Sign In the April 28 and May 5 Market Outlooks, I discussed minor overhead resistance at 3,617 in the Nasdaq 100, and said that this market leading-technology index needed a sustained rise above this level to help power the broader market to fresh highs. The 3,617 level continues to… Read More

Although the U.S. stock market was generally stable last week, the tone remained cautious as the defensive Dow Jones Industrial Average was the only major index to post a gain, and that of just 0.4%. #-ad_banner-#As has been the case for much of the past two months, the tech-laden Nasdaq 100 and small-cap Russell 2000 were the weakest indices, losing 0.9% and 1.9%, respectively. These two market leading indices must begin to get some traction, and soon, if the broader market is to avert — or at least postpone — a summer correction. Nasdaq Composite Likely to… Read More

Although the U.S. stock market was generally stable last week, the tone remained cautious as the defensive Dow Jones Industrial Average was the only major index to post a gain, and that of just 0.4%. #-ad_banner-#As has been the case for much of the past two months, the tech-laden Nasdaq 100 and small-cap Russell 2000 were the weakest indices, losing 0.9% and 1.9%, respectively. These two market leading indices must begin to get some traction, and soon, if the broader market is to avert — or at least postpone — a summer correction. Nasdaq Composite Likely to Lead the Next Trend The sideways movement in the U.S. stock market this year doesn’t make for splashy headlines, but it does indicate investor indecision, which is where new price trends begin. The key to investing in this type of environment is being able to identify when the market makes that shift from indecision back to conviction, and right now one of the best indices to watch is the Nasdaq Composite. The Nasdaq Composite is situated right between major support at 3,990 to 3,980, which represents the 200-day moving average (major trend proxy) and Dec. 18 and Feb. 5… Read More

We are truly in the golden age of cash flow. #-ad_banner-#Corporate profit margins have been so strong in recent years that companies have been pulling in large sums of cash every quarter. In the first few years after the economic crisis of 2008, companies sought to hoard their cash, but starting around 2010, growing share buybacks and rising dividends became the name of the game. Companies now dole out almost as much as they take in, leaving cash balances fairly static. That’s fine: Companies are well-cushioned against the next (and inevitable) economic downturn. And with cash flow continuing to pour in… Read More

We are truly in the golden age of cash flow. #-ad_banner-#Corporate profit margins have been so strong in recent years that companies have been pulling in large sums of cash every quarter. In the first few years after the economic crisis of 2008, companies sought to hoard their cash, but starting around 2010, growing share buybacks and rising dividends became the name of the game. Companies now dole out almost as much as they take in, leaving cash balances fairly static. That’s fine: Companies are well-cushioned against the next (and inevitable) economic downturn. And with cash flow continuing to pour in as margins remain near peak levels, look for more dividend hikes and fresh buyback announcements. About the only thing that could derail the buyback-and-dividend freight train would be an increase in acquisitions — but most companies are continuing to eschew acquisitions and the risks they entail. In the context of solid dividends and buybacks, it’s fair to ask: Is it better to own a company that produces solid and predictable dividends, or one that plans on buying back stock? Let’s take a look at the pros and cons of each scenario, starting with dividends. Scenario 1: The Company Begins Issuing… Read More

Like clockwork, the investing adage “sell in May and go away” has re-emerged. Most investing clichés don’t hold water, but this one does. Strategists at S&P Capital IQ found an unusual set of calendar-based returns: “On a seasonal basis, the six-month stretch from May to October is historically a weak period for the S&P500 Index, dating back to 1990. On average, the broader market has risen just 1.3%, compared to a 7.0% gain from November to April.” #-ad_banner-#Why would such a trading pattern persist? Two reasons are usually cited.  First, active investors, professional traders and hedge fund managers start to take… Read More

Like clockwork, the investing adage “sell in May and go away” has re-emerged. Most investing clichés don’t hold water, but this one does. Strategists at S&P Capital IQ found an unusual set of calendar-based returns: “On a seasonal basis, the six-month stretch from May to October is historically a weak period for the S&P500 Index, dating back to 1990. On average, the broader market has risen just 1.3%, compared to a 7.0% gain from November to April.” #-ad_banner-#Why would such a trading pattern persist? Two reasons are usually cited.  First, active investors, professional traders and hedge fund managers start to take three-day weekends, and they devote less time looking for stocks to buy and more time looking for existing positions to cull.  Second, the European sales offices of U.S. firms start to detect a hesitance when it comes to purchasing decisions. Few European customers want to ink deals just as they are starting to prepare for their extended summer holidays. Though the market has been in a solid uptrend for the past five years, pockets of weakness have emerged in the spring and summer months. To inject a further note of caution, investors should proceed especially cautiously with tech… Read More