Tag Archives: S&P
Posted on 09. Sep, 2012 by Harvey Sax.
One thing we talk about in our Investment Survival Workshops is learning to develop a horizon further out than tomorrow. I know that sounds obvious but it’s harder to do than you think. Most people including myself, hesitate for a moment to recall what they did yesterday and most of us wake up and think about what we are going to do that day, not the next day or the following week. When I moved from Eastern Standard time to Mountain Standard time zone, I dreaded getting up two hours earlier in the predawn to read the papers and analyst reports. I soon came to the conclusion, though, that if you are worrying about what’s going to happen today, you’re too late already- no matter how early you get up. What’s going to happen today has for the most part been determined in Europe already or prior to that in the Asian markets. No, you need to be worrying about what’s going to happen tomorrow or the following Thursday or some time in the future. With that in mind, I’m worrying about what’s going to happen Wednesday.
1. Apple launch of the new iPhone. Apple will have to hit the ball out of the court . That’s something they have not done since Jobs died. Sales are good and the products shine compared to the competition with one big exception. The hardware, feel, and sex appeal of the new Samsung Galaxy III are greatly superior to the dated series of iPhones now. In fact if Apple doesn’t top it, Galaxy III may be my next smartphone. Apple now represents 5% of the S&p 500 by weighting. It can drag down the index and crush the NASDAQ.
2. Germany’s constitutional court is due to rule on Sept. 12 on whether the euro zone can launch its permanent bailout fund. It will be very bad for the market if they turn this down. This is a real distinct possibility considering that the German press has been slamming Merkel about the recent ECB decision to support Eurozone member bonds in the aftermarket.
The market is deeply overbought to begin with so I think traders should be leery come Tuesday. Wednesday might be a pivotal day. Longer term investors of course won’t be bothered with this noise. They don’t mind watching their portfolios decline 5%. Unfortunately fewer and fewer of those investor are left playing.
Posted on 03. Sep, 2012 by Harvey Sax.
I’ll go ahead and put my neck on the chopping block now. I’ve never had a target before on the S&P 500 or Dow because I never saw much point in the exercise. Unless you were trading in futures or a passive index investor, what’s the point, right? I liked to think I am investing in companies and business prospects not broad unknowable market forces. The last twelve months have been trying though. It seems that the risk on risk off trade has been the place to be. Most stock pickers have underperformed the market. Why is that? Even notable legends trail the boring indices. It’s been an unpredictable market. Perhaps only predictable in that the trend is inexorably higher. If there was ever a proverbial wall of worry, this is the thicket to climb.
I can’t even begin to cite the things that can go wrong. It would take too long and you’ll probably see them all mentioned many times over during the Presidential debates. But the most likely macro outcome between now and the end of the year, is that Government controlled interest rates stay low and by association so do most others. With a 2% 10 year risk free Treasury interest rate, the market is just way too low based on one popular measure of valuation, the discounted cash flow model.
With 2012 two-thirds done, the pros see S&P 500 companies earning $100 to $105 this year according to the most recent issue of Barron’s. Based on the midpoint of that range, profits are expected to rise 5% from last year’s $97.82. The “top-down” crowd isn’t far off from its “bottom-up” counterparts, or industry analysts, who are forecasting corporate profits of $103.39 for the year. Let’s be conservative and take the low end of the range and project $100 next year for the S&P 500. That means at 1405, Friday’s close, the S&P 500 yields 7.1% That’s just way too high for a 2% 10 year risk free rate comparison. If 3.5% is the normal equity risk free premium the S&P 500 should yield more like 5.5%. In order for that to happen, the S&P 500 would need to be about 1818. That’s nearly 400 points higher and if you assume each S&P point is equivalent to about 8 Dow points, that’s a 3200 point move in the Dow. That’s a 28.4% rise and it seems just about right to me when I look at how many blue chip stocks are trading far below their discounted cash flow.
When the market has the potential to rise so much, the only way professional money managers can earn their keep is to stay fully invested. With the world as as dangerous a place as it seems, that’s a bold and controversial stance. And it’s also a very difficult thing to do for a long short equity fund manager such as ourselves. It’s a distant memory now but that’s pretty much the way the 80′s and 90′s played out. If you weren’t fully invested you were left in the dust. Could that be happening again? Stranger things have happened before.
Posted on 28. May, 2012 by Harvey Sax.
My indicators are showing bullish divergence on all of the major future markets. We could have a very tradable rally here in spite of the ugly headlines. As is always the case, how much is being priced in is key to the analysis. The market now is poised to react violently to the upside with a whiff of good news.
Posted on 21. Feb, 2012 by Wilensky.
Ancestry.com is on a tear lately after taking a huge hit over their Q4 numbers. Analysts responded after the fact with downgrades and price target reductions, but we still see a huge opportunity in the company.
The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Ancestry.com met expectations on revenues and beat expectations on earnings per share.
Compared to the prior-year quarter, revenue grew significantly and GAAP earnings per share expanded significantly.
Gross margins shrank, operating margins increased, net margins grew.
Ancestry.com reported revenue of $104.2 million. The seven analysts polled by S&P Capital IQ predicted net sales of $104.1 million on the same basis. GAAP reported sales were 26% higher than the prior-year quarter’s $82.7 million.
Posted on 27. Jan, 2012 by Kirk.
Guest post by: Kirk
Differentiating Between An Irrational Market Or Strong Bull Market Trend?
These past two weeks have been tough as an options trader. Differentiating between trading an a possibly irrational market or bull market trend is sometimes very difficult to assess. We all know that the stock market can push us to extremes and then, just when we “give up” and “give in” the turn happens.
Timing is really everything.
Blow-off Top or Pull-Back?
Most traders I talk to are in one of two schools of thought right now. Either you think this is the best shorting opportunity for the next 2 years or you are convinced that we are now in a new bull trend that could take the S&P 500 well above 1,500. It’s pretty much split down the middle honestly.
Whatever camp you are in there are some key stats that are glaring and cannot be brushed under the rug:
1) The VIX closed the week below 20 for the first time since last July.
2) S&P 500 is three standard deviation points above its 20-day moving average.
3) AAII Sentiment is near extreme levels at 47% Bullish compared to 29% Neutral and 23% Bearish.
4) S&P 500 contract short interest has declined nearly 32% – no more short squeeze?
Stick to Your Guns (And Indicators)
Will a top come soon? Maybe (hopefully) but who the heck knows right. I know I have been getting itchy to trade more as I’ve been mostly in cash for nearly a month now. Not that I don’t want to trade, but I think that better risk/reward ratios ratios will come soon and I’d rather have cash on hand to make those trades.
During bull market trend’s like this I find that keeping an eye on the indicators is best. They can and often stay over-bought for weeks but eventually they do break and divergence will be the early warning signals. Look for momentum indicators to drift lower even though the market will continue to move higher.
Posted on 25. Jan, 2012 by Wilensky.
For those of you long AAPL yesterday, the paltry 6% or so gain on the most impressive numbers that we’ve seen to date from the tech giant were a bit depressing. The fact that every single metric that analysts provided estimates on was completely blown out of the water combined with the $7 drop in share price before the announcement only reinforces the fact that both analysts and the street had no idea how profoundly astounding Apple’s results would be. So why doesn’t the market seem to reflect similar sentiment? One word: Dividends. With over $17 trillion in qualified retirement assets in the market, yes that’s trillion, managers bound by fiduciary duty are desperately seeking a safe-haven for this money where they can earn some sort of return in this volatile yet relatively flat market. Treasuries offer meager yields and are extremely subject to rising rates, junk bonds offer the yield but are off limits due to risk, and non-US stocks trashed a plethora of pension funds numbers last year. So where do we go from here? Just look at the historical data: according to S&P over the last 80 years, 44% of the index’s returns were derived from stock dividends.
Lets look at how this translates into the markets. Take a look at CA inc. for example (ticker: CA). Last night they announced slightly better than expected earnings, certainly nowhere near the beat on expectations that Apple posted, but they also announced a return of 2.5 billion through stock buybacks and… a dividend. Shares soared over %17 in after hours trading. Apple has close to $100 billion sitting on their balance sheets after the $17 billion in profits they added last quarter, just think what would happen to their stock price if a tenth of that was returned to shareholders through a dividend. One thing’s for sure, watch the dividend and the money will follow..
Posted on 11. Jan, 2012 by Wilensky.
Index Funds, Where Are We Now?
While following important economic news as it continually streams through headlines, its akin to wrapping your mouth around a fire hose to quench your thirst; however it’s essential to consider how these developments are affecting your investments. Take a look at how a couple of major indexes and index funds have performed since the beginning of the year…
PowerShares DB US Dollar Index Bullish (NYSE:UUP) -1.53%
SPDRS S&P 500 Index (NYSE:SPY) -1.22%
PowerShares QQQ (Nasdaq:QQQ) 0.94%
Europe, Australia-Asia iShares MSCI EAFE Index (NYSE:EFA) -15.77%
United States Oil (NYSE:USO) -1.82%
iShares Comex Gold Trust (NYSE:IAU) +9.57%
iShares Barclays 7-10 Year Treasury (NYSE:IEF) +12.70%
The S&P 500 index, as tracked by the SPDRS S&P 500 Index fund, has fluctuated over the year; however, this fund did start to rise in recent months as investors moved in. From the beginning of the year to now, the S&P 500 (as well as the DJIA) has at times seen gains of close to 10%. However, for 2011 the performance has just below zero. (For a complete guide, check out our Index Investing Tutorial.)
Pullbacks and Producers
Gold futures prices, followed by the iShares Comex Gold Trust fund, have continued to trade at record highs. IAU has recently settled at $15.70.
Technology is currently flat compared to the beginning of the year as top PowerShares QQQQ fund holdings like Apple (Nasdaq:AAPL), Qualcomm (Nasdaq:QCOM) and Google (Nasdaq:GOOG) are all flat as well.
Posted on 31. Aug, 2011 by Live Trading News.
S&P rates Subprime Mortgages higher than the USA
Standard & Poor’s gives a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it has assigned to the US government debt.
S&P is poised to provide AAA grades to 59% of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497-M lent to homeowners with below-average credit scores, and virtually no equity in their properties.
New York-based S&P took away the US’s Top rank on August 5, saying Washington politics were making the Country less creditworthy.
Treasuries gained about 1.95% and US borrowing costs have fallen to record lows as investors repudiated the downgrade, according to Bank of America Merrill Lynch indexes.
S&P has awarded AAAs to more than $36-B of securities in the US this year that were created by bankers who continue to gather thousands of loans, bundle them into bonds of varying risk and pay ratings firms a fee to assign credit rankings.
Money managers are lending to the government at rates that, in some cases, are about a 3rd of what they demand to hold Top-rated mortgage notes, 4 months after Congressional investigators said S&P helped spur the longest economic contraction since the 1930′s by assigning inflated grades to the bonds from Y’s 2005 through 2008.
More than 14,000 securitized bonds in the US are rated AAA by S&P, backed by everything from houses and malls to auto-dealer loans and farm-equipment leases.
S&P has said it made mistakes in structured finance since the crisis including misunderstanding cash flows and using conflicting methods to analyze the securities. S&P’s parent, New York-based McGraw-Hill Cos.(NYSE:MHP), depended on credit ratings for 27% of its $6.19-B of revenue last year, down from 33% of $6.77-B in Y 2007.
Paul A. Ebeling, Jnr.
Posted on 23. Aug, 2011 by Maxwell Leary.
(Reuters) – The chief of Standard & Poor’s will step down next month, to be replaced by a senior Citibank executive, in a move announced a few weeks after the credit rating agency downgraded U.S. government debt and sparked a row with Washington.
S&P’s parent, McGraw-Hill Companies Inc, said on Tuesday that Deven Sharma, who has served as S&P president since 2007, would step down on September 12, to be succeeded by Citibank chief operating officer Douglas Peterson.
“S&P will continue to produce ratings that are comparable, forward looking and transparent,” McGraw-Hill said in a statement, adding that Sharma would work on a strategic portfolio review for the group until leaving at year-end.
The U.S. downgrade on August 5 helped lead to the biggest sell-off in share markets since the global financial crisis three years earlier and sparked a row with the U.S. Treasury over some of the agency’s calculations in arriving at the new rating.
The U.S. Justice Department is also investigating the ratings agency over its actions on mortgages leading up to the 2008-2009 crisis, a source familiar with the matter told Reuters last week.
But the Financial Times, which first reported the news of Sharma’s resignation, quoted unnamed sources on Tuesday as saying his departure was unrelated to the downgrade or the Justice Department investigation.
Full article available @:
Posted on 18. Aug, 2011 by Maxwell Leary.
(Reuters) – The Justice Department is investigating whether Standard & Poor’s improperly rated dozens of mortgage securities in the years before the financial crisis, The New York Times reported on Thursday, citing sources familiar with the matter.
The investigation began before S&P, a unit of McGraw-Hill, downgraded the long-term U.S. debt from a AAA rating to AA-plus this month, the paper said.
In the mortgage investigation, the Justice Department has been asking about instances in which S&P analysts wanted to assign lower ratings to mortgage bonds but may have been overruled by S&P business managers, the Times reported.
Justice Department spokesman declined to comment on the story upon being contacted by Reuters. S&P did not immediately respond to phone calls seeking comment outside regular U.S. business hours.
It was unclear whether the Justice Department investigation also involves the other two ratings agencies, Moody’s Corp and Fimalac SA’s Fitch, or only S&P, the newspaper said.
Full article available @:
Posted on 18. Aug, 2011 by Maxwell Leary.
PARIS—A senior Standard & Poor’s Corp. analyst Thursday confirmed France’s triple-A rating and stable outlook for the country, dispelling investor fears that the top-notch grade of the euro zone’s second-largest economy may be at risk.
“We’re confident in the triple-A rating, stable. We have confirmed it, we confirm it today,” said Carol Sirou, the head of S&P in France, in an interview on French radio. “There are several rumors, but we never comment on them.”
France has increasingly appeared to be the weak link among top-rated euro zone countries, with higher deficit and debt-to-gross-domestic-product ratios than the other five triple-A …
Full article available @:
Posted on 10. Aug, 2011 by Live Trading News.
Standard & Poor’s, whose unprecedented downgrade of US debt triggered a worldwide sell-off in equities is pushing against a US government proposal that would require credit raters to disclose “significant errors” in how they calculate their ratings.
S&P, accused by the Obama administration of making an error in its calculations leading Friday’s downgrade, raised concern about the proposed new corrections policy and other issues in an 84-pg letter to the Securities and Exchange Commission, dated August 8.
The SEC is weighing sweeping new rules designed to improve the quality of ratings after their poor performance in the financial crisis.
The 517-pg proposal includes a requirement that ratings agencies post on their websites when a “significant error” is identified in their methodology for a credit rating action.
The letter was sent 3 days after the US Treasury Department accused S&P of miscalculating by some US$2-T the US debt in the next 10 yrs. That calculation was in a draft press release announcing a downgrade in the government’s credit rating from AAA to AA-plus.
S&P vehemently denied it had made an error, but acknowledged that it changed its long-term economic assumptions after discussions with the Treasury Department.
It switched to another economic scenario that resulted in a debt load US$2-T smaller by Y 2021, but it said that did not affect its decision to downgrade the US debt.
S&P’s criticism of the “significant error” proposal is part of a broader concern that the SEC’s reforms prompted by the Dodd-Frank financial oversight law gives the US government undue influence over its ratings decisions.
S&P is facing a tense relationship with Washington. Its downgrade sparked a backlash from Obama Administration officials and lawmakers from both sides of the aisle.
A Senate Banking Committee aide Monday said the panel has begun looking into S&P’s decision to downgrade the US credit rating.
The SEC’s proposal, issued in May, contains a wide range of provisions, including requiring credit raters to disclose more about their internal controls, to protect against conflicts of interest, and to reveal more about their rating methods.
But one issue that rubs Standard & Poor’s the wrong way is the proposed requirement that raters disclose when a “significant error” is identified in a procedure or methodology, and especially, who should define what that is.
The SEC’s proposal asks questions about whether the SEC should define the term “significant error.”
“If the commission were to define the term significant error, we believe it would effectively be substituting its judgment” for the credit-rating agencies, S&P President Deven Sharma said in the letter.
He said S&P’s own error correction policy “has proven to be effective and, where errors have occurred, our practice of reacting swiftly and transparently has benefited the market.”
Barbara Roper, director of investor protection for the Consumer Federation of America, said that policy is and has proven inadequate. “What was their correction policy on their Enron rating? What was their correction policy on their Lehman rating? What was their correction policy on their Bear Stearns rating? They do not have an error correction policy, they have an error denial policy, and the SEC is absolutely right to step in,” Ms. Roper said.
McGraw Hill’s Standard & Poor identifies numerous issues with the SEC’s proposal, including concerns about competition and that rules are consistent Globally.
Of the Big 3 raters; S&P, Moody’s Corp and Fimalac SA’s Fitch Ratings, the S&P was the only 1 to raise major concerns in its letter to the SEC about the “significant error” provision.
The measure was tucked into Dodd-Frank after the rating firms gave glowing ratings to toxic sub-prime mortgage-backed securities and then were slow to downgrade them.
A Senate investigations panel issued a report earlier this year faulting S&P and Moody’s for triggering the financial crisis with their flawed ratings and subsequent decision to downgrade them en masse.
The Big 3 ratings agencies have spent well over US$1-M lobbying Congress and federal agencies since January as they press for changes to the regulations, according to data from OpenSecrets.org.
Ms.Roper said S&P’s push back to the “significant error” proposal underscores the need for tougher reforms.
“If anything, their letter suggests it is absolutely necessary that the SEC define it because absent a definition, these guys will obfuscate,” she said.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Posted on 04. Aug, 2011 by Live Trading News.
Italian prosecutors seized documents at the offices of rating agencies Moody’s and Standard & Poor’s in a probe over suspected “anomalous” fluctuations in Italian share prices, a prosecutor said Thursday.