The bulls are running
The chase by Frances Horodelski:
The bulls are running The chase by Frances Horodelski:
“Whatever you paid to watch this game, it wasn't enough.” – Cathal Kelly (In case you didn’t know, Jays won the ALDS and move on to the ALCS).
Who’s winning today? Stocks are, as enthusiasm for central banks takes another step into the spotlight. The Euro is down as investors anticipate ECB action (or at least continued action) as disinflationary/deflationary pressures continue to cause heartburn. Two dovish comments over the past couple of days (from Brainard and Tarullo) for holding an “easing” rather than “tightening” bias have added to the enthusiasm as well as a San Francisco Fed academic paper that argues that the Fed is actually running a “tight” policy and some concluding that the implications of that is more QE might be needed. And for stocks, if you look at the relationship between the Fed’s balance sheet and the stock market, the fit is quite tight with the balance sheet and stocks rising hand-in-hand. The balance sheet peaked in January of 2015 and is down about 0.7% from that level although still huge at $4.49 trillion
If you just want to hang our hat on the Fed, good on you. But the bearish view (thank you Zacks) points these items of concern: Chinese weak inflation, U.S. retail sales, Wal-Mart’s dismal outlook, Atlanta Fed’s GDPNow estimating just 0.9% for Q3 growth and the Beige Book that highlighted weakness in the factory sector and decelerating growth in more regions than in the past. And others call this whole rally a head-fake! We’ll talk to bulls and bears today to balance the discussion.
The bulls point to earnings (outside of Wal-Mart) which aren’t bad, the technical picture, the sentiment, the cash, the M&A, the easiness, the lack of alternatives, dividend yields above the 10-year, the benefit of lower energy prices, the price/earnings multiple below the 15 year average and the list goes on.
As for Wal-Mart, the company is being squeezed by online and by new entrants such as Aldi and Lidl that are Germany global supermarket chains with better prices and fresher products that are entering the U.S. market and elsewhere. There is also the demographic angle. There are millennials than boomers with the former preferring an experience and shopping somewhere other than their parents’ WalMart. The average target on the street is now in the high $50s. A company with almost half a trillion in revenue doesn’t turn easily – time and the right strategy will be needed.
News-wise, there is an acquisition by Linamar, Goldman Sachs earnings, Alamos buying Carlisle Goldfields for stock, we’re awaiting Canadian housing data for September, and inflation and jobless claims from the U.S, Brookfield seems to be having some difficulty with its Australian ports acquisition, and Concordia provides another update on its AMCo acquisition and financing. I see an upgrade on Canadian Tire from Credit Suisse to hold from sell ($116 target), Mead Johnson also upgraded at BMO to buy with a new $89 target. Goldman Sachs missed the bottom line estimate ($2.64 versus $3 estimate) and AB Inbev is doing a $55 billion debt deal to pay for SABMiller. China’s lending and money supply numbers came in higher than expected.
Worldwide markets are up (Chinese markets also on a roll). The bulls are running.