It's a Yellen kind of day

The chase by Frances Horodelski:

According to Music History, on this day in 1980, Pink Floyd’s album The Dark Side of the Moon spent its 303^rd week on the U.S. album chart. It went on to stay on that list for a total of 741 weeks – and combined with other charts is was listed for a total of 1500 weeks from 1973 through 2006.

Today is a Yellen kind of day. After various members of the Federal Open Mouth Committee (Barron’s frequently uses this description) spoke hawkishly last week, many expect Janet Yellenwho is speaking at the Economic Club of New York to be her usual dovish self. Note that the futures curve shows a 6 percent probability of a hike in April and just 38 percent probability for June. Watchers suggest that there is zero chance that the Fed will make a decision in the face of a Brexit vote (scheduled for June 23 while the Fed decision in June 15). A July move is a coin toss. There are two other FOMC members speaking today, including John Williams from San Francisco, who is already on the tape discussing gradual and thoughtful increases as warranted by the data. However, Yellen’s comments will be most watched, and “inflation expectations” will be a key to understanding what she is thinking.

There are also earnings from companies such as Lennar, and 3M has an investor day. In Canada, Finance Minister Morneau will be in Quebec marketing his budget. Economically, we have the Case Shiller housing data and March consumer confidence in the U.S. and industrial product pricing in Canada.

In corporate news, we’ll follow up on the FBI’s ability to unlock a terrorist’s iPhone as it relates generally to security and cyber issues, and how it might impact Blackberry (which reports on Friday). Currently there are 41 buy ratings on Apple, six holds and just two sells.

Francis says...Dow To Rise Today

My inbox is a mess. It is currently getting completely unglued with gold bullion bulls. It is also all confused about where energy is going. I’ve seen a technical note that XLE should be shorted (the energy ETF) given its extreme overbought condition (maybe not today or tomorrow, but very soon). At the same time, the bulls are focused on the decline in U.S. oil production (what everyone has been waiting for although I should note it hasn’t dropped yet below nine million boe/day using EIA data), optimism about the possibility of Russia, OPEC and non-OPEC players meeting later in the month and three weeks in a row of gasoline inventory withdrawals (still just 3 per cent off of all time high levels). Of course, bulls are being energized by the price up 35%+ from the lows. Gold bulls too.
Stock-wise, one of my favourite analysts is hugely bullish on Apple but the stock is underperforming the market year to date and from the February lows. I’m seeing companies miss earnings but raise dividends (Gildan a few weeks ago and TransContinental yesterday afternoon). And companies in the oil patch slash and suspend dividends and the stocks soar (off, of course, extremely depressed levels). S&P 500 earnings for 2015 have a WIDE gap between adjusted and reported earnings – what number to use? For 2015, Thomson Reuters carries an operating earnings number of $118.13 while S&P’s operating numbers are $100.44 and reported earnings are $86.53 – according to Yardeni Research. Yikes (most use a number similar to Thomson Reuters). Meanwhile, based on new earnings and ebitda expectations, Scotia slashes its target on Performance Sports from $12.50 to $3.50(!). Meanwhile, the analyst says that Adidas went through a similar tough time in 2014 and he’s using Adidas valuation decline that year to value PSG. Adidas did have a nasty 2014 when the stock dropped 40% that year to the October 2014 low but has more than doubled since.
And for all of Donald J. Trump’s bluster about the Chinese currency manipulation, he might be a little confused. Certainly the yuan has been weak recently (down 7 per cent from its peak) but the currency has strengthened 23 per cent over the past 10 years – making goods from China more expensive. Interestingly, yesterday, Reuters reported that two out of every three positions taken out by hedge funds expecting a devaluation of the yuan have been taken off.
And what’s a birthday party if you’re actually dead? That’s what some are saying about the bull market celebrations. Did the bull actually die May 21 2015 (its high of this cycle). Only time will tell. We’ll discuss this morning, plus the market’s relationship with recessions and just how cheap are U.S. healthcare stocks with Julian Emmanuel from UBS. For reference, 300 of the S&P 500 companies are up 20%+ from their 52-week lows while 461 components are up 10%+. Short seller Carson Block calls the rally a dead cat bounce. There are only 13 stocks negative versus the Feb. 11 lows.
So after all that mess, here’s what’s happening today. Mario Draghi is holding a press conference after the members of the ECB cut rates by 10 basis points (further into negative territory), raised the buyback to 80 billion euro per month and also is now adding corporate bonds into the mix (a surprise given the relatively illiquidity in that market).
We’ll be watching Washington post the meeting between President Obama and Prime Minister Trudeau. In corporate news, we’ll analyze the earnings from companies like Empire having a challenging time integrating Safeway (for which they paid $5.8 billion and today announced a $1.59 billion good will write-down) but also Dorel, AG Growth, Canadian Solar, PennWest, Bankers, Transat and Intertape Polymer. We’ll talk with more companies from the FirstEnergy conference (Calfrac, Secure Energy, Kelt Exploration, Tourmaline and Painted Pony), we’ll find out about the VIX death cross, and about the auto parts business with Linda Hasenfratz from Linamar. And if you’re interested in what the former CEO of Biovail Eugene Melnyk is thinking about Valeant Pharmaceuticals (including his comment that Bill Ackman is “a piece of work”),the full interview is available on bnn.ca.
Markets are getting a further lift from the ECB news with the Dow futures up more than 100 points now. Mr. Draghi has said there is “no limit” to what he will do – and he didn’t hold back today. Be watchful and careful. The “smart money” is in full-blown bull market stampede. That’s good as price has a tendency to follow. But watch what you own and if you felt the quality of your portfolio as poor in early February (when the markets were collapsing), now is a good time to high-grade

Bull Market Is Old At 7 Years

Miners meet at Toronto's PDAC convention 
The chase by Frances Horodelski:

“This is the first time you lied to me since you stopped lying to me.” – Tom Yates to Claire Underwood. Season 4 House of Cards done.

I’ll try not to lie to you this morning.

First, get ready for the celebration. This Wednesday marks the seventh year of this bull market if you count from the March 9, 2009 low. Some might count from August 2011 (when the S&P 500 dropped just slightly less than 20%). But on the seven-year basis (and the market closingFriday at 1,999.98722585876 according to the keeper of the data Howard Silverblatt at S&P/Dow Jones Indices), the market is up 195.62% (just under 17% per annum and 19.3% with dividends). Consumer discretionary is the best performing sector and maybe not surprisingly, energy is the worst. The average bull market lasts under 59 months – this one at 84 seems old but is only the third longest.

So what happens with this one? A couple of cautious items from traders. Russell Rhoads from the CBOE noted this week a VIX death cross (he’s looking at one year versus five year trend lines) – something similar happened in November 2007. The percentage of stocks trading above their respective 50 day moving averages has recently soared to just under 74% (the last time we saw it this high was November 2015). CNN’s fear/greed index is at 71. And there are lots of questions about the sustainability of the commodities rally, although this is my favourite quote from weekend reading on markets: “I've never in my career heard someone call an early rally off the bottom sustainable.” Trend & Cycle’s technical analyst at RBC notes that markets are “still early in an upturn” and that they “expect pullbacks will be relatively short-lived and shallow.” The S&P 500 is now just 6% off its all-time high – but 190 names (from Best Buy to Southwestern Energy) are down 20%+ from 52-week highs.

Meanwhile, the price of hops has more than doubled over the past seven years (doing better than stocks) – putting pressure on craft brewers according to the Financial Times. Now that’s a story.

This week’s action will focus on central banks (Bank of Japan, European Central Bank and the Bank of Canada). For Canada, the odds of another rate cut are low (less than 10%) but with the Canadian dollar’s big recent bounce, the workload shifts back to the bank (and of course, fiscal policy). With a budget coming down March 22^nd, unlikely the bank would move in front of that. For the ECB, traders suggest another cut deeper into negative territory (10 basis points to -40 bp) plus an increase in asset purchases by 10-20 billion euros (versus 60 billion currently) and an extension to March 2017. There is a 100% probability according to the tea leave reading of Eurozone OIS (overnight index swaps) of a cut. We’ll also hear from Mark Carneytomorrow on the consequences of Britain’s exit from the EU (he’s speaking to Parliament). Today, Fed governor Lael Brainard and Vice Chair Stanley Fischer give speeches – the last as the Fed’s quiet period starts before next week’s meeting (92% probability the Fed stays pat at current rate levels).

In things closer to home, the mining world will focus on Toronto and the Prospectors and Developers Association of Canada (PDAC) meeting. Andrew Bell will be bringing reports all day today and tomorrow. Later in the week, FirstEnergy’s East Coast Energy conference will shift our attention to oil and gas companies will a series of CEO interviews.

Earnings wise watch names like Square (Wednesday) and laggard retailers (Urban Outfitters today and Dick’s Sporting goods tomorrow but also a number of investor days including NCR, Chevron, American Express, United Technologies, General Electric Healthcare. Today, Canadian earnings calendar focuses on CargoJet and Pizza Pizza. There is little economic data today (Germany factory orders came in better than expectations although negative) but we’ll build to Friday’s jobs numbers in Canada (10,000 jobs expected). Tomorrow, Magna has an investor day. Iron ore jumps 19%, the biggest one day bounce on record. Torque.

Markets this morning are light of news and weak of price with the exception of Chinese equities which have bounced post-the People’s National Congress where 6.5-7% GDP growth forecasts were entrenched in the next five-year plan, the first time in 20 years that a range of growth has been targeted.

I’m sure there will be lot more to say as the week unfolds. From Research, RBC adds Agrium and Enbridge to their technical best ideas list. CIBC highlights the benefits of buybacks and notes that names such as Metro, Canadian Tire, Thomson Reuters, Agrium and CN Rail fit its positive stance (and these names are on the recommended list). Barclays has upgraded Power Financial (PWF) to overweight while downgrading Power Corp. (POW) to neutral—a popular institutional trade. SunLife has come off the restricted list and is again a buy.

And the day begins.

Every morning Business Day Host Frances Horodelski writes a "chase note" to BNN's editorial staff listing the stories and events that will be in the spotlight that day