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