Displaying items by tag: bear market

(Washington)

New polls are out and Sanders is at least tied with Biden. He has been reported as ahead recently, but a flurry of recent polls have all confirmed that he is at least tied. This could be a major issue for the stock market, as Wall Street is wary of Bernie. While they revile Warren, they understand her thinking and respect her regulatory acumen. Bernie is seen as a wildcard. It makes sense then that for each 10-point rise Sanders has seen in the polls, the S&P 500 has dropped 1% based on a rolling two-week relationship, according to UBS.

FINSUM: We would have to agree with this assessment. If Sanders wins the bid, the market will probably have a little blip, and then any polls that show Sanders ahead of Trump would be very worrying for markets.

(New York)

The market had gone an incredible 70 days without a closing gain or loss of more than 1%. It was one of the longest streaks in history, but it all came crashing down this week as the Dow fell 1.6% and the Nasdaq fell 1.9%. The big question is what happens next. Generally speaking, it does not matter if a long streak of placidity is broken by a positive or negative move—stocks tend to keep doing well either way. Of the 12 times such a streak has happened, in 9 of the them gains were positive over the following year, with an average increase of 9.6% on a total return basis.

FINSUM: This is good historical context, but it is important to remember that none of those occurrences have anything to do with today’s market environment. That said, we remain bullish.

(New York)

The market and investors are in an odd juxtaposition. For the most part, the media and analysts remain pretty bearish, yet the market continues to rise. Fears of an economic slowdown are persistent. With all this in mind, what is the best way to play the market? Barron’s says you should sell puts, cashing in on investors’ fears and desire to buy puts. For instance, one could sell puts on the Financial Select SPDR (XLF), which is at a high water mark but is still quite vulnerable to a downturn because of fears over the economy and rates.

FINSUM: Granted, this is a nickel and dime strategy but it sure beats fearful money sitting in a money market account not earning much.

(New York)

Calm and collected asset manager Vanguard has just made an eye-opening call about 2020. The firm’s chief economist and investment strategy chief, Joseph Davis, says there is a 50-50 chance of a correction in 2020. The market hasn’t seen a correction since December 2018, when it dropped to within a hair of a bear market. Davis says he usually sees about a 30% chance for a correction in any given year. Vanguard says that while investors were too pessimistic about recession chances this year, next year they’ll be too optimistic about re-inflation.

FINSUM: Seems a reasonable call, if rather safe.

(New York)

One of the biggest ratings agencies on Wall Street has just put out a stern warning on the junk bond market. Moody’s says that high yield debt may fall “significantly” after a big rally this year. In a quote that captures the general disbelief that has accompanied the junk bond rally this year, Moody’s economist John Lonski says ““High-yield bonds have rallied mightily despite the lack of any observable broad-based acceleration of either business sales or corporate earnings”. Moody’s thinks that if performance of the underlying companies in the space does not improve, then there will be a reckoning, saying ““If the anticipated improvement in the fundamentals governing corporate credit quality do not materialise, a significant widening of high-yield bond spreads is likely”.

FINSUM: Irrational exuberance?