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05Aug2016 Market Close: Wall Street Closes Higher, Risk Off For Some Investors, Others Sit On Hands In A Wait And See Aittude

Written by Gary

Wall Street closed higher with the DOW up almost 200 points. A lot of volalilty in the gold and US dollar arena, but the equities market's volume remained low. U.S. stocks notched their best day in a month on Friday, with the S&P 500 and Nasdaq closing at record highs

Todays S&P 500 Chart

The Market in Perspective

Here are the headlines moving the markets.

Strong U.S. employment report brightens economic outlook

WASHINGTON (Reuters) - U.S. employment rose more than expected for the second month in a row in July and wages picked up, bolstering expectations of faster economic growth and raising the probability of a Federal Reserve interest rate increase this year.

S&P 500 and Nasdaq close at record highs

SAN FRANCISCO (Reuters) - U.S. stocks notched their best day in a month on Friday, with the S&P 500 and Nasdaq closing at record highs after a second straight month of robust labor market data increased optimism that economic growth is accelerating.

PwC must face $1 billion MF Global malpractice lawsuit: U.S. judge

NEW YORK (Reuters) - A federal judge rejected PricewaterhouseCoopers' [PWC.UL] bid to dismiss a $1 billion lawsuit accusing the accounting firm of professional malpractice for helping cause the October 2011 bankruptcy of MF Global Holdings Ltd [MGHL.UL], a brokerage once run by former New Jersey Governor Jon Corzine.

U.S. challenge to Anthem-Cigna deal gets new judge

WASHINGTON (Reuters) - The judge overseeing the U.S. government's bid to stop health insurer Anthem Inc from buying Cigna Corp , who had been seen as favorable for the deal, has relinquished the case.

U.S. trade deficit rises to ten-month high in June

WASHINGTON, Aug 5 (Reuters) - The U.S. trade deficit rose to a 10-month high in June as rising domestic demand and higher oil prices boosted the import bill while the lagging effects of a strong dollar continued to hamper export growth.

Growth snapshots ahead in world awash with cheap money

LONDON (Reuters) - Bumper July jobs data from the United States have again begun to stoke expectations of a September rate hike from the Federal Reserve, just when other major central banks around the globe are unleashing ever-looser policy.

Citigroup beats $800 million appeal by one-time billionaire

NEW YORK (Reuters) - A federal appeals court rejected a one-time Florida billionaire's bid to revive his $800 million lawsuit accusing Citigroup Inc of fraudulently hiding its exposure to subprime and other toxic mortgages, inducing him to hold on to shares he otherwise would have sold.

Consumer Reports urges higher Volkswagen U.S. diesel owner compensation

WASHINGTON (Reuters) - Influential U.S. magazine Consumer Reports urged the Justice Department to hike compensation to 475,000 owners of polluting Volkswagen diesel vehicles and allow owners who opt for a fix to reconsider.

Oil down 1 percent as dollar jumps on U.S. jobs data

NEW YORK (Reuters) - Oil prices fell 1 percent on Friday, ending a two-day rally fueled by short-covering and bargain-hunting, as the dollar surged on robust U.S. jobs data and reasserted its influence over crude futures in an oversupplied market.

Citi: "The S&P Is Unstoppable" Even As It Sees Red

The latest note from Citi strategist Robert Buckland is a perfect example of the schizophrenia that has gripped investors in a market that continues to rise, defying all logic. On one hand, Citi calls the S&P rally "unstoppable" adding that "this US bull market just won't die", urging clients "don't underweight the S&P", while on the other it openly admits the market, on a fundamental basis is very overstretched, admitting that "since 2011, the US market has re-rated from a trailing PE of 17x to 23x."

What Citi is effectively saying is that this has never been more of a shut-your-nose-jump-in-and-pray-the-central-banks-can-keep-it-all-together "market" (we use quotations because as even Goldman admitted earlier this week, the "market" no longer reacts to economic data but merely to central banks).

Or, said otherwise, buy and pray. And as usually happens when faith is involved, one needs a sermon. Here is Citi's:

Don't Underweight The S&P

US equities have outperformed strongly in this cycle. This has left traditional valuations looking expensive compared to other markets. The US CAPE of 26x looks especially high compared to the Rest Of World on 16x. The upcoming US presidential election may increase uncertainty. However, the US still looks cheap when we look at FCF yield (4.1% vs RoW 3.5%). This has been the winning valuation metric in this cycle. The US market is also de-equitising as the RoW equitises. Consequently, we prefer to pick our fights elsewhere and remain Neutral US equities.

Unstoppable S&P

This US bull market just wo ...

Student, Auto Loans Hit Record High As Credit Card Debt Surges

The Fed's latest consumer credit report revealed that in the month of June, overall household credit rose a smaller than expected $12.3 billion, below the $17 billion expected, and below last month's $17.9 billion increase.

The reason for the miss in credit growth was entirely due to the unexpected slowdown in non-revolving credit, which rose by only $4.6 bilion, the second lowest monthly increase since 2012 with just December 2015 posting a slower rate of increase. It is possible that the decline in new non-revolving, i.e., auto credit creation was the reason for the slowdown in auto sales over the past several months.

The flipside, however, was the jump in revolving credit, which rose by $7.7 billion in June, the second highest monthly increase since the financial crisis, and confirms what we observed previously, namely that as US personal savings are declining at a rapid pace, consumer have had no choice but to "charge it."

In any case, with the Fed releasing its quarterly update on both auto and student loans, we have two new records: a new all time high in both car loans at $1.1 trillion, and a record for student loans, which just hit $1.4 ...

666: The Number Of Rate Cuts Since Lehman

BofA's Michael Hartnett points out something amusing, not to mention diabolical: following the rate cuts by the BoE & RBA this week, "global central banks have now cut rates 666 times since Lehman."

One would think this attempt by central banks to push everyone into risk assets, certainly the Swiss National Bank which as we showed yesterday has increased its US equity holdings by 50% in the first half of 2016 ...

... would favor flows into equities over bonds, however that is not the case at all. According to Hartnett, extreme monetary policy has proven "more positive for bonds ($1.0tn inflows since LEH) than stocks ($375bn inflows)." An explanation for this decoupling has been provided here in the past and it is quite simple: central banks (except the SNB and BOJ) are formally limited to monetizing debt. As such investors would rather not take the risk of buying the asset class which they can not see to the Fed, ECB or BOE, namely stocks, and instead are frontrunning central bank purchases directly.

Narrowing the fund flow time interval, BofA shows something else surprising: in the most recent week, global fund flows have continue to leave stocks and enter bond and precious metal funds:

Equities: $4.6bn outflows (3 straight weeks) (note divergence between $2.1bn ETF inflows & $6.8bn mutual fund outflows)

Bonds: big $10.2bn inflows (largest since Feb'15) (inflows in 16 of past 18 weeks)

Precious metals: $1.8bn inflows (inflows in 9 of past 10 weeks)

Indeed, as BofA dubs this move, these are "Risk-off weekly flows:"

< ...

How Bristol-Myers Survives a Failure

Bristol-Myers's stock stumble after a surprise clinical trial failure and the collapse of Valeant's shares show there's no avoiding risks in drug development.

Why Jobs Won't Jolt the Fed

The U.S. economy is getting closer to full employment, but the Federal Reserve may be willing to let it run hot.

How the New iPhone Could Quash Wireless Price Hikes

U.S. wireless carriers are talking about raising prices. But the expected launch of Apple's new iPhone could distract them from their discipline.

The Sniff Test: Earnings beats are concealing bad results

Earnings reported by S&P 500 companies are beating lowered expectations, but they are still pretty poor.

Market Extra: Will rising rig counts lead to another rout in oil?

There are plenty of reasons to still be bearish on oil, but a summer rebound in the number of U.S. oil rigs might not be the most pressing.

Economic Report: Consumer-credit growth sputters in June

Consumer credit slowed markedly to a 4.1% annual rate in June, the Federal Reserve said Friday.

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