Uncertainty Over Next Week’s Fed Mtg./Pending Brexit Vote Results In S&P Decline; Bond Guru Bill Gross $10T Negative Yield ‘Supernova’ About To Explode; Barron’s Mid-Year Round-Table Sees 5 Percent Gains For 2nd Half Of 2016
As Vito Racanelli wrote in this weekend’s Barron’s, “it’s too bad the trading week didn’t end on Wednesday,” when the DOW “came within a whisker of a new all-time high. Instead,” he adds, “investors took profits Thursday, and especially Friday, on the rally that started in late May. Low trading volume exacerbated the decline.” For the week, the DOW ended higher by 58 points, or +0.3 percent, to 17,865; while the S&P 500 lost 3 points, or -0.15 percent, to 2,096; and, the NASDAQ declined 64 points, or -1 percent to 4,894. For the year, the DOW is +2.53 percent; while the S&P 500 is +2.55 percent; and, the NASDAQ is -2.25 percent.
But, the U.S. stock market was tame in comparison to Europe, which experienced a broad-based selloff, with nervousness over a possible U.K. vote on June 23 on whether to stay, or leave the European Union (EU). A poll by the British newspaper The Independent reported that the vote in favor of Britain leaving the EU is gaining traction and those in favor of leaving ahead by ten points. While these polls are about as ‘reliable’ as those here in the U.S., the impending vote is creating uncertainty, which markets do not like. European banks got hammered on Friday, with:
— Unicredit -6.2%
— Banco SanTander -4.9%
— Deutsche Bank -4.5%
— Societe Generale -4.4%
— Barclays -3.9%
For 2016, the European banking sector is much worse: Deutsche Bank -34%, Intesa SanPaolo -28%, Societe General -19%, AXA -16%, Allianz -14%.
Energy stocks also fell on Friday, with oil lower on the weakening of the U.S. dollar. U.S. crude lost 2.9 percent, to $49.07. Southwest Energy was the biggest loser, down $1.59, or -11 percent, to $13.15.
Gold was a big winner last week, up 2.7 percent, to close at $1,273 per ounce. For the year gold has gained more than 20 percent; while silver had its biggest weekly gain since April — up 5.5 percent, to $17.37.
Sector Winners Thus Far In 2016
— Utilities +16%
— Telecom +14%
— Energy +13%
— Materials +10%
If you are looking for a beaten down U.S. sector, look no further than autos. Performance YTD In 2016:
— Toyota -22%
— Honda -21%
— GM -18%
— Ford -12.5%
— Tesla -11%
Bond Guru Bill Gross $10T Negative Yield ‘Supernova’ About To Explode
“Bond guru Bill Gross believes the global move toward negative yields will have dire consequences,” wrote Jeff Cox on the June 10 online edition of CNBC. “In a tweet from his firm, Janus Capital, Gross goes back half a millennium, to assert that the current situation with the world’s debt market is unprecedented, and dangerous,” Mr. Cox wrote. Mr. Gross’s tweet: “Global yields lowest in 500 years of recorded history. Ten trillion of negative rate bonds. This is a supernova that will explode one day.” Not much useful to say ‘someday.’
Barron’s Mid-Year Round Table — Market Sages See U.S. Stocks Rising By 5 Percent In 2nd Half Of 2016
Lauren R. Rublin has a feature article, an expose on the outlook for markets for the second half of 2016. I refer you for Barron’s for the details, especially on the companies they recommended. Most of their experts think U.S. stocks will rise by 5 percent in the second half of 2016; but, a few think the market is in for a fall. “The Round-Table members say earnings growth, not price/earnings ratio expansion, will be the primary propellant of equity prices, especially as results in the energy sector improve,” Mr. Rublin wrote. Worry over China’s debt, and “more turmoil in emerging markets,” uncertainty over the Brexit vote and whether or not the Fed will raise interest rates perhaps two more times this year account for the bear’s cloudy outlook.
Mario Gabelli thinks defense spending will rise next year, so he thinks defense sector stocks will get a boost this fall — regardless of who is elected POTUS. One stock he likes is Sony (ticker: SNE), $28.03, “could trade up to the mid-$30s, to the low $40s in the next several years. I refer you to this weekend’s Barron’s for his other picks.
Jeff Gundlach likes Ten Year U.S. Treasuries and the VanEck Vectors Gold Miners Index (GDX).
William Priest likes Allergan (AGN), Fidelity National Info Systems (FIS), and Alphabet (GOOGL).
Finally, three stocks I bought this week were: SRPT, SPHS, and EYES. SRPT I have owned before; but got stopped out during a recent pullback. SPHS announced good news this week on a Phase II drug for prostrate cancer, and EYES (Second Sight Medical Products). I bought EYES on the pullback on Friday. Second Sight “has a game-changing Argus II retinal implant that restores sight for those suffering degenerative conditions such as retinitis pigmentosa. As Jim Collins wrote in the May 27, 2016 edition of The Street’s Real Money, “EYES shares have been hammered; but, not because of the efficacy of Argus II;” but because of reimbursement issues with Medicare. But, Mr. Collins wrote that EYES management has been diligently working with the Centers for Medicaid and Medicare to ensure that 2017 reimbursement rates are commensurate with costs and expected return on investment. And, the company has raised enough money to sustain the company and set it up nicely in 2017 — if they get a deal done with CMS. Mr. Collins thinks the company “gets that done.”
But, these are all speculative plays on my part. Make sure to do you own due diligence, understand your risk tolerance, and time horizon. V/R, RCP