HI Financial Services Mid-Week Commentary 02-17-2016
Sometimes the market is so volatile that fundamentals, technical and any past history just doesn’t matter – Kevin Hurley
Morgan Stanley strategist: Our moves were ‘horrendous’
Tuesday, 16 Feb 2016 | 4:41 PM ET
Up is down, down is up, the bull is a bear, the bear is a bull and an economy in recovery is really in recession.
Such is the current state of the markets, according to Morgan Stanley strategists, who see a “Bizarro World” where nothing makes sense and it’s getting tougher and tougher to make a buck.
“Everything seems backwards,” Adam Parker, the firm’s chief U.S. equity strategist, said in a note to clients. “Sell winners, buy losers, own staples in both up and down markets. Just do the opposite of what makes sense.”
The “Bizzaro” reference is familiar to Superman fans for a world where the Man of Steel is really a bad guy and everything else is upside down as well.
But for Morgan Stanley, it’s been no comic book but rather stark reality. The firm’s investment portfolio registered its worst month in more than five years — 61 months, to be exact — as the stock market got off to one of its worst starts ever this year.
Our portfolio advice has been pretty horrendous lately,” Parker confessed. He added:
For those who follow our portfolio, we did quite well over the five years from 2011-2015. But, our portfolio just had its worst month in 61 months in January,and things have not improved in February.The market is down more than we thought it would be. Our biggest sector bet has been financials (particularly credit cards). As an investor recently said to us at a conference, “I am doing a lot of things, just nothing with confidence.” Doing the opposite of what were commended would have been better. Bizarro World. Or at least hopefully not the real world.
Parker and Morgan Stanley, of course, have plenty of company.
Most Wall Street firms had a fair amount of confidence and have been forced to walk back their aggressive forecasts in recent days. Barely a month into 2016 Bank of America Merrill Lunch on Friday cut its full-year S&P 500 forecast from 2,200 to 2,000. Wells Fargo on Tuesday followed by slicing its range from 2,230-2,330 to 2,000-2,100, a 10 percent reduction.
The typical investor portfolio had declined 10.35 percent year to date, according to Openfolio, which compiles the number from results of 60,000 users on its social networking site.
Parker reiterated many of the oft-cited factors working against the market, such as the sharp decline in energy prices, a slowdown in China and worries that the Fed might make a policy mistake.
He added a few: That the health of the U.S. consumer may have been overstated; an investor focus during earnings season on punishing companies that missed estimates rather than rewarding the beats; and fears that the fixed income market and its plunging bond yields are a more accurate forecaster of the road ahead than the optimistic equity market.
Added together, Parker still holds a generally bullish case for the market, stated with a contrarian twist:
The positives are this: No one is articulating a bull case for U.S. equities with conviction. Earnings expectations are potentially low.There is some fiscal stimulus this year (vs. drag previous years). The presidential candidates don’t appear to be multiple expanders now, but they will get more centrist and the riffraff will be removed in a few more weeks. Sentiment is low (two weeks ago an investor on a panel we moderated said, “It is a multi-variable world and every variable is negative”.) The U.S. probably looks relatively better than other parts of the world. So maybe, the bull case is just that no one can articulate a bull case.
From a strategic standpoint, Parker said the firm is “a bit more nervous than we were last year.”
That translates to overweighting health care and utilities, staying underweight energy and cutting discretionary. Morgan Stanley also is cutting its position in American Express and Hewlett-Packard and upping its stake in Apple, among other moves.
Correction: An earlier version misspelled “Bizarro.”
This is an email I sent out the middle of February to my Hurley Investments clientele
OK (trying to compose myself),
What a “craptastic” start to 2016. Yes, we are now down over 10% on all the major averages for the year and down 14% or more since the November 2015 highs. Even worse is that 60% of the S&P 500 are at 52 week lows as well as in bear market territory (down 20% or more). I want to go over some individual positions and then finish with some general thoughts so please read the entire email.
Current market conditions are bearish for no real reason. Fear has the market in it’s grips and good news is bad news right now. Why did I not take protection off V or F after earnings? Unstable market conditions. We look to retesting August 2015 lows and be ready for a rip your eyelids off rally as people have to cover the excessive short positions currently on stocks. We can’t ever predict the market but we are currently at the bottom of our trading range.
AAPL – Apple has run into the law of large numbers. Now this has been mentioned and I want to explain it in a little different than traditional law of large numbers definition. AAPL has to beat at every earnings top and bottom line with above average forward guidance just like ever other company. They also have to beat on number of iPhones sold, iPads sold, Mac computers sold, iPay revenue, profit margins, iWatch sold, Apps sold, services revenues increase, and a new product is expected yearly. Too many numbers to make every one successful. When the iPhone 7 surges comes we will sell into the run and move money into Facebook (FB).
BIDU – The earnings are coming before the 18th and comments will be made the end of the month
DIS – Disney Beat top, bottom line and guidance. They also increased subs in the digital arena. ESPN is killing the company even though subs increased the last month of earnings. Dumb and nice to see the stock price come back to the pre-earnings level. Look to see DIS run back up to the upside.
V – Visa beat on earnings, jumped 8% and then fell right back down. We kept protection on and it will bounce with the market recovery
F – Great earnings, a bounce and the market also pulled it back down. Look for a end of month recap/
NVDA – Big drop with earnings coming
Please look at your accounts, how far down stocks may have fallen and be excited for protection we had on as the stock market falls. We’ve added DIS shares and have profits to add other stock shares at potential bottoms. Remember trading is a process and we will not need a 10% or 14% to be at a break even. New accounts still have money for investments as we didn’t have an opportune entry point to put money to work so we didn’t. PLEASE call if you have any questions or you would like to go over your account. I will only be busy the last two hours the market is open tomorrow otherwise I’m free to talk. Thanks for your business and let’s what the market brings over the next two months.
What’s happening this week and why?
Holiday Monday and China is back online trading or markets are open
Empire Manu -16.6 vs est -9.9
NAHB Housing Index 58 vs est 60
PPI 0.1 vs est -0.2
Core PPI 0.4 vs 0.0
Housing Starts 1099 vs est 1171
Building Permits 1202 vs est 1200
Industrial Production .9 vs est .3
Capacity Utlization 77.1 vs est 76.6
Where will our market end this week?
Higher because we might have more short covering for Option Expiration Friday
DJIA – two technical are bullish but the 5,20 EMA haven’t crossed yet
SPX – close to bullish crossovers
COMP – ditto
Where Will the SPX end February 2016?
What is on tap for the rest of the week?=
Tues: A, CAKE, DUN, FOSL
Wed: CF, DENN, GRMN, JACK, MRO, MAR, NBL, NVDA, PCLN, TMUS
Thur: CAB, LNG, DISH, DUK, FLS, FLR, JWN, WMT, WM
Fri: DE, VFC
Tues: Empire, NAHB Housing Index, Net Long Term TIC Flows
Wed: MBA, PPI, Core PPI, Housing Starts, Building Permits, Industrial Production, Capacity Utility, FOMC Minutes
Thur: Initial, Continuing Claims, Phil Fed
Fri: CPI, Core CPI – OPTIONS EXPIRATION
Wed – CN: Consumer Price Index
Thursday – EMU: ECB Minutes
Sunday – JP: PMI Manufacturing Index Flash
How I am looking to trade?
Protective puts and collars to get me through an earnings season THEN I roll puts out as I need to so I can keep them OUT of the expiration month
Will leave in place if market goes down.
Will roll long puts to at the money (ATM) for the earnings= NVDA and added shares !! After market they are up $2.18 !!! GO COLLAR TRADE
www.myhurleyinvestment.com = Blogsite
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