The Bond Market Selloff
Posted by Eddy Elfenbein on November 15th, 2016 at 12:54 pm

The long-end of the bond market is experiencing one of its most dramatic selloffs in years. One measure that technicians use is called RSI. For the 10-year, the RSI flashed its highest reading since 1990.

It’s hard to show graphically just how steep this selloff has been. I gave it a shot with this oddly colorful chart below.

From the bottom, the four lines are the five-, ten-, 20- and 30-year US Treasury yields. Note the pronounced upticks on the right. Interestingly, the rise in yields appears to be roughly similar for the different maturities.

October Was a Strong Month for Retail Sales
Posted by Eddy Elfenbein on November 15th, 2016 at 9:19 am

Today’s retail sales report showed that October sales rose by 0.8%. That was 0.2% more than expectations. The number for September was revised up to 1%. Over the last year, retail sales are up 4.3%.

“A strong October following a strong September is encouraging,” Tom Simons, a senior economist at Jefferies LLC, said before the report. “The labor market continues to be strong, and wage growth appears to be accelerating.”

Sales improved in 11 of 13 major categories for a second straight month in October, the report showed. That included the biggest advance in five months at Internet retailers and the strongest month for apparel chains since February.

Furniture outlets and restaurants were the only major categories registering a decline in October sales.

Auto purchases remained robust, climbing 1.1 percent after a 1.9 percent increase.

That’s consistent with industry data that showed the torrid demand is continuing. Purchases of cars and light trucks grew at a 17.9 million annualized rate, the strongest pace since November of last year, after 17.7 million the previous month, according to Ward’s Automotive Group.

We’ll get an earnings from Ross Stores (ROST) on Thursday.

Bank Stocks Soar as the Sectors Rotate
Posted by Eddy Elfenbein on November 15th, 2016 at 7:55 am

Imagine if someone told you earlier this year that both Brexit and Donald Trump would win, and the market’s reaction to both would be a big bank stock rally. It sounds crazy, but that’s what exactly happened. A populist pulled off a surprising upset and shares of Goldman have rallied!

Check out this graph of four major banks since Brexit:

On our Buy List, shares of Wells Fargo haven’t done nearly as well, but Signature Bank has gained 28.3% in the last four weeks. The Dow has now rallied for six days in a row. Also, the Russell 2000 just touched its first all-time high in 17 months.

Here’s a look at the Russell 2000 divided by the S&P 500. You can see just how sharply the market has turned its attention to smaller-cap stocks.

Morning News: November 15, 2016
Posted by Eddy Elfenbein on November 15th, 2016 at 6:51 am

Yuan Slides to Lowest Level in Nearly Eight Years

British Inflation Falls To 0.9% – Competition Might Stop Predicted Higher Rates Arriving

Weak Investment Knocks German Economy

Inside Merkel’s Dilemma in World of Trump

Japan Watches Samsung Chip Away at Its Car Makers

Singles’ Day Sales Scorecard: A Day In China Now Bigger Than A Year In Brazil

Oil Prices Up 2% on Hopes of OPEC Output Cut

Mary Jo White to Step Down as S.E.C. Chief

EasyJet to Set Up Operating Company in Another EU State

Reynolds Said to Reject BAT’s $47 Billion Acquisition Proposal

Vodafone Loss Widened by Hefty India Write-Down

Apple Stock Extends Losses After China Warning About Trump

Dirty Linen: A Bed Sheets Scandal Hits the Cotton Industry

Howard Lindzon: A Trillion Here a Trillion There…Welcome to Trump University (Stock Market Class)

Josh Brown: We Got It From Here… Thank You 4 Your Service

Josh Brown: QOTD: “No One Has Ever Seen Anything Like This.”

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Our Buy List Rallies
Posted by Eddy Elfenbein on November 14th, 2016 at 4:53 pm

This will go down as one of the best years for our Buy List. With 1-1/2 months to go, our Buy List is trailing the S&P 500, -0.06% for us to 5.86% for the S&P 500, not including dividends.

The good news is that we’ve done very well in the past three weeks. In fact, this period is one of our best periods relative to the market in quite some time.

Since October 27, our Buy List is up 4.47% to the S&P 500’s gain of 1.46%. That’s a big move for a diversified portfolio.

I’m not trying to sugarcoat a year which has been quite challenging. I’m merely pointing out that our Buy List is still holding its own.

Stocks Divided by Bonds
Posted by Eddy Elfenbein on November 14th, 2016 at 1:57 pm

This simple chart tells you the story — stocks are up and long bonds are down.

Look for a Dividend Increase from Hormel
Posted by Eddy Elfenbein on November 14th, 2016 at 1:32 pm

In Friday’s CWS Market Review, I said that it’s not important for investors to predict the future. Our strategy around here is to predict things with very, very, very high odds.

For example, I’m going to predict that Hormel Foods (HRL) will soon raise their dividend. This is not due to a genius insight on my part. Rather, it’s that Hormel has raised their dividend for the last 50 years in a row. I feel safe predicting #51. Also, their dividend announcements usually come just before Thanksgiving.

Here’s a look at Hormel’s dividends over the last 26 years.

Bond Yields Are Now Higher than Stock Yields
Posted by Eddy Elfenbein on November 14th, 2016 at 10:15 am

Since the election, the long end of the yield curve has sold off. That means long-term interest rates have risen, so much so that bonds now yield higher than stocks.

This isn’t necessarily bad for stocks.

This shift would appear to be negative for stocks, but some say there is a substantial silver lining. After all, bond yields do appear to be rising on short-term growth expectations, and if the economy manages to pick up, that would clearly be bullish for equities.

“It’s not a valuation story, it’s an economically optimistic story,” Eddy Elfenbein, editor of the Crossing Wall Street blog, told CNBC on Friday. And even when it comes to dividends alone, “there’s probably a good reason to think dividends will grow into 2017 and 2018.”

In other words, the old, odd situation gave stocks a reason to rise, but now that the situation has been reversed, there is an even meatier catalyst for a continued move higher.

Here’s the yield of the S&P 500 in red along with the 10-year yield in blue.

Morning News: November 14, 2016
Posted by Eddy Elfenbein on November 14th, 2016 at 7:01 am

Why Japan’s Economy Posted Surprisingly Strong Growth

Cash Bet Could Make or Break Modi

Trump Trade Stance With Mexico Could Press Gas Prices

Trump’s Tax Plan

U.S. Dollar Rally Finds New Life Under Trump

U.S. Two-Year Yield Tops 1% as Pimco Says Rates May Be Bottoming

Goldman Sees the Possibility of Stagflation Under Trump Presidency

Samsung to Buy U.S. Auto-Parts Supplier Harman for $8 Billion

Siemens to Buy U.S. Software Maker Mentor for $4.5 Billion

Chinese Metals Manufacturer Takes Shine to Hollywood

Naver Takes a $43 Million Gamble

Toyota in $3.4 Billion Settlement Over Corrosion in Some Trucks and SUVs

American Apparel Just Filed for Bankruptcy Protection Again

Cullen Roche: Curating a Social Media Feed to Make Better Decisions

Jeff Miller: Time for a Portfolio “Transition?”

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The Post-Election Market
Posted by Eddy Elfenbein on November 11th, 2016 at 10:36 am

The market’s reaction to the election has been quite dramatic. Long-term bonds have sold off sharply, meaning yields have risen.

Here’s the daily high/low/close of the Long-Term Bond ETF (TLT).

Gold looked like it was going to spike up, but it has drifted downward and is close to its lowest point in several months.

The Two/Ten Spread is getting wider.