The Stock Market Likes It Boring
Posted by Eddy Elfenbein on February 3rd, 2015 at 9:25 am

I was playing around with some market data and I found something interesting I wanted to pass along. It turns out that the really big gains from the stock market happen during the boring days.

I took all of the daily closing figures for the S&P 500 from 1932 through 2014. I didn’t count Saturday trading which existed up until the 1950s. In total, I had more than 20,000 daily closes.

Here’s what I found: The S&P 500 rose by more than 1.17% over 1,900 times (about 9.2% of the time), and it fell by more than 1.17% over 1,800 times (about 8.7% of the time). While the down days are fewer in number, they tend to be more severe. If we combine all the days with moves greater than 1.17%, it nets out almost perfectly to zero.

In other words, all those high-volatility days add up to nothing. The market’s entire gain comes on days when the S&P 500 rises or falls less than 1.17%. The rest is just noise.

What’s interesting is that many of those big up days come very near to those big down days. It’s almost as if bull and bear markets are illusions — there’s only a normal market with occasional brief but sharp panics. Even what appear to be long, secular bear markets see their worst pain concentrated within a short window.

Morning News: February 3, 2015
Posted by Eddy Elfenbein on February 3rd, 2015 at 6:57 am

Greek Retreat on Writedown May Move Fight to Spending

Erdogan’s Pressure on Basci for Rate Cut Shows No Sign of Letup

Australian Dollar Skids to Six-year Low After RBA Shock

RBI Rajan’s SLR Cut Won’t Boost Lending Now But It’s Reform for Long Term

Apple’s Bond Sales Wave Red Flag on US Interest Rate Outlook

As BP Shows, Corporate Profits Can Be Pretty Much Anything You Want Them To Be

Alibaba and Lending Club Will Loan US Businesses $300,000 to Buy Chinese

Exxon Mobil Revenue and Profit Off 21% on Oil Decline

Disney to Push Back Shanghai Theme Park Opening to 2016

Amazon in Talks to Buy Some of RadioShack’s Stores

Japanese TV Makers Retreat From Overseas Markets

Santander Profits Up on Branch Focus

Lenovo’s Smartphone Challenge: Battling Apple, Xiaomi in China With Motorola

Cullen Roche: Rand Paul’s Federal Reserve Goose Chase

Jeff Carter: A Super Bowl Example of Leadership

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The Shake Shack IPO
Posted by Eddy Elfenbein on February 2nd, 2015 at 5:18 pm

Shares of Shake Shack ($SHAK) debuted on the market last week. The shares were priced at $21 and opened at $47. At one point, SHAK got as high as $52 per share.

Investors often ask me about high-profile IPOs and I almost always encourage investors to avoid them. Remember that companies only go public if they think they can get a good price, so their interests are directly opposed to yours.

It’s no surprise that most studies show that IPOs don’t perform well. A few big winners got all the attention.

I honestly don’t see how Shake Shack is worth half this price.

The S&P 500 Total Return Index
Posted by Eddy Elfenbein on February 2nd, 2015 at 5:02 pm

Here’s an updated look at the S&P 500 Total Return Index, meaning the S&P 500 plus dividends. Short version: It’s been a good six years but before that was…kinda rough.

The Onion: Warren Buffett Can’t Believe He Has To Live Next To Powerball Winner
Posted by Eddy Elfenbein on February 2nd, 2015 at 3:26 pm

From The Onion:

Warren Buffett Can’t Believe He Has To Live Next To Powerball Winner

OMAHA, NE—Shaking his head as workers installed a fountain on his neighbor’s front lawn, business magnate Warren Buffett told reporters Wednesday that he cannot believe he’s stuck living next to the latest recipient of a Powerball jackpot. “Oh, what a treat, I get to be neighbors with some guy who walked into a gas station one day and asked a computer to pick six numbers,” said the multibillionaire investor, closing his window to avoid hearing the electronic dance music blasting from the $600 million prize winner’s poolside speaker system. “A Lamborghini, too? How original. I have no idea where this chump was living last week, but I give him one, two years tops before he blows it all and has to crawl back with his tail between his legs.” At press time, the so-called Oracle of Omaha was instructing his personal assistant to politely decline his neighbor’s invitation to go bison hunting together from his new helicopter.

January ISM = 53.5
Posted by Eddy Elfenbein on February 2nd, 2015 at 12:23 pm

At mid-day, the stock market is holding on to some gains. As on Friday, oil is rebounding and that’s helping energy stocks. The Energy Sector ETF (XLF) is doing well again today. It’s had a rough few months.

This morning’s ISM report for January came in at 53.5 which is a bit on the light side. That’s down from 55.1 in December.

The Census Bureau said that construction spending rose by 0.4% in December. We also learned that personal income rose by 0.3% in December while personal spending fell by the same amount. For all of 2014, personal spending rose by 2.4%. That’s the strongest growth since 2006. The PCE price index rose 0.7% over the last 12 months.

Morning News: February 2, 2015
Posted by Eddy Elfenbein on February 2nd, 2015 at 7:08 am

Germany Stands to Be Big Winner of Much-Opposed ECB Stimulus

ECB Bond-Buying Plan Has Investors Questioning How It Works

China Jan HSBC Factory PMI Contracts For Second Month, Misses Flash Estimate

China’s Latest Corruption Probe Could Spell Trouble for the Global Banking Industry

Justice Department Investigating Moody’s Investors Service

Settling Case, Standard & Poor’s Backs Off Claims of Government ‘Retaliation’

Oil Futures Swing Higher, Briefly Recapture $50 a Barrel

Obama Proposes $3.99 Trillion Budget, Sets Up Battle With Republicans

Swiss Bank Julius Baer to Cut About 200 Jobs in Cost Saving Drive

Are Changing American Tastes Slowing McDonald’s Down?

Hard-Charging Uber Tries Olive Branch

How We’re Spending Our Windfall From Cheap Gas

For French Investors, Euro Disney Nightmare

Jeff Miller: Weighing the Week Ahead: Will the Data Deluge Signal Economic Weakness?

Edward Harrison: Why Quantitative Easing and Negative Interest Rates Will Fail

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The S&P 500 Nears Its 200-DMA
Posted by Eddy Elfenbein on January 30th, 2015 at 9:17 am

The S&P 500 reached its all-time intra-day peak of 2,093.55 on December 29.

A 5% drop would take the index to 1988.87. The S&P 500 has reached three recent intra-day lows: on January 14, then on January 16 and again yesterday. Those lows were, in order, 1,988.44, 1,988.12 and 1,989.18. Eerily close. Still, the S&P 500 has not yet closed at a 5% loss, but it’s gotten close.

The S&P 500 is also getting close to its 200-day moving average. Going by yesterday’s close, the 200-DMA is now 1,973.85.

GDP Grew 2.6% in Q4
Posted by Eddy Elfenbein on January 30th, 2015 at 8:52 am

The government just reported that the economy grew at a 2.6% rate in Q4. Honestly, that’s not that great. But considering that Q2 and Q3 were pretty good, it’s nice to see us not give it all back. In fact, the last three quarters were the best for real GDP growth since the last two quarters of 2003 and Q1 of 2004.

Here’s a look at the trailing three-quarter growth rate (not annualized):

We’re somewhat back to normal! Interestingly, nominal GDP grew by 2.54%, a bit less than RGDP. That’s what deflation does.

For the year, RGDP grew by 2.42% which was our best showing since 2010.

We need the last three quarters to repeat themselves for another four years, and inflation to return to 2%. That would be very good.

Moog Earns 86 Cents per Share
Posted by Eddy Elfenbein on January 30th, 2015 at 8:20 am

Moog (MOG-A) just reported fiscal Q1 earnings of 86 cents per share. In October, they gave full-year guidance of $4.25 per share and sales growth of 1%. Now Moog is lowering their EPS guidance to $3.85, but $3.95 with share buybacks. Bottom line: Good execution, poor environment.

Moog Inc. today announced first quarter sales of $631 million, down 2% from a year ago, the result of negative foreign currency effects. Net earnings of $35 million increased by 10% and earnings per share of $.86 were 23% higher, in part the result of the Company’s on-going share repurchase program.

Aircraft segment sales, at $266 million, were unchanged from last year. Commercial aircraft sales increased 10% on strong OEM production which included $62 million in sales to Boeing and $23 million in sales to Airbus. Commercial aircraft aftermarket sales of $30 million were slightly higher than a year ago.

Military aircraft sales were down 8% to $126 million. OEM sales were down 14% as production on fighter aircraft programs slowed and activity on the F-35 Joint Strike Fighter was lower. Military aftermarket sales were nominally higher, at $51 million.

Space and Defense sales of $100 million were unchanged from a year ago. Defense sales were 6% higher and space market sales were down 4%, the result of a decrease in demand for satellite avionics products.

Industrial Systems sales of $133 million were 7% lower than last year, mostly driven by the stronger U.S. dollar. Industrial automation products were down 2%, while sales of simulation and test systems were down 16%. Energy products were down 10% in total, with wind energy controls unchanged from a year ago.

Components Group sales, at $100 million, were 3% lower than a year ago. Industrial automation sales, at $24 million, were 7% higher. Sales into aerospace and defense markets were mostly unchanged. Medical components sales were down $2 million, or 10%. Sales of energy market products were down $2 million from the elevated levels of last year.

Medical Devices segment sales of $31 million were down 3% with lower sales of pumps and administration sets mostly offset by an increase in sales of OEM sensors.

Twelve month consolidated backlog was $1.4 billion, unchanged from a year ago.

Projections for fiscal 2015 were also updated. The company is reducing its sales forecast for the year by $95 million which will result in sales of $2.57 billion, net earnings of $157 million and earnings per share of $3.85. This updated guidance does not include the impact of additional share repurchases. The completion of the Company’s previously authorized 9 million share repurchase program during FY’15 would result in earnings per share guidance of $3.95.

“Overall Q1 was a mixed quarter for the company,” said John Scannell, Chairman and CEO. “On a positive note, earnings came in slightly ahead of our forecast and cash was very strong. However, during the quarter we started to feel the impact of three macroeconomic headwinds, the strengthening of the U.S. dollar, the industrial malaise outside the U.S. and the sharp and sustained drop in the price of oil. As a result, we are introducing some caution in our forecast and revising our outlook for the remainder of fiscal ’15 downward. Despite these challenges, we are still forecasting fiscal ’15 to be another year of strong cash flow and record earnings per share.”