Dow 17,000
Posted by Eddy Elfenbein on July 3rd, 2014 at 11:27 am

The Dow Jones Industrial Average topped 17,000 for the first time ever this morning. The index first broke 1,700 in February 1986. We’ve gone up 10-fold in 28 years.

June NFP = +288,000
Posted by Eddy Elfenbein on July 3rd, 2014 at 11:10 am

The June jobs report is out and the numbers were quite good. The economy added 288,000 jobs last month, and the unemployment rate dropped to 6.1%, it’s lowest level in more than five years.

This is the first time the economy has added more than 200,000 jobs each month since the Tech Bubble. April’s NFP was revised higher by 22,000 and May was revised upward by 29,000.

In the last five months, the economy has added 1.241 million jobs. The jobs-to-population ratio finally hit 59%. It has been stuck between 58% and 59% for 57 straight months.

Morning News: July 3, 2014
Posted by Eddy Elfenbein on July 3rd, 2014 at 6:49 am

Euro-Area PMI Surveys Signal Growth Doubled in Second Quarter

German Private Sector Expands at Slowest Pace in Eight Months in June: PMI

Swedish Krona Slides After Rate Cut

World’s Best Sovereign Bonds Ride Aussie High-Yield Wave

Libya Promises A Return, Again

Obama Decries Big Bonuses at Bank Trading Desks as Risky

Winner of Bitcoin Auction, Tim Draper, Plans to Expand Currency’s Use

Samsung Display Says to Build $1 Billion Vietnam Plant

Kroger Buys Vitacost to Expand Into Online Grocery Shopping

Roche Holding Ltd Is Betting Billions on This New Blockbuster

American Apparel Deal Gives Power to Hedge Fund, Not Dov Charney

Is Lululemon Athletica a Buy Now That It Has Declined Recently?

Dimon’s Cancer Has 90% Cure Rate With Demanding Therapy

Cullen Roche: Where Did All the Keynesians Go?

Joshua Brown: The Hamptons as Wall Street Confidence Indicator

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The Divergence of Staples and Healthcare
Posted by Eddy Elfenbein on July 2nd, 2014 at 8:03 pm

This is a subtle but important point I want to make. The relative performance of Healthcare stocks and Consumer Staples stocks tends to be mildly related. Over the last 15 months or so, that relationship seems to have broken down.

A picture may tell the story. Here’s a 25-year look at the Consumer Staples sector divided by the S&P 500 (red), and the Healthcare sector divided by the S&P 500 (black).

Both sectors are traditionally defensive sectors. As such, see how both lines tend to rise when the market crumbles, and then fall as the market rallies. That’s what defense is all about.

By related, I don’t mean that the two lines track each other over the long-term. Instead, I mean that the near-term nooks and crannies, peaks and valleys tend to match up pretty well (study them closely and you’ll see what I mean). If you look at daily performance of the stocks in the S&P 100, you’ll notice that the Healthcare and Staples names are often close together.

Over the longer term, however, there are clear multi-year trends. For example, Healthcare beat Staples from 1993 to 2000 (black beat red). But over the next eight years, Staples took the lead (see how red closed the gap). In this decade so far, Healthcare has stood on top.

Here’s my larger point. Since the spring of 2013, the lines aren’t matching up at all. In fact, there seems to be some negative correlation, and I don’t know why. Obviously, the effect of the Affordable Care Act could be playing a role. Perhaps the market no longer sees Healthcare as a defensive sector. Conversely, maybe it’s that Staples have changed. I really can’t say.

Volatility Anyone?
Posted by Eddy Elfenbein on July 2nd, 2014 at 3:41 pm

The market’s dead today. This chart really does say it all.

Good ADP Report, Bad Factory Orders
Posted by Eddy Elfenbein on July 2nd, 2014 at 10:45 am

Another quiet morning on Wall Street. The S&P 500 is holding just below its all-time high. Interestingly, IBM has been perking up so far in Q3. The stock gained 2.8% yesterday and it’s up another 1% today.

Tomorrow is the big jobs report but we got a preview today with the ADP report. According to the private payroll firm, the economy added 281,000 private sector jobs last month. That easily beat Wall Street’s estimate of 210,000. I think tomorrow’s report could be a big one.

On the downside, the Commerce Department said that factory orders dropped 0.5% in June. Excluding military stuff, factory orders rose 0.2% last month.

Morning News: July 2, 2014
Posted by Eddy Elfenbein on July 2nd, 2014 at 7:04 am

World’s ATM Moves to Frankfurt as Yellen’s Fed Slows Cash

Hong Kong Stocks Close at Year’s High on Factory Data

German, French Defense Companies Plan Alliance

Orange Fails to Reach Deal on French Wireless Consolidation

Puerto Rico Downgrade Raises Default Fears

Google in Deal for Songza, a Music Playlist Service

McDonald’s, Taco Bell, KFC Laggards in U.S. Fast-Food Survey

Nike Is Dominating The World Cup – Here’s Why

Seragon Pharmaceuticals Announces Acquisition Agreement With Genentech

How Can GM, Embroiled in a Recall Crisis, Continue to Post Strong Sales?

BNP Growth Plan at Risk as Penalties to Mar U.S. Expansion

Jamie Dimon Diagnosed With Throat Cancer: What He Can Expect

Coatue Bids Farewell to Noto Before He Starts

Roger Nusbaum: Alternative Investments: The Right Expectations

Jeff Carter: Now Is The Time to Invest in VC

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Breaking Down the Year So Far
Posted by Eddy Elfenbein on July 1st, 2014 at 12:03 pm

Here’s a look at the relative strength graph so far this year. I took each of the Total Return Indexes for the S&P 500 sectors and divided them by the S&P 500’s Total Return Index. I then set each one to 100 to start the year.

In plainer terms, a rising line means a sector is beating the market and a falling one means it’s losing. I apologize if this chart is hard to read but it’s a good way to see what’s been working this year and what hasn’t. (I didn’t include telecom since it’s only a few stocks and I didn’t want to crowd the graph.)

Healthcare and Utilities ran out for a quick lead at the start of the year, but healthcare has been rather weak since. Materials stocks were strong in February. Starting in March, Energy stocks started coming on strong. That probably explains some of the weakness in our Buy List since we don’t have any Energy stocks. The best performing sector YTD is Utilities (+18.655). The worst is Consumer Discretionaries at +0.6%.

Utility stocks started trailing the market in May, but have been leading the market over the past few weeks. In fact, a quiet theme this year has been the leadership tug-of-war between Utility stocks and Energy stocks. This probably reflects competing theses on the economy.

It’s also interesting to see how poorly Consumer Discretionaries have been doing. Bear in mind that this sector had been crushing the market for more than four years.

June ISM = 55.3
Posted by Eddy Elfenbein on July 1st, 2014 at 11:31 am

We had another good ISM Manufacturing number. For June, it was 55.3. This was 0.1 below last month’s number. If we had topped that, it would have been our fifth monthly increase in a row.

The ISM has now been 49.0 or better for 60 months in a row. As I’ve discussed before, this is one of the better recession indicators. We’re still in the safe zone.

The Mid-Year Rally
Posted by Eddy Elfenbein on July 1st, 2014 at 11:21 am

We’ve all heard about the Santa Claus Rally, but there’s a smaller historical rally that takes place around the middle of the year.

I crunched the numbers for the entire Dow’s history going back to 1896 and found that the index gains an average of 1.18% from June 29 to July 9. That may not sound like a lot but consider what it means: 16% of the Dow’s entire capital gain for the year has come over a seven-day span. (The Santa Claus Rally is a more impressive gain of 2.94% from December 20 to January 7.)

Historically, this mid-year seven-day spurt kicks off the big Summer Rally. The Dow has gained, on average, 3.69% from June 29 to September 6. That’s almost exactly half the Dow’s average yearly gain coming in just over two months.