Secular Bull Market

The Fed cautiously removes the crutches and the economy begins to stand.  Employment gains and consumers start to spend, encouraged by their growing stock accounts and rising home values.  The economy has mended, standing at the forefront of a powerful and long-term bull market.  For too long have prices moved sideways while stock valuations steadily improved.  The economy is now larger and stronger than it was in 2007 or 2000 – peaks where stocks markets have languished under for the past 13 years.   A secular bull market awaits, with any correction offering an ideal buying opportunity in this new phase of economic growth.

Bad News From The VIX

Average S&P performance after the VIX spikes in excess of 25% and is within 1% of a 52-week high, like today:

  • Next day:             +0.37%
  • One week:           -0.63%
  • One month:          -1.55%
  • 3 months:             +0.54%
  • 6 months:             -0.15%

 -Bespoke Investment Group with the data

Bull Market

Equities are this close:

  • S&P 500:              2% away from 1,565.15 all time high
  • Nasdaq:              12 year high
  • Dow:                    1% away from 14,164.53 all time high (14,198.0996 intra-day high)
  • Russell 2000:       already at record levels.
  • DJ Transports:     already at record levels.

Net Euro Bets Finally Break Positive

-Financial Times 2/13/13

-Financial Times 2/13/13

Short Euro bets hit their highest levels last year, however sentiment has done an about-face since then as bullish bets just hit their highest levels since July 2011, breaking into ‘net long’ territory.  Conversely short positions on the yen broke through 5 year highs early December.  Ultimately the Euro will not rally as that will kill their export led recovery, while it will similarly not fall given Draghi’s promise in July 2011 to “do whatever it takes” to save the Euro.  Talk about rangebound.

Nick Kounis, ABN Amro, “The strength of the Euro – if sustained – is a threat to even their rather modest (growth) outlook.  As such, we remain of the view that the European Central Bank will attempt to counter this strength.  Verbal intervention has already begun, but if that does not work, interest rate cuts will come back on the table.”

Bob Savage, FX Concepts, “Being bullish on the Euro is a very dangerous game given the politics, the economics and the fragility of the banking system.

Turning up the Volume.

Red dots distribution days, when the market drops on higher volume than the previous day.  Black conversely marks higher volume rallies.  More black dots seen recently signals increasing buyers entering the market.

There stretched a period at the end of January that consisted of 8 daily rallies on larger volume, uninterrupted by a single distribution day.  This grand emergence of buyers will provide necessary fuel to push the market higher through February. Or is ti FebruAny? Also, increasing volatility will provide good entry points along the way.

Northern Trust’s Million Charts

NT_Chart_Library_-_02052013  A fantastic presentation with charts on every aspect of the  global economy, from the breakdown of the CPI and dollar weighted index, central bank policy rate charts, US household & government spending, global GDP and inflation, China’s economy & growth, fixed income yield curves. spreads, option adjusted spreads, high yield metrics, default rates, global equities returns and fundamentals, commodities, demographics.

Northern forecasts an average rate of GDP of 1.85% for 2013, with just over 2% growth in the second half.  Slightly conservative compared to the street’s average 2.4% estimate.

Goldman Sachs 2013 Outlook

2013 Outlook Over the Horizon. Goldman Sachs sees interests rates staying low for a long time, despite having no nominal return for the foreseeable future.  They cite the 11.5 year period from 1939 when interest rates remained below 2.5%.  Cumulative asset class returns from 2009 are included, with 2012 showing continued growth in many sectors.  US Equity leads the pack form 2009 (+136%) while EM Equity led for 2012 (+18.6%).

Best investments for 2013 and 5 years out: EM debt, high yield debt, Euro Stoxx 50 equities and US bank stocks.  Hedge funds will have mid-single digit return, a wide-spread outlook.  They see a slight increase in world growth in 2013, led by emerging markets.  “Ongoing global growth should support earnings, providing a rising fundamental floor for equities.”  Page 10’s operating earnings vs. price chart says it all, stocks are incredibly undervalued.

Implied Total Return for 2013:

  • US equities:         1% – 6%
  • Euro Stoxx 50:     3% – 11%
  • MSCI EM:            7% – 12%