It is August.
Late summer is a doldrums time of year.
The "doldrums" is a popular nautical term that refers to the belt around the Earth near the equator where sailing ships sometimes get stuck on windless waters.
With the month of September next in line, stock markets just entered what is typically a seasonally weak trading period.
With many growth stock momentum trades working so well, does anybody care about valuations?
Well, if you do, here they are—
The forward 12-month P/E ratio for the large-cap S&P 500 index resides at 22.3. This well above the 5-yr average at 17.0 and even further above the 10-yr average at 15.3.
That valuation data speaks. Market sentiment seems durably bullish, day-after-day.
But sentiment could start to change.
CNBC put up a good quote on this. It is from Julian Emanuel, head of equities and derivatives strategy at BTIG.
“The seasonals are starting to shift negatively. We all know September is a poor month and the degree of the escalation of the tensions between the U.S. and China is not a surprise, but the degree of the escalation over the last 48 hours is,” he said last Friday. “It’s not changing psychology, but it’s challenging bullish psychology.”
In the Global Week Ahead, there are some reports hailing from the Q2 earnings season to keep track of:
- - On Monday, pay attention to hotelier Marriott and cruise ship Royal Caribbean
- - On Tuesday, food distributor Sysco matters
- - On Wednesday, focus on tech stock Cisco
- - On Thursday, look at Tapestry, NetEase and Applied Materials results
- - On Friday, Draft Kings will be interesting, in this age of betting on everything
In the week after, big U.S. retailers roll out their Q2 reports, in a final burst of earnings season.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Does the “Buy Everything” Rally Have Still More Gas?
We will soon learn if the “buy everything” trade has legs.
Congress’ dithering over approving more stimulus has pushed gold to record highs, above $2,000, while U.S. Treasury yields have lurched lower.
But equities too are riding high — clearly the powerful backstop of central bank stimulus is holding firm.
The rush for everything — risk as well as safety — has lingered.
But positioning on most markets is stretched and such good news as there is, from earnings to vaccine trials, seems priced in.
Upcoming data, election news plus Sino-U.S. trade talks might show the difficulties of having one’s cake and eating it.
(2) The U.S. Presidential Election Will Matter to Stocks. Really!
The U.S. election has yet to have much traction on markets, but that may change soon.
Presumptive Democratic nominee Joe Biden will announce a running mate before the Aug. 17th Democratic convention.
President Trump, meanwhile, is intensifying his campaign against mail-in voting, which he says encourages fraud.
Some investors are moving to hedge portfolios against volatility around the Nov. 3 election. That shows up in futures on the Cboe Volatility Index, which shows a bump in expectations for market swings around then.
The implied volatility rise looks especially steep, given the VIX itself has eased to 5-month lows. The spread between August and October VIX futures is at 5.5 points, the widest since the contracts began trading.
The focus may be less on the outcome and more on possible delays in tallying results, due to the widespread use of mail ballots this year.
Volatility and legal challenges remain risks.
(3) Will Holidays in August Help the Battered Tourism Sectors?
August conjures up images of beaches and sunshine. But it may not bring much respite to travel and tourism stocks.
Battered by lockdowns, tourism has lagged a broader market recovery, with airline, hotel and leisure shares 20%-50% lower year-to-date.
After an uptick since the start of August — Europe’s travel and leisure index has risen 7% — the lifting of a U.S. advisory against foreign travel and initiatives, such as Spain’s offer to cover travelers’ health costs, could provide some support.
But more is at stake than share prices: shrinking tourism may shave 3%-11% off countries’ GDP.
And as stricken airlines and hotels lay off staff, mass unemployment is a potent threat.
(4) August 15th: Time to Videoconference with China on the Trade Deal
Bob Lighthizer and Liu He will have some catching up to do on Aug 15th, when they dial into a video conference to review the U.S.-China trade deal.
The review coincides with deteriorating ties. Following Mike Pompeo's combative speech and tit-for-tat consulate closures, Chinese tech firms TikTok and Tencent are in Trump's crosshairs.
A planned health secretary visit to Taiwan is raising Beijing's hackles.
So far, the markets remain confident in the trade relationship. But Beijing is behind on purchase targets for U.S. goods and its surplus with the United States rose by 10% last month.
The yuan has backed off five-month peaks ahead of what may prove an awkward video conference.
(5) Turkey’s Lira in Trouble Again
Turkey’s central bank is acting to limit the lira’s plunge, using backdoor tools that bankers estimate could tighten policy by up to 300 basis points.
But tricks, such as changing the composition of funding, only buy time. Previous crises suggest only big interest rate hikes are effective. That’s what markets are betting on.
When and how the central bank acts bear watching. More lira weakness will worsen inflation, and compromise companies’ ability to repay external debt. And if citizens’ confidence in the lira and local banks evaporates, authorities will be powerless to stop a currency collapse.
Top Zacks #1 Rank (STRONG BUY) Stocks—
This week, let’s investigate the big ‘story’ stocks of the current moment.
(1) Apple (AAPL - Free Report) : Yes. It made it to our #1 Rank list this week. The stock has a $1.9 Trillion market cap now, at $444 a share.
But pay heed to these long-term Zacks scores. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of F.
(2) United Parcel Service (UPS - Free Report) : With a home-bound, remote-working solution in place for the nation, it should be no surprise to see this stock on our #1 Rank list.
This is a $122B market cap stock at $156 a share.
Long-term scores are just mediocre here. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of C.
(3) Barrick Gold (GOLD - Free Report) : With a catchy ticker like that, and gold pricing at $2,000 an ounce, again, it is no surprise. This stock is on our #1 Rank list.
But once again, pay heed. The Zacks long-term Value score is F, the Zacks Growth score is C, and the Zacks Momentum score is C.
Key Global Macro—
To no surprise, the macro and events calendar is relatively light this week.
On Monday, Mainland China reports its CPI (consensus has +0.4%) and PPI (consensus has -2.5%). The latter is weak for some reason.
On Tuesday, Japan’s Eco Watchers Survey comes out. The outlook is pegged at 48.2 and the current sentiment is pegged at 46.6. With 50 marking a Rubicon, that sounds better than might be expected there.
Comparably, we get the German ZEW indexes out. I see current situation at -69.5 and economic sentiment at 58.
Eurozone wide ZEW index sentiment should be 59.9, which sounds positive.
New Zealand visitor arrivals (y/y) for June will post. That will be interesting data.
On Wednesday, Australia’s Westpac Consumer Confidence index came in at -6.1% last time. What will it be this time?
The U.K.’s Q2 real GDP growth rate looks to be -22.5%, after a -1.7% Q1.
We get U.S. MBA mortgage applications. That is likely a strong spot.
On Thursday, continuing weekly U.S. jobless claims come out. I see 16.1 million on the rolls at the moment. The St. Louis Fed says the civilian labor force is roughly 160 million. Do the simple math here. It’s 10%. Voila!
On Friday, Eurozone real GDP growth for Q2 looks to be -15%.
U.S. retail sales, ex-auto, may be up +1.7% in July, after a nice +7.5% lift in June.
Baker Hughes rig counts come out. Is a bottom finally in? The last count was just 247 rigs operating. Down -687 rigs over the last year. Is anybody puzzled about why Texas is in play this election year?
That’s it for me.
From June 30th through August 6th, the value of the S&P 500 index increased by +8.0%.
Last Friday, August 7th, the S&P 500 closed at 3,351.
I have a S&P 500 yearend target of 3,400.