A major analyst made that prediction today but we have to conquer 2,000 before targeting 3,000.
Morgan Stanley's Adam Parker, normally one of the most bearish analysts on the street was making headlines again on Tuesday. Several weeks back he upgraded his forecast from the high 1,800's for the S&P at year end to 2,014 at the end of 2014. That was good for a couple days of headlines and appearances on several stock TV shows. This week he made headlines again calling for S&P 3,000. While that sounds outrageous there was a catch. As with most self promoting market calls there was a qualification. He is predicting 3,000 by the year 2020.
While that sounds crazy today it is not that big of an accomplishment. That assumes a 6% annual gain on the S&P and that is easily obtained. I have to hand it to Parker. He has figured out how to attract attention without straying too far off the beaten path. Now the wealth managers at Morgan Stanley have something to pass on to their clients to encourage them to put some more money away for the long term.
Parker was the first to admit the market is not going straight up and will probably see some severe bouts of volatility along the way. However, long term the market should continue to grow from 6-8% per year, which is the historical norm, and S&P 3,000 is the natural outcome.
Unfortunately we need to get convincingly past 2,000 before we can start making plans for 3,000. Traders coming back from their vacations took profits this morning as geopolitical events weighed on the market along with a sharp drop in crude prices. The energy sector had been recovering from the July decline but the drop in crude prices hit energy equities hard this morning.
The drop in crude prices came on the rising dollar because of stronger economics in the U.S. and weaker economics in Europe. Purchasing Managers Indexes in Germany, Italy, the U.K. and China all came in below estimates for August. Add in the future impact for the sanctions on Russia and the European economy is going to be even weaker in the months ahead. Weak overseas economies also suggest weaker demand for crude oil. It all added up to a sharp decline in crude prices.
Crude prices fell -$3 by early afternoon to erase the gains made last week.
The negative economic in Europe and the strong ISM in the U.S. caused a monster +3.2% spike in U.S. yields. This tended to rattle the equity market.
The only material economic report this morning was the ISM Manufacturing Index. The headline number rose sharply from 57.1 to 59.0 and well over the expectations for a decline to 56.9. This was the second monthly increase but more importantly this is the highest level since April of 2011.
The new orders component rose from 63.4 to 66.7 and backorders rose from 49.5 to 52.5. This was the first time in 3 months the backorders have risen above contraction territory. The production component rose from 61.2 to 64.5. The employment component was flat with a minor decline from 58.2 to 58.1.
This was a bullish report suggesting activity in the manufacturing sector is accelerating. Customer inventories rose from 43.5 to 49 with 72% of respondents saying their customer inventories were about right. Customer inventories are used as an indicator of future demand. If inventories are low the manufacturers anticipate future reorders.
The bullish manufacturing report is encouraging after seeing the Citigroup Timbuk2 ad on TV a lot lately claiming from 2001-2011 an average of 17 manufacturers a day closed their doors.
Construction Spending in July rose +1.8% compared to a decline of -0.9% in June. That was originally a -1.8% decline in June but it was revised to only -0.9%. The headline gain was the largest since May 2013. Residential construction rose +0.7%, non-residential rose +2.1% and public construction spending rose +3.0%. This was a pretty good report.
The next three days all have important events that could roil the market. The Fed's Beige Book is expected to show improvement and not be a market drag. If the Fed's outlook changed that could cause some volatility but based on the other reports I don't see that as a potential event.
The ECB meeting is a wildcard and it is tough to draw many conclusions about post meeting results. Suffice to say it is important for market direction over the next month. If Mario Draghi does launch a new QE program it would further depress the euro and spike the dollar. This would make dollar denominated investments like equities move higher.
The ADP Employment and Nonfarm Payrolls are both expected to show gains of more than 200,000 jobs and with weekly jobless claims slipping under 300,000 a week those employment reports are likely to meet the consensus estimates and be market positive.
Tesla Motors (TSLA) hit a new high at $284 with a gain of +$14.42 after Stifel Nicolaus said it could rise to $400. Stifel said their accelerating production capability has allowed it to develop a niche where they would be safe from competition for years to come. The analyst said they had a sizeable head start on production and it was increasing rapidly. He said Tesla was on track to boost production to 1,000 Model S cars per week before the end of the year. This could double again in 2015. Stifel raised the stock from a hold to buy with a target of $400. Tesla is on track to add the Model X SUV in 2015 and the Model 3, a smaller more affordable premium sedan by 2017.
Dollar General (DG) raised its bid for Family Dollar (FDO) from $78.50 to $80 per share or $9.1 billion. DG said it was willing to sell as many as 1,500 locations, up from 700, to obtain regulatory approval. They also offered to pay $500 million as a breakup fee if the deal did not close.
Dollar General is trying to fend off Walmart as that company adds to its smaller-format stores. FDO said its board was reviewing the DG offer. Dollar Tree (DLTR) is also reconsidering its last offer. Analysts believe DLTR could match of even exceed DG's $80 offer because they would face fewer regulatory hurdles. However, DG could afford to offer even more to guarantee it wins the bid. Without a counter offer from DLTR the FDO board may have a hard time turning down the DG bid. FDO has called DG an "unserious suitor" in the past but increasing the number of stores it is willing to sell and offering the $500 million breakup fee kills that argument.
Halliburton (HAL) agreed to pay $1.1 billion to settle most of the lawsuits over the Deepwater Horizon oil spill in the Gulf. Halliburton was blamed for doing defective work on the well before it exploded. The cement job that was supposed to keep the high pressures in the bottom of the well was defective according to the various reviews of the data. Halliburton used an untested cement formula in a rush to get the well completed and move on to the next location.
Settling the majority of the liability is a major cloud off the stock. The judge in the case is scheduled to rule on the liability of the major parties over the next several weeks and a finding of "gross negligence" for Halliburton would have made them liable for billions more in damages. This settlement was a good deal for Halliburton. Shares had moved up over the last six months in anticipation of some resolution.
Apple (AAPL) fought off claims of iCloud being hacked only a week before their big product announcement. Over the weekend nude pictures of actress Jennifer Lawrence and others were posted on the Internet. They were reportedly hacked from iCloud, which is operated by Apple. The company spent the last 48 hours tracking the hack backwards and late in the afternoon they revealed it was not a general hack but was a brute force attack against specific accounts. The brute force attack attempts to discover passwords by constantly trying to log on with all versions of personal data they can come up with. Sara Palin's Yahoo account was hacked once before by a college student that used information on a Wikipedia page to get her birth date and other personal information.
This is a clear reason why you should never use personal info of any kind as part of your username and password. Using some form of your initials, birth date, social security number, street address, middle names, kids names, phone numbers, etc, is extremely unsecure.
However, the easiest way of not having your nude pictures spread all over the web is to NOT put them in the cloud. If you are going to take nude selfies use an actual camera not your smartphone.
Everyone should realize by now that ANYTHING you put on the web or in the cloud is NOT secure. It will eventually show up in places you would rather not see it.
The daylong hack attention did not keep Apple shares from making another new high.
Home Depot (HD) shares declined -$2 after news broke the company was cooperating with law enforcement to investigate a possible data breach of the company website and confidential credit information. HD said "we are looking into some unusual activity" and "if we confirm a breach occurred we will make sure customers are notified immediately."
The same investigative reporter that discovered the Target (TGT) breach in 2013 reported that a "massive batch" of stolen credit and debit card information went on sale this morning. Brian Krebs, KrebsOnSecurity.com, said the cards appeared to be linked to Home Depot stores. The stolen cards were marketed online by hackers in two groups called "American sanctions" and "European sanctions." This suggests the hack may have been perpetrated by Russian hackers.
Helen of Troy (HELE), a maker of brand name consumer products, warned their fiscal 2015 outlook would be lower than previously forecast. They blamed it on acquisitions of Healthy Directions, which was completed on June 30th. They also warned they would not be giving future quarterly guidance. Full year earnings are now expected in the range of $3.70-$3.80 compared to prior guidance of $4.30-$4.40. Shares plunged after the close.
Concur Technologies (CNQR) spiked from $101 to $125 in afterhours before dropping back to $113. The company said it was exploring a sale to companies including SAP and ORCL. CNQR has a market cap of $5.7 billion and is working with an investment bank on a potential sale. Shares pulled back slightly after CNQR said ORCL had decided not to pursue a sale.
On the international scene another American journalist, Steven Sotloff, was beheaded on camera by an ISIS fighter. The English speaking terrorist said "I am back, Obama. I am back because of your arrogant foreign policy toward the Islamic State." The journalist was apparently killed several days ago and probably at the same time as Foley. The video was just released to correspond with the end of the U.S. holiday.
Apparently the U.S. has increased its airstrikes and there are German and U.S. Special Forces fighting on the front lines against ISIS. Like the Russian soldiers in Ukraine all identifying insignias have been removed from their uniforms. Story Here
Ukrainian officials claim there are now more than 15,000 Russian troops in the Ukraine and the defense minister said "defenses must be strengthened" in the face of a "full scale" invasion of Ukraine. Numerous headlines cited the comment from Putin that Russia could "take Kiev" in a matter of weeks if it so desired. Putin did not deny the comment but said it had been made in a confidential setting. He reportedly made the threat to the EU Commission president during talks on the Ukraine crisis. It was made in the context of "I can take all of Ukraine if the EU continues to increase its sanctions."
President Obama is reportedly going to warn Putin to back off in a trip to Estonia this week ahead of the NATO summit. NATO officials are said to be preparing a 4,000 man quick reaction force that could be mobilized in 48 hours to defend against any Russian aggression against a NATO country. It would be a delaying force until larger numbers could be delivered to the battlefield.
The geopolitical headlines did not appear to worry the equity markets. There was a dip at the open with the Dow down -88 points but the majority of the indexes returned to positive territory before the close. The Dow closed down -31 points and the S&P down only -1 after being down -8 intraday. The buy the dip strategy still appears to be working.
The S&P closed at 2002 and appears poised for a breakout this week if the headlines cooperate. The next three days each have something to worry about but boots on the ground in Iraq and threat of war with Russia had no material impact on the markets so weak jobs numbers may have no impact either.
Today was a paperwork day. Fund managers coming back from the last holiday of the summer probably spent the day answering emails and cleaning up the pile of paper that accumulated on their desk. They slowly immersed themselves back into the job and the market and they should be ready to begin adding to or restructuring their portfolios on Wednesday. New money end retirement contributions will be put to work.
The intraday dip on the S&P confirmed support at 1195 and resistance is now the 2003 closing high from Friday.
The Dow is the trouble maker this week with multiple levels of converging resistance from 17,075 to 17,150. Until the Dow builds up enough steam to break through that logjam the rest of the indexes may be lackluster.
The Nasdaq Composite closed in on the uptrend resistance at 4,600 and is showing no indications of a potential collapse at that level. Unfortunately sometimes there is no indication of strong resistance until the tripwire is triggered.
The Nasdaq gained +18 points to close only half a point below the high for the day at 4598.64. It is hard to say the market had a bad day when the Nasdaq closed at a new high by +18 points. There were a lot more big winners than sinners in the table below.
Support is now 4,550 and resistance 4,600.
The Russell 2000 shook off the early morning weakness to gain +5 points and a two month high. Not a bad gain when the Dow started off -88 in the hole.
The Dow Transports gained +108 points or +1.3% to close at a new high at 8,516. This is a clue for where the Dow industrials are headed. The positive ISM Manufacturing was bullish for transports and it will be bullish for the Dow once the minor profit taking is over.
Historically the month of September is negative. Dating back to 1950 the average September loss is -0.5%. Dating back to 1990 it is -1.1%. However, four of the last five Septembers have been positive with an average +2% gain. While history is a guide and not a guarantee this is encouraging. Historically when August is positive September is normally positive.
The cloud over September will be the midterm elections. The mudslinging has already begun and it will grow progressively worse over the next ten weeks. However, with the economic reports improving and earnings growth expected to approach double digits in Q3 the market should be positive. I know proclaiming that in print is the kiss of death for any rally but those are the facts as I see them today.
Enter passively, exit aggressively!
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