There’s plenty of cheer being passed around for a Friday, and we can thank China for a chunk of that.
Thursday’s better-than-expected U.S. growth data from the world’s second biggest economy was reinforced by an upbeat manufacturing survey, cooling some concerns about a global economic collapse, at least for now. Also helping out was yet more optimism over a U.S.-China trade deal, after a Bloomberg report said an agreement could be signed in the next few weeks.
And while the week hasn’t been fantastic for equity investors, March is off to a bright start, which may keep the upward momentum on track.
2 months in the books. YTD returns...
S&P 500: +11%
Dow: +11%
Nasdaq 100: +12%
Russell 2000: +17%
MSCI EM: +9%
MSCI World: +10%
Crude Oil: +25%
Gold: +3%
US Junk Bonds: +6%
US Aggregate Bonds: +1%
Volatility $VIX: -42%
— Charlie Bilello (@charliebilello) March 1, 2019
Even so, some can’t help thinking everything may just be a little too awesome right now. Our call of the day from Slope of Hope’s Tim Knight, says investors should keep an eye on their fellow investors, who are apparently so bullish they could drive the second-best start for stocks since 1987 right off the road.
In a fresh blog post, Knight zooms in on “warning signs” from the latest weekly AAII Sentiment Survey, which gauges how many stock investors are bullish, bearish and neutral. “Bullishness is now up OVER the 40 level – which usually marks market reversals. Bearishness has collapsed,” he notes.
AII Survey results for week ending 2/28/2019
Knight puts together the chart (below) that shows some recent history on the S&P 500’s behavior, when the percentage of bullish investors topped 40% and bears dipped below 30%. Levels above 40% preceded pullbacks in early October and November, though the reading for early December’s sentiment came in at around 38%.
That isn’t to say, of course, that history will repeat itself, maintains Knight. “It does however mean we should be paying attention. It is possible we can burn through these elevated readings and go higher, but the odds don’t favor it,” he adds.
Last word goes to Bank of America Merrill Lynch’s “Flow Show”, which takes the weekly pulse of what investors have been up to. Their own sentiment gauge, the Bull & Bear Indicator, hit 5.1 in the latest week (from 4.9 last week), the highest since May 2018. The scale runs from 0 — extreme bearish — to 10 — extreme bullish.
Drilling down, a thirst for equities doesn't seem that heated, though. The bank said $6.5 billion flowed into bond funds (for the week ended Feb. 27), while equities saw inflows of just $300 million — $10.2 billion flowing into exchange-traded funds, but $9.9 billion coming out of mutual funds.
Bank of America Merrill Lynch bank added that equity buying has largely been centered on growth stocks, not value — undervalued companies that can offer long-term profits if you do your homework.
Dow Jones Bullish Percent - 66.67% - Bull over 50%- sticking there all week. So 666 is a good number for now :). pic.twitter.com/syxFEfinYf
— David Larew (@ThinkTankCharts) March 1, 2019
The quote
Bloomberg
Bill Gross tells all
“I’m an Asperger and Aspergers can compartmentalize they can operate in different universes with the other universes not affecting them as much,” that was Janus Henderson portfolio manager Bill Gross, owning up to the condition in an interview with Bloomberg. He says he became aware of his own diagnosis after identifying with one of the heroes of Michael Lewis’s book “The Big Short.“
But the developmental disorder also helped him as a trader, he says, allowing him to “focus on longer-term things, without getting mixed up in the details.”
Gross also said if he were to pass on his “bond-king” crown, it wouldn’t be to DoubleLine Capital’s Jeffrey Gundlach, but to Scott Minerd, the chief investment officer at Guggenheim Partners, for his “great, long-term perspective.”
Read: Why investors should no longer bet on Warren Buffett
The market
Dow YMH9, +0.64% , S&P 500 ESH9, +0.57% and Nasdaq NQH9, +0.66% futures are moving higher after Thursday’s session, which saw modest losses for the Dow DJIA, -0.27% , S&P 500 SPX, -0.28% and Nasdaq COMP, -0.29%
Risk-on mood not helping gold GCJ9, -0.61% while the dollar DXY, +0.02% is flat and crude CLJ9, -0.16% is inching up.
Trade-deal hopes lifted Europe stocks SXXP, +0.56% and Asia’s. The Shanghai Composite SHCOMP, +1.80% surged 1.8% on trade headlines and after the Caixin China manufacturing purchasing managers index rebounded to a three-month high in February. That comes a day after the official gauge fell to its lowest in three years.
Read: 3 tips for beating the stock market from a fund manager who keeps doing it
The economy
Another massive data dump is on the way with a raft of indicators that had been delayed because of the shutdown. At 8:30 a.m., we’ll get personal income and consumer spending for December and January, core inflation for those months, then later the Markit purchasing managers index, the Institute for Supply Management’s manufacturing index, construction spending and consumer sentiment.
Auto sales are also headed our way.
Read: Fed’s Dudley says central bank gets blamed too much for market ups and downs
The stat
Getty Images
A piece of China’’s action
$66 billion — That’s the amount of foreign inflows that could be hitting China later this year after MSCI announced it will lift the inclusion of Chinese large-cap stocks to 20% from 5% now. The announcement comes as stocks in the region are blasting higher, with the Shanghai Composite up 20% year to date and dominating when it comes to winning global equity indexes right now.
The region is kind of a “basket case,” Nicolas Yeo, head of China equities at Aberdeen Standard Investments, told CNBC. “This is an inefficient market, after all, where 80% of turnover emanates from local retail investors more easily swayed by the latest headlines than the earnings prospects of A-share companies,” he said.
The Atlas Investor’s Tiho Brkan, who focuses on Asia investing, told MarketWatch that he exited Chinese stocks three days ago, “precisely because the stock market went vertical,” within about five weeks. “...I learned that when prices spike this fast and this quick, it’s always smart to sell and buy back when things calm down,” the trader says.
The buzz
Exact Tesla Model 3 in my profile pic costs $35k before incentives & takes 1 minute to buy online at https://t.co/46TXqRrsdr
— Elon Musk (@elonmusk) March 1, 2019
Tesla TSLA, +1.63% is taking a hit after CEO Elon Musk said the company won’t make a profit in the current quarter, but that earnings goal was “likely” in the second. He also announced job cuts as the company moves to sell its cars online and shut many of its retail stores, adding that was the only way to deliver cheaper cars.
Flying high is Gap GPS, +0.16% , after news the company will split into two, with a spin-off to come of the Old Navy franchise. Foot Locker FL, +0.25% is also climbing on blowout earnings.
Dell DELL, -0.76% reported losses that doubled in its first set of earnings — warning, you’ll need an M.B.A. to actually figure them out — since returning to Wall Street. Also late Thursday, Hewlett Packard Enterprises HPE, -1.92% delivered an earnings beat, along with VMware VMW, -2.39% and Nordstrom JWN, +0.04%
Opinion: Best Buy and other bricks-and-mortar retailers worth buying in 2019
Random reads
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Pakistan gets ready to release capture Indian pilot, amid hopes tensions will cool off
Against the advice of the CIA, Trump reportedly gave top-secret security clearance to son-in-law Jared Kushner
U.S. offers $1 million for info on the son of late al Qaeda mastermind, Osama bin Laden
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Multi-taskers, bow to your new queen.
My sister says I’m a weirdo...I say I’m creative and cleaning at the same time
