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RBC raises stock market outlook into the tech wreck, sees 7% S&P 500 rebound into end of the year

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By Tae Kim

Tech stocks are getting pummeled, but that didn’t stop a prominent Wall Street strategist from raising his price target for the S&P 500 Monday.

The five biggest technology stocks lost nearly $100 billion in market value Friday, which caused the Nasdaq composite to post its worst week of the year. Apple and other technology stocks dropped again Monday with the iPhone maker shares down as much as 7 percent in two days.

“We remain constructive on equities given the recent pickup in global activity, stronger EPS, and reasonable valuations,” RBC Capital strategist Jonathan Golub wrote in a note to clients Monday.

“Equities would do quite well in the near term, led by financials as well as the most cyclical groups such as materials, industrials, and energy. Small-cap, value, and more globally oriented names would also do quite well. By contrast, low-vol and the bond proxy sectors would come under pressure,” he added.

The strategist raised his price target for the S&P 500 to 2,600 from 2,500, representing 7 percent upside from Friday’s close. The new forecast ranks second behind Morgan Stanley’s Mike Wilson S&P 500 target of 2,700, which is the highest target on Wall Street, according to CNBC’s Market Strategist Survey.

Golub calculated his new target by evenly discounting his two “modest growth” and “reacceleration” economic outlook scenarios:

  1. “Modest Growth. Despite strong global PMIs, U.S. GDP is expected to grow only 2.2% in 2017, roughly in line with its post-recession average … A continuation of these conditions should keep the Fed at bay, extending the business cycle. Large cap and growth stocks should outperform under this scenario.”
  2. “Reacceleration. Stronger conditions globally and a tight labor market should lead to a pickup in nominal GDP … The Fed should engage more quickly under this scenario, shortening the business cycle. Small-cap and value stocks should lead, with financials performing well and bond proxies coming under pressure.” As a result of his analysis, Golub increased his earnings-per-share estimate for the S&P 500 to $130 from $128.

While the strategist is bullish on the market overall, he is more subdued over the impact of President Donald Trump’s economic agenda.

“While many believe that fiscal stimulus would be a boon for equity markets, we think the effects would be more muted, as increased inflationary pressures would likely lead to more hawkish Fed policy,” Golub wrote.

Source CNBC

White House to roll out budget proposal, cutting Medicaid, assistant to the poor

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WASHINGTON — President Donald Trump is thousands of miles away, but his policy agenda faces tests back home this week as he looks to shift the focus from Russia investigations to his plans for boosting American military power and revamping the tax code.

The White House on Tuesday will roll out a budget proposal crystallizing the president’s priorities in a blueprint that calls for large cuts to social safety-net programs such as Medicaid and food assistance while increasing Pentagon and border-security spending.

While Trump visits Pope Francis in Rome on Wednesday, Treasury Secretary Steven Mnuchin in Washington will testify about Trump’s 2018 budget plan before the House Ways and Means Committee. The same congressional panel will hold a separate hearing devoted to a tax overhaul aimed at reducing rates and speeding job growth — a centerpiece of Trump’s campaign message.

Following a drumbeat of revelations about Trump and Russia over the past two weeks, the White House and congressional Republican leaders are eager to show that they can deliver on policy promises.

Read: Goldman slashes tax-cut expectation as Trump drama rages

A potential land mine for the Trump administration is a report coming out this week from the Congressional Budget Office. The nonpartisan CBO will release its evaluation of the health-care bill that narrowly passed the House on May 4 following an intensive lobbying push by the White House.

An expanded version of this report appears on WSJ.com

https://www.wsj.com/articles/taxes-budget-are-focus-for-trump-despite-probes-1495414525

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Source: Market Watch Personal Finance

Stock buyers were much more aggressive than sellers earlier in the week

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Stock market breadth data indicated that buyers were acting aggressively Friday, much more so than sellers were during the market’s tumble earlier in the week.

The New York Stock Exchange’s Arms Index, which is a volume-weighted breadth measure, fell to 0.544, suggesting bulls exhibited near panic-like behavior.

Developed by Richard Arms about 50 years ago, the Arms Index, also known as the short-term trading index, or TRIN, is calculated by dividing the ratio of advancers to decliners by the ratio of advancing volume to declining volume. It is used by many market technicians to gauge the intensity of buyers and sellers.

As buying intensity increases, the Arms tends to fall below the equilibrium level of 1.000, as volume in advancing stocks rise relative to the number of advancing stocks. When selling is more intense, the TRIN rises above 1.000.

Many see declines below 0.500 as depicting panic-like behavior by bulls, while rises above 2.000 suggests panic selling.

On Friday, 2,229 NYSE-listed stocks gained ground (73% of the total), compared with 707 decliners, while volume in advancing stocks represented about 85% of total volume. Meanwhile, the Dow Jones Industrial Average

DJIA, +0.69%

 climbed 142 points, while the S&P 500 index

SPX, +0.68%

 advanced 0.7%. See Market Snapshot.

When the Dow tumbled 373 points and the S&P 500 shed 1.8% on Wednesday, the biggest one-day selloff in eight months, the NYSE TRIN rose to just 1.21, suggesting sellers were relatively calm and collected.

The extreme TRIN levels are sometimes interpreted as contrarian trading signals, since panic buying or selling suggests capitulation. But history indicates the predictive ability is hit or miss.

For example, the last NYSE TRIN reading above 2.000 was April 13, at 2.27. The S&P 500 index bottomed at a 2-month low that day, then rallied 2.3% over the next couple of weeks. But there was a cluster of three sub-0.500 readings between Nov. 7 and Nov. 14 as the S&P 500 rallied off a 4-month closing low on Nov. 4, but the index kept rallying, outside of shallow 1-week pullback at the end of the month.

So rather than use the TRIN as a market-timing tool, investors may be better off just using it as another measure of fear or greed.

Source: Market Watch Personal Finance

The economic fortunes of red and blue states can be tracked through their diverging credit scores

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Three little numbers can tell you a lot about a person’s — or even a community’s — financial health.

Most U.S. states that voted for President Donald Trump last November had an average credit score nearly 20 points lower than those states that voted for his Democratic rival Hillary Clinton, according to this analysis of Experian’s “Premier Aggregated Credit Statistics” using the VantageScore 3.0 credit score model for each zip code in each state. While credit scores don’t necessarily reflect people’s income or debt levels, they do give a bird’s eye view into people’s ability to repay personal loans, manage their finances and pay off credit cards on time.

Except for Wisconsin, swing states that voted for Barack Obama in the 2012 election and Trump in 2016 had a decline in their average credit score. The swing states of Michigan, Ohio, and Pennsylvania all saw a decline in average credit score from 2012 to 2016. In Florida, the average state credit score dropped to 672 in 2016 over that period. In Michigan, it fell to 683 from 690 over and fell to 694 from 700 in Pennsylvania. The study by LendEdu, a consumer finance comparison site, aggregated credit scores for each zip code and adjusted them for state population size.

The VantageScore 3.0, used in this study, runs the gamut from 300 to 850, a numerical scale that is commonly used, but certainly not the only credit-score model used. The lowest score is regarded as deficient and the highest as excellent. Different lenders obviously have different criteria when it comes to loaning money, and may approve borrowers with a mediocre credit score. A high score generally means that the individual in question has been paying their bills off on time, or only uses a small percentage of his or her available credit on credit cards.

Other research appears to support this theory. Southern states — Mississippi, Arkansas, Louisiana and Louisiana, which all voted for Trump in 2016 — typically have lower credit scores than the rest of the U.S., personal-finance site ValuePenguin also reported. “These regions have the lowest percent of the population with an open credit card or home equity line of credit,” they wrote. “At the same time, credit health in states like Minnesota and North Dakota has exhibited resilience in the face of economic downturn.” North Dakota voted for Trump, but Minnesota voted for Clinton.

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ValuePenguin says it’s more revealing to look at the trajectory of credit scores and, from that viewpoint, “the same states appear to be underperforming as compared to the national average.” In South Carolina, 20% of the population was reported as having weak, struggling, or declining credit — defined as having a bill that was 60 days or more overdue — followed by Mississippi (19%), and Alabama, Georgia, Louisiana and Texas (all with 18% declining credit), and Oklahoma, Tennessee and Florida (all with 17%). All of those states voted for Trump in 2016.

Of course, this isn’t the only measure of red and blue states in the run-up to the election. Trump states had the most lackluster job growth in the last two years. Since 2015 there has been a noted drop in jobs growth and more so in red rather than blue states, according to Jed Kolko, chief economist for jobs site Indeed.com, who crunched state Bureau of Labor Statistics. Globalization and technological advancement have restrained growth in U.S.-based manufacturing jobs. At the same time, the technology sector has continued to surge.

The Midwest and South have been gutted by globalization, experts say. “We know that many of the voters who propelled Donald Trump to victory were in rural areas,” Mark Hamrick, Washington, D.C. bureau chief at personal-finance website Bankrate.com, told MarketWatch. “Generally, these are areas of the country, like my own hometown in Kansas, which have seen declining population precisely because of a lack of economic opportunity. By contrast, people are attracted to areas where jobs are available or even plentiful, which tends to reinforce the cycle.”

Red and blue states are connected to the fortunes of the U.S. economy, with perhaps oil-producing states being the major exception. Globalization and technological advancement have restrained growth in U.S.-based manufacturing jobs, Hamrick said. At the same time, the technology sector has continued to surge. The decline in crude oil and commodity prices interrupted the boom in those sectors and regions reliant upon them although we may well have seen the worst of that since prices have rebounded.

Source: Market Watch Personal Finance

Under Armour: It Ain’t Over ‘Til It’s Over!

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Yesterday, shares of Under Armour (UAA) surged 9.9% as investors cheered its better-than-expected earnings. Baird’s Jonathan Komp and Benjamin Bray, however, note that the Bull-Bear debate around Under Armour is far from over. And remember, this is coming from a pair of bulls.

So why do Komp and Bray warn investors not to make too much of yesterday’s big gain? I’ll let them explain:

We are encouraged that UA delivered on Q1 targets (profit upside timing-driven), but view today’s ~9% gain as a sign sentiment had moved too negative, and not that current bear arguments are resolved. We think the lowered Q2 bar probably de-risks the near-term outlook, setting up the planned 2H acceleration as a key proof point on whether UA can successfully shift its product/positioning. We are staying the course, and will seek opportunities (hopefully during 2H) to raise our conviction level.

That aligns nicely with the view of Cowen’s John Kernan, who argued that short-covering was responsible for a big chunk of yesterday’s move.

Shares of Under Armour have declined 0.3% to $21.61 at 1:57 p.m. today.

Source: Blogs Barrons Stocks To Watch

ExxonMobil: Curb Your Enthusiasm?

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Shares of ExxonMobil (XOM) traded up as much as 1.5% this morning after the oil giant beat earnings forecasts. They’ve been coming in ever since.

Exxon reported a profit of 95 cents a share, beating forecasts for 88 cents, on sales of $63.3 billion, missing forecasts for $66.4 billion.

In a note released before the open this morning, Wells Fargo’s called the result “neutral” for the stock. He explains why:

Versus our expectations, XOM beat on better downstream performance, as chemicals fell short of expectations and upstream net income was in line with our estimates. Capex was meaningfully below expectations and run rate for FY2017 guidance. Cash flow from operations was slightly below our expectations, but net cash flow after capex and dividends exceeded $2.0 billion.

Sounds about right.

Shares of ExxonMobil have advanced 0.8% to $81.89 at 2:02 p.m. today, while the Energy Select Sector SPDR ETF (XLE) has advanced 0.4% to $68.07.

 

Source: Blogs Barrons Stocks To Watch