These articles were originally posted on
Buzz & Banter
where subscribers can follow over 30
professional traders as they share their
ideas in real time. Want access to the Buzz
plus unlimited market commentary?
Click here to learn more
Here's a small sampling of the
120+ posts seen on the Buzz &
Banter this week:
Monday, June 23, 2014
Dividends/Buybacks Hit Record High
FactSet just released its
Dividend Quarterly report for the first quarter of
, and it makes for a nice companion to the recent data posted on
the Buzz & Banter regarding
- On a per-share basis, trailing 12-month payouts were up 12.5%
- The consumer discretionary sector is expected to grow dividends
fastest in 2014 (+21.0%)
- A total 425
(INDEXSP:.INX) companies pay dividends. This is the highest level
- The S&P 500 payout ratio grew by 30 basis points
quarter-over-quarter to 31.9%, which is historically high excluding
recession years. (In recession years, earnings go down, pushing up
the percentage of earnings that are paid out)
- Total distributions (dividends and share repurchases) hit a
record high of $249.1 billion in the first quarter -- surpassing
the previous record set in the third quarter of 2007
- Dividend stocks outperformed from November 2009 to 2011, but
since 2012, non-payers have outperformed
Below, you'll see a chart from the report showing the total level
of shareholder distributions (both buybacks and dividends).
Click to enlarge
Keep in mind that companies aggressively buy back stock and raise
dividend payouts when they have confidence in future cash flows.
And that confidence turns into overconfidence near tops.
That's the normal situation. This time, things feel a bit different
because companies aren't just funding through cash flows -- selling
bonds to buy back stock has become an increasingly popular
financial engineering strategy.
In recent years, companies like
) have done this, and shareholders have definitely benefited.
But it could result in a big mess if rates ever go up.
It's not a here and now problem, but it's something to remember as
the market hovers at all-time highs.
Tuesday, June 24, 2014
Time for a Break in Leadership?
I have been writing a lot about my late-cycle thesis, stating that
outperformance should continue for what I deem the late-cycle
leaders of consumer staples via
Consumer Staples Select Sector SPDR ETF
(NYSEARCA:XLP); energy via
Energy Select Sector SPDR ETF
(NYSEARCA:XLE); and industrials via
Industrial Select Sector SPDR ETF
(NYSEARCA:XLI). There has been a good run in all three, and at this
point in the cycle, it is about time for a good shakeout. All three
have recently hit overbought. I think the three sectors are due for
a good break here, and energy will check back towards its 50-day
moving average and possibly see industrials break theirs.
Industrials are already failing to make new highs with the markets,
so that divergence already seems to be playing out. A July swoon in
all three sectors would be just what the bulls need for a
second-half run into year end.
Below are charts of XLP, XLE, and XLI, respectively.
Click to enlarge
Click to enlarge
Click to enlarge
Wednesday, June 25, 2014
The Big Shrug Off?
On April 4, the S&P 500 scored a Key Reversal Day, which
perpetuated an 80-point give-back over six to seven sessions.
Today, Mr. Market seems to be shrugging both shoulders at Tuesday's
S&P Key Reversal Day and at this morning's ugly first-quarter
GDP revision. Is today simply a Pause Day prior to lower prices, or
are there more bricks in the wall of worry?
Thursday, June 26, 2014
The following information is courtesy of
Azous at Rareview Macro
Quarterly Pension Rebalance Calls
: Stocks are for sale, and bonds are being bought. Below is
commentary on pension rebalancing from three financial
): For the second quarter of 2014, equities outperformed
fixed-income by +3.74%. As a result, quarterly rebalancing flow
estimates are -$7.67 billion in equities for sale. Also, for the
month of June, the
(INDEXSP:.INX) has outperformed US Treasury notes by +3.00%. The
S&P 500 total return has returned +2.16%, and the 10-year total
return has been -0.84%. This results in monthly estimated
rebalancing flow of -$6.30 billion of equities for sale. Goldman
Sachs saw one "trigger" event on June 9, with equities cumulatively
outperforming fixed income by a 6% spread up to that date, leading
to a net -$10.88 billion of equities for sale. Note that Goldman's
assumption is that trigger rebalancing occurs at or around the time
): As has been the norm in the QE era, UBS expects US pensions to
sell stocks and buy bonds during the second quarter quarter-end
portfolio rebalancing. UBS's model projects a moderate $19 to $22
billion of equity sales versus just under $10 billion of bond
purchases. Furthermore, within equity portfolios, UBS sees the bulk
of trimming ($12 to $15 billion) in US large cap stocks. Small cap,
developed markets, and emerging market portfolios should see only
marginal flows. On the fixed income side, UBS expects rebalancing
purchases to affect mostly five to 10-year maturities. The 10-year
area should outperform cash while flows are going through.
Societe Generale SA
(EPA:GLE): The S&P 500 index has outperformed 10-year
Treasuries by 3% month to date and 3.7% quarter to date. SocGen's
model estimates $20 billion in equity-selling and bond-buying
pension rebalancing demand at month end. The model also estimated
there was about $17 billion in equity-buying and bond-selling
market flow during the equity market rally this month.
I think this will weigh on equities through this coming Monday.
Friday, June 27, 2014
I was on the phone yesterday with Eric Kaufman when he said, "I
drew two support trendlines for the S&P 500 a few days ago. One
of them came in at Wednesday's intraday low of roughly 1,945. The
other is at 1,939. If that area gives way to the downside, you can
kiss this rally goodbye."
"Funny," I responded, "For weeks I have suggested the 1940 - 1950
level for the S&P 500 should be the logical support level for
any ensuing pullback attempt that should arrive after the S&P
stalls in the 1950 - 1975 overhead resistance level so often
mentioned in my comments."
Unsurprisingly, the past three sessions' intraday lows have been
1,944.69, 1,947.49, and 1,948.34, and each time that the S&P
has dipped into the 1,940s, it has sprung back. Interestingly, in
their search for a causa proxima, the media dredged up Iraq for
Tuesday's Tumble, the negative 2.9% GDP report for Wednesday's
Wilt, and Federal Reserve President James Bullard's comments for
yesterday's (June 26) downside attempt. So, where does that leave
the market on a trading basis?
Well, as shown in
yesterday's Morning Tack
[subscription required], most of the S&P macro sectors remain
overbought with the majority of stocks above their respective
10-day moving averages (DMAs), above their 50 DMAs, and above their
200 DMAs. On a short-term basis trading, however, the NYSE
McClellan Oscillator has corrected its overbought condition of
mid-June and could result in another rally attempt.
Click to enlarge
Yet, I do not trust any rally from here. My friend Jim Kennedy, of
the Atlanta-based Divergence Analysis hedge fund, wrote the
This "trading break" is still on, as prices bounced briefly from
the 1938 target and now are showing some selling pressure again.
The important price level to watch is futures 1943 - 1937 (funny
how this level keeps popping up). With all the outstanding
tops/warnings present, this "trading break" could still be the
beginning of something larger.
Our momentum screens show momentum tops have been given on every
equity index. The daily short-term indicator trend remains down now
for 10 days and the weekly short-term trend is now up into next
week. If the weekly short-term trend turns down, we will have lower
targets. Overall: we remain guarded.
Plainly, I agree!