S&P 500 Setting Up for a Fall. Why the Stock Market Is on Shaky Ground.

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Barron's 13 October, 2021 - 05:15am 4 views

Asian shares mixed after muddled day of trading on Wall St

Yahoo News Canada 13 October, 2021 - 09:13am

Stocks fell in Paris, London, Tokyo and Sydney but rose in Shanghai and Frankfurt.

Prices for oil and other energy have surged recently along with costs of other commodities. Shortages of semiconductors have meanwhile slowed output of many high-value industrial goods such as cars and consumer electronics.

The U.S. Labor Department is due to release its Consumer Price Index for September later Wednesday.

It is a gauge of how inflation is pressuring costs for consumers. Additional information on inflation pressures for businesses will come Thursday when the Labor Department releases its Producer Price Index.

Investors will get look at how rising prices may be affecting consumer spending when the Commerce Department releases its retail sales report for September on Friday.

Germany's DAX gained 0.3% to 15,197.28 while the CAC 40 in Paris slipped 0.2% to 6,537.59. Britain's FTSE 100 lost 0.4% to 7,101.10.

But U.S. futures edged higher. The contracts for both the Dow industrials and the S&P 500 were 0.1% higher.

In Asia, shares rose in Shanghai after customs data showed exports rose in September, though imports rose at a much slower pace. The Shanghai Composite index jumped 0.4% to 3,561.76.

Tokyo's Nikkei 225 index fell 0.3% to 28,140.28 and the S&P/ASX 200 in Sydney edged 0.1% lower to 7,272.50. Seoul's Kospi gained 1% to 2,944.41.

Hong Kong's markets were closed as a precaution due to an approaching typhoon.

China’s producer price index is due out on Thursday. Economists have forecast a surge of more than 10% year-on-year, up from 9.5% in August.

The customs data released Wednesday showed China's exports rose 28.1% in September to $305.7 billion. That was slightly faster than the 26% increase logged in August, and better than economists’ forecasts. Imports rose 17.6% to $240 billion, less than the previous month’s 33%.

On Tuesday, Wall Street's major indexes wavered between small gains and losses for much of the day on Wall Street, before selling gained momentum in the final minutes of trading. The S&P 500 slipped 0.2%. The Dow Jones Industrial Average dropped 0.3% and the Nasdaq slipped 0.1%.

Small company stocks, a gauge of confidence in economic growth, fared better than the broader market, driving the Russell 2000 index 0.6% higher.

The yield on the 10-year Treasury fell to 1.57% from 1.60% late Friday. The bond market was closed on Monday for Columbus Day.

Markets have been choppy for weeks as investors try to figure out how the economy will continue its recovery with COVID-19 remaining a threat and rising inflation potentially crimping consumer spending and corporate finances.

The IMF said Tuesday it foresees global growth this year of 5.9%, compared with a projection for 6% growth made in July. It said the change reflected the persistence of supply chain disruptions in industrialized countries and deadly disparities in vaccination rates between rich and poor nations.

The coming round of earnings reports will give Wall Street a clearer picture of how companies fared in the most recent quarter amid a surge in COVID-19 cases. It will also shed some light on how they expect to perform through the rest of the year.

S&P 500 companies are expected to post 27.6% annual earnings growth for the July-September quarter, according to FactSet. That's down from 28.1% growth estimated by analysts in July.

JPMorgan Chase will kick off earnings for banks on Wednesday. Bank of America, Wells Fargo and Citigroup will follow with their latest quarterly results on Thursday.

In other trading, U.S. benchmark crude oil lost 17 cents to $80.47 per barrel in electronic trading on the New York Mercantile Exchange. It gained 12 cents to $80.64 per barrel on Tuesday.

Brent crude, the international standard, declined 20 cents to $83.22 per barrel.

The U.S. dollar slipped to 113.52 Japanese yen from 113.59 yen late Tuesday. The euro rose to $1.1560 from $1.1530.

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Here's why Lululemon's stock could be headed higher. It's obvious that the business is still just a tiny fraction of the overall industry, a fact that can be easily forgotten thanks to Lululemon's rapid growth. In fact, Lululemon's men's segment is thriving.

Top news and what to watch in the markets on Wednesday, October 13, 2021.

Insulate Britain protesters have returned to the M25 to demand the government insulate Britain's homes despite an injunction against the group. About 40 people are blocking the M25 at Junction 31 and the London Road A1090 near the Dartford Crossing as of Wednesday morning. It comes despite the High Court granting National Highways several injunctions against protesters who have been blocking sections of the M25 as well as other major transport routes in recent weeks.

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WASHINGTON (AP) — White House officials say they helped broker an agreement for the Port of Los Angeles to become a 24-hour, seven-days-a-week operation, part of an effort to relieve supply chain bottlenecks and move stranded container ships that are driving prices higher for U.S. consumers. President Joe Biden planned to discuss the agreement during a speech Wednesday afternoon about supply chain issues that have hampered the economic recovery from the coronavirus pandemic. It was previewed lat

The guidance comes as the UK's biggest commercial port Felixstowe, says the situation is improving.

Dublin, Oct. 13, 2021 (GLOBE NEWSWIRE) -- The "Cryogenic Pump Market - Growth, Trends, COVID-19 Impact, and Forecasts (2021 - 2026)" report has been added to ResearchAndMarkets.com's offering. The market for cryogenic pump is expected to grow at a CAGR of greater than 5% during the forecast period of 2020 - 2025. Factors such as an increase in gas-based power generation and increasing investments in the energy and power sector are likely to drive the cryogenic pump market during the forecast per

Call comes as more than 100 fires were reported by campaigners on moorland in northern England.

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LONDON (AP) — Britain's economic recovery lost momentum during the summer despite the widespread lifting of coronavirus restrictions as supply chain issues took their toll, official figures showed Wednesday. While the Office of National Statistics said the economy eked out some modest growth in August as bars, restaurants and festivals benefited from the first full month without coronavirus restrictions in England, the 0.4% increase was slightly lower than anticipated. The agency also revised do

Competition from new entrants to Germany's autos market such as Tesla has pushed Volkswagen to accelerate plans to transform its main plant towards producing electric vehicles, the company said on Wednesday. "There is no question that we have to address the competitiveness of our plant in Wolfsburg in view of new market entrants," Volkswagen spokesperson Michael Manske said, pointing to Tesla and new Chinese automakers making inroads into Europe. "Tesla is setting new standards for productivity and scale in Grunheide," he said, referring to a Tesla factory under construction near Berlin which at peak capacity will produce 5,000 to 10,000 cars a week - over double the entirety of German battery-electric vehicle (EV) production in 2020.

Russia was not invited to attend a 30-country virtual meeting led by the United States that is aimed at combating the growing threat of ransomware and other cyber crime, a senior administration official said. Many ransomware gangs operate from Ukraine and Russia, private sector cybersecurity experts say. The meeting will be held over two days, involve six sessions and include topics such as addressing the misuse of virtual currency to launder ransom payments, prosecuting ransomware criminals, using diplomacy to counter ransomware, and helping nations become more resilient to such attacks, the administration official said.

Canada's Barrick Gold Corp has discovered geological extensions at its Kibali gold mining joint venture in Democratic Republic of Congo that will prolong the life of the mine to 2040, Chief Executive Mark Bristow said in an interview. A new Central Bank governor and legislature broadly supportive of President Felix Tshisekedi should aid the release of $500 million cash left over after Kibali repatriated 60% of its revenue and paid in-country expenses, he said. Under Congo's 2018 mining code, miners must return 60% of revenue from mineral sales to the country to fund economic development.

The heavily updated 2022 KTM RC 125 and RC 200 feature a number of mechanical changes; both bikes launched at the same price as their predecessors.

Notification of Transactions of Directors/Persons Discharging Managerial Responsibility and their Closely Associated Persons The following person, who is closely associated with Chris Samuel, a Non-Executive Director of Alliance Trust PLC, has purchased ordinary shares of 2.5 pence each in Alliance Trust PLC as detailed below. Closely Associated Person of DirectorPurchase dateNumber of shares purchasedPrice paid per share (£)Resultant interest in shares(Director and Closely Associated Person)Ali

British energy supplier Centrica said on Wednesday it will postpone its capital markets event, initially planned for November 16, sending its shares down in morning trade. Centrica, the owner of British Gas, had said it would set out its future strategy at its capital markets event.[L1N2OY0A3]. "In this current unprecedented commodity price environment we remain focused on looking after our residential and business customers, whilst working as part of wider industry efforts in the UK to support the customers of failed suppliers," said company's CEO, Chris O'Shea, in a statement.

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S&P 500 Slips as Bulls Keep Powder Dry Ahead of Earnings, Inflation By Investing.com

Investing.com 13 October, 2021 - 09:13am

Investing.com – The S&P 500 slipped Tuesday, as investors had to contend with another day of wild swings just a day ahead of the start of quarterly earnings, and an update on inflation.

The S&P 500 fell 0.2%, the Dow Jones Industrial Average slipped 0.34%, or 118 points, the Nasdaq Composite was down 0.14%.

Investors continued to keep their powder dry, with just a day to go until major Wall Street banks kick off the quarterly earnings season in earnest.

Banking stocks are up about 40% for the year so far, as the favorable backdrop of rising rates continues to support the sector.  

JPMorgan Chase & Co (NYSE:JPM) reports third-quarter results Wednesday, followed by Citigroup (NYSE:C), Wells Fargo, Bank of America (NYSE:BAC), and Morgan Stanley (NYSE:MS) on Thursday.

Loan growth, which has slumped since the pandemic and been slow to recover, will likely be one of the closely watched metrics.

Big tech traded mostly lower, struggling to shake off the sluggish start to the week even as Treasury yields, the foe of growth stocks, fell.

Google-parent Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) were in the red, while Amazon (NASDAQ:AMZN) was in the green.

Apple, meanwhile, said it plans to launch an event on Oct. 18, during which the company could unveil new MacBook laptops and AirPods headphones.

Tech was also dragged lower by fall in iShares Semiconductor ETF (NASDAQ:SOXX), paced by a decline in Micron Technology (NASDAQ:MU) on concerns about margin pressures in the memory-chip market amid supply chain woes.

The 10-year Treasury yield fell below 1.6% following auction results that showed demand for the note remained strong.

Ahead of the inflation report due Wednesday, Fed members continue to flag above-trend inflation as a concern.

“Underlining inflation is indeed above the committees 2% objective,” Atlanta Federal Reserve President Raphael Bostic said Tuesday. “Severe and pervasive supply chain issues will probably last longer than initially expected.

Concerns about persistent inflation come at time when global growth is expected to slow, exacerbating investor fears of stagflation.

The International Monetary Fund trimmed its global gross domestic product by 0.1% to 5.9% for this year from 6.0% in July.

The U.S. is expected to report Wednesday that consumer price index for the 12 months through September rose by 5.3%. The sharp pace of inflation, however, will eventually fade as supply starts to catch up with strong demand.

"In the US, the growth slowdown has bottomed, the unemployment rate continues to decline, and much – though by no means all – of the surge in inflation will fade next year," Morgan Stanley said. 

"We find little in the outlook to support the theory [of US stagflation] and believe the role of demand is underappreciated,” it added.

In Washington, the House is expected to vote on and pass the $480 billion short-term debt ceiling hike later Tuesday, providing the U.S. with funding until early December. The legislative measure needs to be signed into law before the Oct. 18 deadline to avoid the U.S. defaulting on its debt.

By Sruthi Shankar (Reuters) -European stocks recouped early losses on Wednesday as upbeat earnings forecast from German software group SAP and robust quarterly sales for French...

DUBAI (Reuters) - Etihad Airways has raised $1.2 billion in the first sustainability-linked loan related to environmental, social and governance (ESG) targets in global aviation,...

By Carolyn Cohn and Alun John LONDON (Reuters) - World stocks steadied around the week's lows with the mood dampened by inflation worries ahead of U.S. consumer price data later...

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Entry into S&P 500 could be influenced by ratings sales, research suggests

Financial Times 13 October, 2021 - 09:13am

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Entry into the S&P 500, the benchmark index of large US stocks, could be influenced by whether companies buy other services from the index’s parent company S&P Global, according to an academic study.

A working paper published by the National Bureau of Economic Research on Monday reports that buying credit ratings from S&P Global Ratings has a statistically significant impact on the likelihood of being added to the S&P 500. It claimed to have found evidence that firms consciously requested ratings to take advantage of the relationship.

S&P Global said the paper, which has not yet been peer-reviewed, was “flawed”, but did not cite any specific examples.

The academic report, titled Is Stock Index Membership for Sale? and written by a trio of economists and statisticians from the National University of Australia and Columbia University in New York, said several data patterns “suggest that the discretion is often exercised in a way that encourages firms to buy fee-based services from the S&P”.

Firms with a chance of entering the index were found to be more likely to pay for ratings when a gap appeared in the index, such as through a merger between two existing members. At the same time, there was a sharp drop in ratings purchases by foreign firms when S&P changed its rules to make them ineligible to join.

The New York-based company has long made clear that an element of discretion is involved in choosing which companies are included in the S&P 500. Any suggestion that the decision making process is influenced by commercial considerations could threaten its reputation as an authoritative snapshot of large-cap publicly traded American companies. More than $1.3tn of assets directly track or are benchmarked against the index.

“S&P Dow Jones Indices and S&P Global Ratings are separate businesses with policies and procedures to ensure they are operated independently of one another,” S&P Global said in a statement. “Our index governance segregates analytical and commercial activities to protect the integrity of our indices. For 64 years, the S&P 500 has provided an independent, transparent and objective benchmark of the US large cap equity market.”

In general, S&P 500 constituents must have a market value of at least $13.1bn and meet minimum standards for measures such as free float and long-term profitability. The study found that in practice, about a third of additions to the index between 2015 and 2018 violated at least one selection criterion.

One person close to S&P suggested that it was “not a surprise that many of the largest corporations have also purchased ratings”. Many companies need debt ratings before they issue bonds, for instance.

The researchers noted that: “To rule out the possibility that firms buy more ratings merely because they wish to issue more bonds for expansion, rather than to curry favour with S&P, we control for both their bond issues and purchase of Moody’s ratings in all regressions.”

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Why S&P 500 Index Funds Are a Skittish Investor's Best Friend

Motley Fool 13 October, 2021 - 09:13am

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

As I've written before, there was a period in my life when I was really nervous about the idea of buying stocks. I hated the thought of working hard to earn money only to potentially lose it, and I also didn't know a lot about stocks at the time and was worried about picking the wrong ones.

I wish someone would've told me back then about index funds -- or, more specifically, S&P 500 index funds. Nowadays, I like to recommend S&P 500 index funds to friends who are first getting started investing, or to those who are naturally anxious about the idea of buying stocks.

Not sure what I'm talking about when I say "S&P 500 index funds?" That's OK -- here's a quick primer.

Index funds are passively managed funds whose goal is to mimic the performance of the different market indexes they're associated with. Meanwhile, the S&P 500 is a market index that's comprised of the 500 largest publicly traded companies.

With that out of the way, here's why S&P 500 index funds are a good choice if you're skittish about investing and want to ease into it. They're also a good bet for seasoned investors who are naturally risk-averse.

When you buy individual stocks, there's a lot of work involved -- or at least there should be. Specifically, before buying individual stocks, you should look at each company's financials, management team, and long-term prospects to see if it should have a place in your portfolio.

With an S&P index fund, you really don't need to do all of that work, since you're not betting on a specific company and the products or services it sells. That can not only save you time, but also, stress.

As a general rule, it's smart to maintain a fair amount of diversification within your portfolio. That means buying stocks from different market segments, as opposed to, say, loading up solely on tech stocks or energy stocks.

Having a diverse mix of stocks could mean seeing your portfolio value sink less during a market crash. It can also help you grow long-term wealth.

The great thing about S&P 500 index funds is that they lend to immediate diversification. After all, you're talking about owning a piece of 500 different companies.

The S&P 500 has a long history of rewarding investors who have stuck with it for many years. And as such, S&P 500 index funds tend to have a solid performance history.

The Schwab S&P 500 Index Fund (NASDAQMUTFUND:SWPPX), for example, has delivered a return of almost 9% since its inception in May of 1997. Meanwhile, the Vanguard 500 Index Fund Admiral Shares (NASDAQMUTFUND:VFIA.X) has delivered a return of almost 8% since its inception in November of 2000.

These are just a couple of examples, but returns in this ballpark could yield some pretty impressive results. In fact, if you were to invest $300 a month in S&P 500 index funds over 40 years and enjoy an average annual 8% return, you'd wind up with about $933,000.

It's natural to worry about investing, especially if you haven't been at it for all that long. And even if you have been investing for years, some people just have difficulty shaking their stock market fears. Banking on S&P 500 index funds is a good way to ease those concerns -- and come out pretty wealthy in the long run.

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The market faces a simple earnings test it has not seen since the Covid bottom

CNBC 13 October, 2021 - 08:11am

The big issue for S&P 500 earnings in the third quarter hasn't exactly snuck up on investors. The stock market has been struggling since September and the reason can be summed up in an index that is currently trading at a price-to-earnings ratio above its long-term average as many external factors, including rising commodity prices, wage inflation, general inflation, supply chain chaos, and interest rate policy become headwinds for stocks.

It was in the FedEx earnings which came out long before the major corporate earnings season started, with the shipper missing estimates by a lot, and that was after analysts had already taken estimates down in the runup to its earnings report. Making too much of any single earnings bellwether isn't a good way to think about the S&P 500, especially as it is now dominated by tech, but the fact that analysts didn't take FedEx earnings estimates down enough is notable for setting the tone for how companies come into earnings, and how different it may be this time around compared to all the other quarters since the Covid bottom.

In the runup to Q2 earnings, growth estimates were rising for the S&P 500. That has not been the case this time, with growth estimates continuing to fall in the weeks ahead of the major earnings that began Wednesday with J.P. Morgan. Prior to the recent negative earnings revisions, there had been nothing but increasing estimates over the last 12 months. That's one of the reasons investors don't need to struggle to understand why stocks have struggled since September. Stocks wavered on Wednesday as the latest inflation numbers, and the first big earnings of the week, came in.

"It was much easier to be bullish on U.S. stocks when analysts were raising estimates virtually every week, as they did up until September," DataTrek Research noted in a recent report.

And that hasn't changed this month. Sam Stovall, chief investment strategist at CFRA Research, says usually EPS estimates have begun to outpace the end-of-quarter estimate this early in the reporting cycle, but that's not happening as major corporate earnings begin, with the S&P 500 continuing its trend of negative revisions, off by 1.7 percentage points through Oct. 11 versus Sept. 30. He cited higher-than-expected oil prices which Delta Air Lines commented on Wednesday, inflation, interest rates, and a continual lowering of Q3 GDP forecasts. Global growth continues to be downgraded as well.

According to Stovall, this may end up being only the second quarter out of the last 49 in which actual results were lower than end-of-quarter estimates.

Bank of America Global Research struck a similar tone in a note this week to clients, reminding them that earnings misses are extremely rare, but it added, "the main focus will be around guidance" which has started to soften and will lead to 2022 EPS being revised lower. "We believe it will be a make-or-break quarter with all eyes on margins and supply chain," the bank's research team wrote.

Since the first quarter of 2020, which was the only miss in the past 48 quarters, earnings growth has reached as high as 88% for the S&P 500 (Q2 2021). That is now down to 25% for Q3 as major earnings hit. And Stovall said that means if the bull market continues, investors should in the least expect the angle of expected ascent to be more moderate. "Q2 could be the best quarter in terms of percentage change in earnings growth," he said. "It will continue to be positive, just positive at a smaller percentage."

Another positive way to read the earnings setup from the street: DataTrek Research still thinks analysts are too low on Q3 and Q4 earnings.

Some of the slower earnings growth is to be expected. The consumer discretionary sector is expected to post a decline of near-15%, but that is because it fell so much in 2020 after posting triple-digit advances after the Covid low: 161% in Q1 2021 and 210% in Q2 2021.

Those kinds of earnings growth numbers "can't repeat," Stovall said, and that is one reason why analysts don't want to be overly optimistic. And even as negative revisions to the S&P 500 earnings outlook hit almost every sector, especially the ones which had performed some of the biggest comebacks from Covid, including industrials, materials and consumer discretionary, Stovall stressed the earnings revisions are an indication the situation "could" be worse. Some of the sectors seeing the biggest negative earnings revisions are still expected to post significant growth. It is just up by lesser amounts.

Another way to think about it: "Investors are going through an earnings estimate realignment rather than engaging in negative earnings revisions," Stovall said. "What they are really doing is saying we are in unprecedented times, we have had tremendous GDP growth, comparative GDP and earnings growth recently, and there is still an upwards trajectory, it's just that because now we're getting past the real slump period of 2020, forward estimates are going to be less and less enthusiastic."

That comes back to what DataTrek co-founder Nick Colas says may be the difference between this quarter and every other recent quarter since the Covid outbreak — companies really need to deliver on guidance.

Investors are now in the "show me" phase of the earnings recovery, and that is a big change, especially with the S&P performance year-to-date tightly correlated with the earnings expectations: U.S. large-cap stocks received a year-long tailwind from what had been estimates that came down too much amid Covid.

The price-to-earnings ratio of the S&P 500 has come down, from a peak in January 2021 of over 24x to roughly 21x, but that is still a 28% premium to the average P/E ratio since 2000.

What's not baked into the S&P 500 is what companies say about 2022, their margin structure given the push and pull of inflation, how much they are having to pay for labor, and other unknowns like productivity impacts from work-from-home. "A whole range of conversations, that for the first quarter since Covid, we have to get into the weeds of cost structure for companies. It is no longer the 'wow, beat by so much, that's great," Colas said. 

Actual earnings estimates for the S&P 500 don't support a valuation higher than the 18x average of the past two decades and to get to a valuation of 21x, an earnings pop will be required. "Companies have had incredible earnings leverage in the past 12 months," Colas said. But now for the S&P 500 to "just crawl" into its current valuation, investors will need to be convinced there is more upside coming in 2022. "What companies say about future earnings power, particularly anything about sustainable margins, that is what will drive the market," he said. "Valuations are rich."

That is why the message Wall Street analysts and the recent market volatility are sending can be summed up in a way that is central to this earnings season: the recovery chapter for earnings, from the lows of last year, is over.

"Growth from here will be slow and choppy and subject to external shocks, so how do you put some multiple on that? That's the hard part," Colas said.

The optimistic side of the current market multiple suggests investors still believe earnings power is sustainably higher than it was pre-pandemic, and has another 5%-10% more to go in revisions higher. And that makes the outlook from here all the more important.

There are some basic things Colas is confident in saying today: No one is expecting a recession. GDP and earnings will grow. And big tech will be a bigger part of the S&P 500 a year from today.

But the right sustainable earnings growths numbers have not been a factor since the Covid bottom. They are again now, and the market won't really start again unless CEOs can convince investors that outlook is strong.

"It has not been true in the last four quarters that guidance is the most important thing," Colas said. "The earnings surprises have been so large. ... Now that stops."

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Stocks Waver Amid Inflation Data, Major Earnings

The Wall Street Journal 13 October, 2021 - 02:38am

The S&P 500 slipped 0.1%, putting the broad U.S. stock index on pace to extend a three-day losing streak. It is down 1.1% so far this week.

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