After an exciting first day of trading in 2016 stocks finished the day little changed on Tuesday after opening lower.
First, the scoreboard:
- Dow: 17,146, -3, (-0.02%)
- S&P 500: 2,015, +3, (+0.1%)
- Nasdaq: 4,890, -12, (-0.2%)
- WTI crude: $35.80, -2.6%
And now, the top stories on Tuesday:
- Vacation might not feel like it’s quite over but here’s a friendly reminder from Business Insider’s Matt Turner that bank earnings are right around the corner. Things will be “messy,” by which we mean banks will use this quarter to take all of the year’s write-offs. Kitchen-sinking it is another term you might hear. JPMorgan will start bank earnings season on January 14.
- Gunmaker Smith & Wesson hit a record high on Tuesday. The company last night said that its fourth quarter earnings would come in even better than expected as demand for guns is soaring. Not coincidentally, Tuesday saw President Obama deliver a pointed speech on gun control, with Obama’s proposed plan clarifying rules that limit the types of individual “private” sellers that can sell guns without subjecting buyers to a background check.
- December auto sales came in slightly softer than expected with sales hitting an annualized rate of 17.34 million, down from the 18.05 million in November. All things considered, still a strong year for the auto industry, with Barclays’ Jesse Hurwitz writing in a note to clients, “After four consecutive record-breaking months, we view the disappointing December turnout as bringing the rate of sales back to a more sustainable pace.”
- In news that is interesting to media people who get paid to spend a lot of time on Twitter, the social media company is reportedly looking at lifting its 140-character limit, maxing out tweets at 10,000 characters. I argued that this effectively means tweets will unlimited in length because really, who is going to have ~2,000 words to say on something and not find almost anywhere else to publish those words than what is popularly known as a “microblogging” platform? But, like we said, most people don’t really care: they aren’t on Twitter anyway.
- After what was a tough year for stock market returns it is worth looking back at 2015’s “investment quilt,” the checkered thing they show most young people in company-sponsored meetings about how to contribute to your 401(k). Of course, 2015’s returns were lacklustre, but it isn’t so much the numbers that matter as the near-constant jumbling of the colours. The point: diversification works. More or less.
- Former Federal Reserve Chairman Ben Bernanke published a blog over at Brookings on Tuesday that argued against the idea the US engages in currency wars. Bernanke warned readers that this is the first of three posts this week.
- On a top-down basis, most Wall Street forecasters think stocks are going to bounce back in 2016. Looking at expectations from 11,539 analyst ratings on a bottom-up basis, FactSet found that Wall Street thinks stocks will rise about 14% in 2016 to 2,235. On average, this method of forecasting the S&P 500 overstated the index’s actual growth by 0.2% a year from 2011-2015. The catch, however, is that these targets get revised as earnings estimates are revised, and so unlike the top-down macro folks who sort of throw something out there for 12-months forward, company analysts have quarterly revisions or perhaps more often.
- Is this the top? Citi says that the bull market is in “Phase 3,” which means it is old, not dead. This phase sometimes lasts three years. Here’s Citi: “Past cycles have seen some common characteristics which seem increasingly evident now: corporate releveraging, rising market volatility and growth beating value strategies. They can also produce equity market bubbles. Investors should be wary of fighting strong momentum trades at this point in the cycle. They can get much more expensive than anyone would expect.” The major worry for Citi is a further widening of credit spreads, and the firm adds that cycles move into “Phase 4” when profits turn south and US high-yield spreads exceed 700 basis points. Not yet. But we’re close.