And things will continue to unravel as we move into 2016 and beyond…
A Double Dip By The ISM Manufacturing Index Into Contraction Territory Preceded The Previous Two Big Bear Markets For Stocks
A key gauge of manufacturing activity has double-dipped into recession territory, but stock market investors don’t seem to care. History suggests, however, that maybe they should.
The Institute of Supply Management’s manufacturing index for November surprisingly fell to the lowest level since June 2009, the last month the U.S. economy was in recession. More importantly, the ISM index fell below the 50% level, to signal contraction, for the first time since it dipped below that level for one month in November 2012.
Meanwhile, the S&P 500 Index SPX, +1.07% climbed 1.1%, with more than 80% of the components gaining ground.
The following chart shows the last two big bear markets, were foreshadowed by a return of the ISM index into contraction territory, in August 2000 and December 2007.
FactSet
Will the third time be a charm, or a dud?
Majority Of World Economy Weakening As US Manufacturing PMI Tumbles To 2 Year Lows
Downtrend in high-yield bonds warns that liquidity is drying up, which could hurt the stock market
The continued downtrend in the high-yield bond market is warning that liquidity is drying up, which could bode very badly for the stock market.
When financial markets are flooded with liquidity, investors tend to feel safer about investing in riskier, higher-yielding assets, like noninvestment grade, or “junk,” bonds, and stocks. When the flow of money slows, the appetite for risk tends to decrease as well.
That’s why many stock market watchers keep a close eye on the longer-term trends in the high-yield bond market. If money is flowing steadily into junk bonds, investors are likely to be just as willing, if not more willing, to buy equities. When money is coming out of junk bonds, like the chart below shows, many see that as a warning that investors could start selling stocks.
When Steve Nison says candlestick charts are telling him not to buy stocks, people might want to listen.
Nison is widely known as the person who introduced candlesticks to the West. He has an M.B.A. in finance, but he started focusing on technical analysis — more than 30 years ago while at brokerage E.F. Hutton. In the late 1980s, while at Merrill Lynch, Nison met a Japanese broker who used terms like “doji” and “harami” in conversations with clients. Intrigued, he wrote a short article for Futures magazine on the more than 200-year-old Japanese technique in 1989.
Now candlestick charts — which include information about an investment’s movement during a trading day, rather than just its closing price — are standard on most charting services, and many Western chartists call them their preferred way of mapping the market….
Companies have defaulted on $95bn worth of debt so far this year, with 2015 set to finish with the highest number of worldwide defaults since 2009, according to Standard & Poor’s.
The figures are the latest sign financial stress is beginning to rise for corporate borrowers, led by US oil and gas companies. The rising tide of defaults comes as investors reassess their exposure to companies that borrowed heavily in recent years against the backdrop of central bank policy suppressing interest rates.
Without a rebound in oil and commodity prices, and with the Federal Reserve seen lifting its policy rate for the first time in nine years, strategists predict a further rise in corporate defaults for 2016.
The amount of debt owed by US companies relative to the size of their profits has been increasing, according to Alberto Gallo, macro credit strategist for RBS, with the proportion of the most indebted borrowers rising since mid- 2014.
“This tail of highly levered borrowers is likely to be vulnerable to rising rates,” he said in a note to clients.
Fed ends ‘too big to fail’ lending to collapsing banks
The Federal Reserve is cutting its lifeline to big banks in financial trouble.
The Fed officially adopted a new rule Monday that limits its ability to lend emergency money to banks.
In theory, the new rule should quash the notion that Wall Street banks are “too big to fail.” Translation: the government has to save them during a crisis.
The Fed’s new restrictions come from the Dodd-Frank Act of 2010, which brought in a wave of reforms after the financial crisis.
Under the new rule, banks that are going bankrupt — or appear to be going bankrupt — can no longer receive emergency funds from the Fed under any circumstances.
If the rule had been in place during the financial crisis, it would have prevented the Fed from lending to insurance giant AIG (AIG) and Bear Stearns, Fed chair Janet Yellen points out.
NAR Admits Oil Slump Finally Hits Housing Sales
We were told that low oil prices were unequivocally good for America, so it’s odd that, after seeing the weakest growth in pending home sales since Nov 2014, NAR blames “softness in sales on oil-related job losses from low oil prices.”Pending home sales grew 2.1% YoY in October, (way below the 4.3% expected growth and 3.2% growth in September).
