Global stocks extended the longest winning streak since September, with Asia up 0.8% and Europe rising 0.7% while bonds and credit markets strengthened amid hopes that the European Central Bank will prolong quantitative easing, while optimism an Italian bailout of Monte Paschi will prevent European bank contagion, has pushed European financial stocks higher. US equity futures were little changed.
European and Asian markets rose, while U.S. index futures were little changed, with the Dow Jones Industrial Average pushing for yet another record, as traders digested the Italian referendum news, await the ECB's Thursday announcement and reflect in a notably quieter overnight session. Oil slipped from a 16-month high after 4 straight days of gains.
"...we're at a phase in this UST / developed sovereign bond trade where previously acceptable conditioning (‘buy dips’; ‘get long-er duration because it just keeps working’; ‘never-ending bond inflows will always pause selloffs’ etc) are all being reset in real-time, and this behavioral shift is painful."
For the first time in 2016, the total return of the Dow Jones Industrial Average is above that of gold year-to-date (up 11.80%). The convergence since the election of Donald Trump is almost unprecedented as gold dumps 16% (from Trump night highs) and Dow futures up 8.5% from Trump night lows.
European and Asian stocks rose after the early scare from the latest Fukushima quake dissipated, with the global risk on mood spurred by another jump in crude, which was up 1% in early trading, with the commodity complex now enjoying its biggest three-day rally since May, after Nigeria signaled optimism that OPEC will agree a supply-cut deal next week in Vienna. S&P futures are up 0.3%, with the cash index set to open at new record highs.
For the 21 companies in the DJIA that reported non-GAAP EPS for Q3 2016, the average non-GAAP EPS growth rate was 10.8%. For these same 21 companies, the average GAAP EPS growth rate for Q3 2016 was down 3.7%.
Global bond yields and the dollar both weakened after the Bank of Japan offered to buy an unlimited amount of debt at fixed yields, stabilizing the global bond rout, while investors awaited testimony from Fed Chair Janet Yellen that will help shape the outlook for interest rates ahead of a December rate hike that is now seen as near certain.
Prior to the election, investors didn’t believe there was much operating leverage available in corporate America. Slow revenue growth, slow inflation, slow wage growth, slow earnings growth. That was the recipe for next year. Now, expectations for better economic growth have markets scrambling to find companies with the operating leverage (read high fixed costs and high incremental margins) to show outsized earnings growth as a result.
As it dawned on markets that they had been caught dead wrong for the second time in half a year, first with Brexit and then with the historic election of Donald Trump, their reaction was identical: a slow selloff at first, followed by a furious dump, which led to a limit down halt in NASDAQ and Emini future trading. However, turbulence calmed as investors reassessed the effects of Donald Trump’s surprise victory in the U.S. presidential election.