While many hoped that Lockhart would play good cop to Yellen's bad cop, he didn't:
*LOCKHART SAYS MARKET'S VIEW FOR SEPTEMBER HIKE 'REASONABLE'
Which has sent stocks reeling back to the levels pre-payrolls in April.
Twitter had a very bad last week when its stock tanked ~ 27% in 5 trading days.
Morgan Stanley breaks down the buyback-equity rally relationship while WSJ flags "big borrowing" by both corporations and investors. In short: corporate debt issuance is at record levels and so are buybacks, stock prices, and margin accounts. When the cycle finally turns, look out below.
We heard from several central banks in the last few days, and what they had to say was just one more reminder that we are in a Hill Street Blues financial world. So, hey, let’s be careful out there - and then some!
For those who require still more proof that the rally in US equities has become inextricably linked with corporations leveraging their balance sheets to repurchase their own shares, JP Morgan is out with an in-depth look at buyback trends which strongly suggests that buyback activity is in fact responsible for driving US stocks to record highs.
Holidays in Europe and Asia left things quiet overnight after some traders used the last day of April to frontrun the old "sell in May and go away" market adage. Market closures also kept the Chinese day trading hordes from using a tiny beat on the official manufacturing PMI print as an excuse to pile more money into the country's equity mania, while Japanese shares ended mostly unchanged as investors fret over when the BoJ will deliver the next shot of monetary heroin. In the US we'll get a look at ISM manufacturing and the latest read on consumer confidence as we head into the weekend.
So… we have stocks bubbling right as they enter a seasonably weak period as the economy is rolling over. None of these things bodes well for the market. We believe stocks are actually putting in a TOP right now, to be followed by a 20%+ correction in the coming weeks.
The current equities bull run seems unstoppable. No amount of geopolitical concerns, Greek default fears, rate hikes, US dollar strength, crude oil price volatility, Russian sanctions or whatever else you can think of can put a dent on it. Perhaps we should take a step back and try to understand what is driving this strength. OK, we know that central banks continue to spike the punchbowl, but what is the actual transmission mechanism that directs all this liquidity into equities – as opposed to commodities for instance, which continue to struggle?
"I felt a great disturbance in the Farce, as if millions of fast-money voices suddenly cried out in terror, and were suddenly silenced. I fear something terrible has happened."
There are three financial hurricanes hurtling towards our country and most people are oblivious to the coming catastrophe. The time to prepare is now, not when the hurricane warnings are issued.
No one earned it. No one saved it. But here’s our prediction: Someone will miss it when it is gone! If the US money supply were a deck of cards, Uncle Sam has been slipping in extra aces for the last 44 years. In the third quarter, net liquidity is likely to turn negative. And the stock market is likely to correct. What then? The Fed will panic and announce QE4… and other measures.
Today we get a two-for-one algo kneejerk special, first with the Q1 GDP release due out at 8:30 am which will confirm that for the second year in a row the US economy barely grew (or maybe contracted depending on the Obamacare contribution) in the first quarter, followed by the last pre-June FOMC statement, in which we will find out whether Janet Yellen and her entourage of central planning academics will blame the recent weakness on the weather and West Coast port strikes and proceed with their plan of hiking rates in June (or September, though unclear which year), just so they can push the economy into a full blown recession and launch QE4.
Following yesterday's early MNI rumor that a Chinese QE is being "considered" and which sent the Shanghai Composite surging 3% and led to an initial boost in US stock futures, overnight the PBOC scrambled to once again deny such speculation. Of course, going full "cold Turkey" on Chinese stimulus would be too much for the market to handle, so in a piece by the WSJ also released overnight, the author said the PBOC would pivot from outright QE to mere LTRO, which is also not new and was reported over a week ago here in "China Floats QE Trial Balloon, PBoC May Launch LTROs." In any event, for now at least, Asian stocks are not happy despite Apple's latest blockbuster results, and neither is Europe, with the Stoxx 600 down 1%, and even the E-mini is hugging 2100 unable to levitate on any imminent central bank intervention.