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Is talk of a sharp and sudden gain for stocks making you hungry to invest, or queasy?
Bank of America has just predicted that will happen in the first quarter, driven by supportive central bank policies. Often referred to as a melt-up, it’s basically a dramatic or unexpected move up for an asset causing investors to stampede after it due to fear of missing out (FOMO). That surge can mark the end of an asset bubble, and sometimes a pullback will follow that mass move into a stock.
Our call of the day, from Jeroen Blokland, portfolio manager at investment company Robeco, says while this bull market may stretch into its 11th year, one big thing is needed. “It will come down to earnings in the end. If investors see better earnings growth from here, high-odds markets make new highs,” he told MarketWatch.
Blokland said investors need to be prepared for the fact that those corporate earnings may take a bit longer to perk up, testing their patience. For example, he noted Monday’s data showing the eurozone’s manufacturing purchasing managers’ index hit a two-month low in December — a sign improved data may still be a couple of months away.
In the U.S. this week, investors will get an update on consumer spending, a vital part of the economic picture that’s been waning.
“With the phase one [U.S.-China] trade deal virtually done (at least it seems like that), earnings could be pressured for another quarter or so. There could be some kind of vacuum in which stocks struggle for a while,” said Blokland.
Analysts expect earnings for Wall Street to bounce back solidly from scant 2019 growth of just over 1%, rising to 10% for 2020, according to forecasts compiled by Yardeni Research. One of Wall Street’s most bullish forecasters, BTIG’s Julian Emanuel, is expecting growth of 6.7% next year.
The market
That stock rally may have to wait, as investors are looking for another big catalyst to drive more gains. Dow YM00, -0.15%, S&P ES00, -0.07% and Nasdaq NQ00, -0.03% futures are slipping. European stocks SXXP, -0.74% and the pound GBPUSD, -0.9524% are retreating as fears of a hard Brexit return. Asian markets ADOW, +0.89% had a mostly solid day.
The chart
Our chart from equity research and trading company MKM Partners fits into the discussion about further investor appetite for stocks. Citing data from the National Association of Active Investment Managers, JC O’Hara, MKM’s chief market technician, shows that just 78% of money managers are currently exposed to U.S. equities, meaning they have cash that’s ready to go to work:
MKM Partners “That has been a pretty steady level over the last few weeks. If they need to chase into year-end, they have the means to do so,” said O’Hara.
The buzz
Shares of Boeing BA, -4.29% are falling in premarket trading after the aircraft maker confirmed press speculation, and said it would suspend production of its 737 Max, the model that was involved in two air crashes.
NMC Health NMC, -24.18% shares tumbled after short seller Muddy Waters Research said it had taken a bearish position on the U.K.-listed healthcare provider.
Entertainment streaming service Netflix NFLX, +1.91% has revealed new data that shows a jump in growth for a key region.
Disney’s DIS, +1.42% latest Star Wars installment, “The Rise of Skywalker,” got a standing ovation at its LA premiere.
The economy
Housing starts — the number of new homes on which construction has begun — plus industrial production and job openings are ahead.
Random reads
U.S. lawmakers may approve funding for gun-safety research for the first time in decades
Cocaine Santa sweaters are flying off Amazon’s shelves
Disney heiress slams ripped Instagram photo posted by star of sitcom “Silicon Valley”
Pakistan’s ex-dictator Pervez Musharraf sentenced to death in absentia
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