Stocks are overpriced, overleveraged, headed for trouble
NEW YORK (MarketWatch) — Wall Street can’t say it hasn’t been warned.
The Office of Financial Research, the agency tasked with promoting financial stability and keeping an eye on markets, released a paper last week stating that the stock market is dangerously overpriced, and that excessive leverage will exacerbate the next market correction.
The paper is aptly titled “Quicksilver Markets” alluding to when prices deflate, it will happen swiftly and not without pain.
“The timing of market shocks is difficult, if not impossible, to identify in advance, let alone quantify — a shock, by definition, is unexpected,” wrote Ted Berg, an analyst at OFR.
But Berg identified several indicators that are pointing to a correction. Instead of looking at valuation in isolation, Berg and his team analyzed other factors, such as corporate profits and leverage, and found a disturbing picture.
He argued that forward price-to-earnings ratios are not very good predictors of market downturns, as they tend to be biased during boom times, but other metrics, such as the so-called CAPE ratio, Q-ratio and Buffett indicator all offer warning signs. http://www.marketwatch.com/story/stocks-are-overpriced-overleveraged-headed-for-trouble-2015-03-25
Gold nears $1,200 in 6-day winning streak
SAN FRANCISCO (MarketWatch) — Gold futures rebounded from early weakness and posted a sixth straight winning session on Wednesday after an unexpected drop in February durable-goods orders.
Gold for April delivery GCJ5, -0.06% rose $5.60, or 0.5%, to close at $1,197 an ounce on Comex after tapping an intraday high of $1,199.30. The close was the highest since March 4. http://www.marketwatch.com/story/golds-winning-streak-could-be-about-to-end-2015-03-25
U.S. stocks hammered as fears about quarterly results intensify
NEW YORK (MarketWatch) — U.S. stocks were bludgeoned in Wednesday trading with the Dow threatening a 300-point drop as the Nasdaq Composite suffered its steepest decline since April 2014 as investors dumped technology and biotechs shares.
The carnage on the Street marks the third consecutive losing session, with the S&P 500 and Dow industrials recording the sharpest losses in two weeks and occurred as one of the year’s biggest mergers, a deal between Kraft Foods Group Inc. and H.J. Heinz Co., was announced in the morning.
Analysts attributed the selloff to pre-earnings season jitters and investors cashing out of stocks in companies that have seen big run-ups.
The Nasdaq Composite COMP, -2.37% ended the day down 118.21 points, or 2.4%, at 4,876.52.ost 19.06 points, or 0.9%, to 2,072.44. Biotechnology stocks were hit the hardest, with the iShares Nasdaq Biotechnology ETF IBB, -0.06% dropping 4.1%.
The S&P 500 SPX, -1.46% fell 30.45 points, or 1.5% to 2,061.05, with nine of its 10 main sectors finishing sharply lower. Energy sectors stocks defied the trend and followed a rally in oil prices higher sparked by an intensifying conflict in Yemen.
The Dow Jones Industrial Average DJIA, -1.62% lost 292.60 points, or 1.6% to 17,718.54, and turned negative for the year. All but two of its 30 components closed lower.
Quincy Krosby, market strategist at Prudential Financial, said investors are beginning to fret about first-quarter earnings and fear the disappointment will be worse than expected.
“Traders began buying protection from downside, which means they are very nervous,” Krosby said, pointing to a jump in the implied volatility as measured by the CBOE volatility index, which rose 13% to 15.42.
“Investors have been selling top-performing, high-beta stocks for several sessions now, so people owning biotechs and high-flying tech stocks decided to lock in profits and exit before the earnings season began,” Krosby said.
John Manley, chief equity strategist at Wells Fargo Advantage Funds, also attributed the selling action to the jitters stemming from uncertainty about the Fed policy and expectations that earnings would be poor.
“Typically, high-multiple stocks, such as biotechs and technology stocks get clipped badly during such times,” Manley said.
“There are also concerns that the Fed might be tightening too soon, given very weak growth we are experiencing,” Manley added.
One sign of that economic softness was durable good orders, released ahead of the start of trading on Wednesday, which fell more than expected in February, suggesting businesses remain reluctant to invest more aggressively.
Dan Greenhaus, chief global strategist at BTIG, said the market is still digesting economic reports in the wake of a Federal Reserve that said it would be “data dependent” in determining the pace of its first rate hike in nine years.
“Today’s durable-goods orders were in line with poor data of late, which suggest that the first-quarter GDP will be weak,” Greenhaus said.
Stocks to Watch: Shares of Kraft Foods Group Inc. KRFT, -0.11% surged more than 36% after a merger was announced with H.J. Heinz Co.
Shares of Kofax Ltd. KFX, +46.00% were up 46% after the software company agreed to be acquired by Lexmark International LXK, +0.36% late Tuesday. http://www.marketwatch.com/story/us-stocks-wall-street-keeps-a-nervous-eye-on-the-sleeping-giant-dollar-2015-03-25?page=2