Bloomberg Explains Why "Nobody Believes This Rally"
By Tyler Durden
Last week, when looking at the latest fund flow data,
…. it writes that “for all the positive signals being sent by stocks, buyers aren’t storming back. In fact, going by one measure of U.S. outflows, investors just yanked more money from American equities that any time since September. Enthusiasm remains bridled as a logjam of investor concerns, from China growth to ineffective central-bank policy and weakening profits, shows no signs of dissipating.”
“The question everyone should be asking is what has really changed in the last three months?” said John Canally, chief economic strategist at LPL Financial in Boston, which oversees about $460 billion. “Global concerns, while slightly less, are still there.”
Well, of course they are, but to central banks all that matters is price action – the only thing left that they can manipulate – and the hope that upward price action can offset the lack of faith in the economy (and central banks) resulting from downward price action. This also explains why over the past month, we have seen every single major central bank unleash the most unprecedented easing wave, one which even forced the Fed to lose its last shred of credibility in its attempt to push stocks higher.
Here Bloomberg piggybacks on what we already reported last week, namely the BofA client flows and the collapsing earnings:
Investors of virtually all types have sold more stock than they’ve purchased, according to Bank of America Corp. In the week ended March 11, the bank’s hedge fund, institutional and private clients sold $3.7 billion, the most since September and the seventh consecutive week of withdrawals, the company said in a note last week. Net sales by institutions were the second-biggest since the bank began recording the data.
The other issue is earnings. As economists lowered projections for this year’s global growth to 3 percent from 3.6 percent in August, analysts cut profit estimates. They now expect a 2.9 percent increase in net income for U.S. companies in 2016, down from 7.1 percent in December, and profit declines in Europe. Worldwide, there have never been as many earnings downgrades versus upgrades as there are now, according to the annual averages of a Citigroup Inc. index tracking the changes.
This has led to an unsustainable surge in P/E multiples: “supported by a price-earnings ratio that touched 13.7 in February, the lowest since 2014, the MSCI gauge has climbed more than 10 percent in a month, on Friday capping its first five-week rally in two years. Gains exceeding 16 percent have lifted what had been the market’s most beaten-down industries: commodity companies, banks and energy producers.” Absent a major jump in commodity prices to sustain a matched rebound in earnings, the rebound is guaranteed an unhappy ending.
It gets worse if one looks at GAAP earnings: as we first reported and as Factset subsequently confirmed, GAAP PE is now above 22x – somewhere in the 99.5% …read more
Source: Bloomberg Explains Why "Nobody Believes This Rally"
