Hurricanes good for markets
STOCKTAKE: Hurricane Sandy caused US markets to close for two days, the longest weather-related shutdown since 1888, although stocks were largely unmoved.
That’s unlikely to change. SP Capital IQ’s Sam Stovall looked at the 13 most costly hurricanes since 1965 and found markets climbed an average of 3.9 per cent over three months and 5.8 per cent over six months. Pimco chief executive Mohamed El-Erian said the economic effect would be “mixed to slightly positive”, although fiscal restraints would see a “less front-loaded” response. Goldman Sachs said that while the $10-$20bn damage estimates may be too low – hurricane Katrina’s costs were four times as large as initially thought, tropical storm Irene’s twice as large – any economic impact was likely to be muted. None of this stopped breathless speculation about trading hurricane stocks. One such example came from Forbes: “Stay dry and safe over the coming days, but by all means use any available time to look at these 10 companies and others that should see a boost to business thanks to Sandy.”
Market gains suggest Obama to win election
Stock markets strongly indicate an Obama re-election. A recent study examined every presidential election since 1792 and found strong gains in the final three years of incumbents’ terms are associated with landslide wins. No one expects an Obama landslide, but markets are a “consistent indicator” of election outcomes, more so than unemployment, inflation and GDP.
The market is also up over the last three months. SP Capital IQ analyst Sam Stovall notes that since 1900, incumbents have been elected 80 per cent of the time following three-month gains. When markets fell, a new president was elected on 88 per cent of occasions.
Which party has been better for stocks? Democrats – Stovall notes that since 1900, the SP 500 has risen a median 12.1 per cent under Democrats and 5.1 per cent under Republicans.
Since 1929, say Barclays, markets rose by 10.8 per cent annually under Democrats compared to 2.7 per cent for Republicans. CMC Markets, meanwhile, found average monthly returns over the last century were 0.73 per cent under Democrats and 0.38 per cent under Republicans.
After the election? CXO Advisory recently noted that since 1950, the strongest gains have come during the November – January period, although this is also seen in non-election years.
No cheer from earnings season
It is shaping up to be the worst earnings season since the lows of the crisis in early 2009.
S&P 500 earnings are expected to record their first decline since those dark days, even if the earnings beat rate – some 63 per cent – is in line with historical averages.
Revenues are a “big worry”, said Saxo Bank analyst Peter Bo Kiaer. Barely two in five firms are beating expectations, far below the long-term average of 62 per cent.
All sectors, bar finance, have missed on revenues.
Technology has been particularly disappointing, earnings projected to decline by 0.2 per cent.
Exclude Apple and tech earnings would be 4.8 per cent lower.
US companies with large international sales, especially in Europe, are in particular difficulty.
Tough going for hedge funds
Last week, the Financial Times reported that Geoff Grant, founder of the $1bn Grant Capital Partners, was closing his hedge fund due to the “unique challenges” thrown up by markets over the past two years.
Grant admitted he had no “edge”, with foreign exchange markets “buffeted more by political than by economic events”.
That echoed Louis Bacon’s August decision to return 25 per cent of Moore Capital’s main fund to investors. He complained of “extreme” political involvement, unseen since the postwar era, that was designed to “thwart natural market outcomes”.
Hedge funds have now underperformed for four years running, the worst such run since 1995 – 1998.