11 Octobr, 2013 S&P/SX Composit WAS HA I? 13,000 Pag 2: a look at th rathr minor markt pll back and targt prics 12,900 12,800 12,700 12,600 S&P 500 1,710 1,700 1,690 1,680 1,670 1,660 1,650 1,640 M o n M o n W d W d Sorc: Bloombrg, Macqari Privat Walth Craig Basingr, CFA Chif Invstmnt Officr 416 607-5221 Craig.basingr@macqari.com h h F r i F r i Wll, vn with sch a strong finish to th wk, markts wrn t p all that mch ovrall. wo big p days on hrsday and Friday wr thanks to a sns of optimism that ntrd th markt aftr a nmbr of commnts indicatd that th dbt ciling iss will ithr b rsolvd or kickd down th road a bit frthr. Aftr bing down 2.6%, th S&P 500 managd to rcovr and add som positiv prformanc to th tn of +0.8%. SX prformd a bit bttr, finishing th wk p 1.0%. hr wr a lot of moving parts this wk, vn byond th political talk ot of Washington. Earnings sason startd in th U.S. and so far, it s a bit lacklstr althogh it s clarly too arly to rach any conclsions basd on a handfl of arnings rports. Commodity prics wr ndr prssr aftr Potash gav a profit warning d to lowr prics. hn, th Intrnational Enrgy Agncy triggrd a dclin in oil prics bcas of highr than xpctd North Amrican prodction. ; Both yllow commoditis got hit: corn hit a mlti-yar low d to xpandd planting and limitd wathr disrptions, and gold was alrady blow $1,300/oz whn a sddn $20 dclin triggrd a 10 scond halt to trading so folks cold provid mor liqidity. h SX s gain this wk was not hlpd by th Matrials (-3.6%) sctor as th biggst losr. Digging a littl dpr, Frtilizrs wr down -4.1%, Golds down -4.5% and Forstry down -2.7%. Yt whil commodity prics wr ndr prssr in th oil patch as wll, th Enrgy sctor (+1.6%) gaind on th wk. Solid prformanc from lcom (+2.4%), Financials (+1.8%), Indstrials (+2.2%) and Consmr Stapls (+2.2%) rondd ot th softnss lswhr. Evn chnology (+2.8%) pitchd in thanks to BlackBrry. h U.S. markt was a bit mor mixd as th dfnsiv sctors smd to b th plac to b. Utilitis (+2.6%), lcos (+1.2%) and Consmr Stapls (+1.7%) wr som of th bttr prformrs. Althogh Financials (+1.3%) and Indstrials (+1.3%) also did wll. Drk Bndt, CM Rsarch Analyst drk.bndt@macqari.com
Macqari Privat Walth h Rndown 2 WAS HA I? At th U.S. markt s wakst point it had rtratd abot 4% from its rcnt high. hn, optimism that Washington wold avoid tripping ovr its own ft liftd markts by 2.2% on hrsday and 0.5% Friday (at tim of writing). So was this anothr nar 5% bying opportnity that was ovr bfor anyon knw it? h S&P 500 has bn vry strong ovr th past fw yars, rising from 1,200 to 1,700 (and it s also worth noting th pllbacks hav bn of smallr magnitds dring this priod). In 2011 w had a ral corrction and thn som. Smmr of 2012 w almost hit th down 10% corrction trritory. Novmbr of 2012 was an 8% dclin, smmr of 2013 a 6% dclin, Sptmbr a 4% dclin and thn Octobr anothr 4% (assming this on is ovr). wo obsrvations worth pondring: th magnitds ar smallr bt th frqncy has incrasd (top chart). It s a bit trobling givn how far th markt has movd and fw wold disagr that w ar d for a mor matrial markt dclin. hr is likly som mor tapring talk abot qantitativ asing ahad and Washington hasn t rally rsolvd its gridlock and brinksmanship problms. On th flip sid, pssimism is balancd and that can mak a markt mor rsilint. W contin to hold highr cash lvls than normal in or U.S. portfolio and hav activly pt mor stops on xisting positions. In th mantim, w will njoy th S&P 500 with a 1,700 handl on it again (knock on wood). FUILIY OF PRICE ARGES Okay, th titl might b a littl xtrm and w ar biasd towards not sing pric targts in or portfolio managmnt dtis, bt w think this will b an intrsting rad. So, what is a pric targt? h gnral dfinition is what an analyst blivs th pric of a company or indx or commodity will b in on yar s tim. Most targts ar bilt pon xtnsiv fndamntal company modls that incorporat forcasts for th bsinss itslf. Boiling this down to how mch a company will arn thn apply a sitabl mltipl. hr ar a nmbr of othr variations to valing a company bt w ar taking th asy rot (no offns to any analysts rading this). ak th arnings and th mltipl and prsto! yo hav a pric targt. Hr s th problm. Forcasting th bsinss oprations is difficlt nogh; adding what th markt will pay for sch a bsinss in a yar s tim is qally difficlt. Will th arnings mltipl contract? Will th conomy slow or spd p? Will th company s oprations bcom mor poplar from th markt s prspctiv? For som ntrtainmnt, w graphd th S&P 500 against th consnss targt for th S&P 500, advancd a yar, of cors (middl chart). o b fair, dring normal bll markts th consnss targt for th S&P 500 was prtty accrat. Look at th priod of 2003 throgh 2007 and also th 2010 to arly 2012. Unfortnatly, and not srprisingly, whn markts dclin or go p too fast th forcasts don t prov vry sfl. his is a littl nfair givn th global financial crisis, bt clarly th targts for th S&P 500 both didn t s it coming nor did thy cors corrct vry qickly. Onc thy did, it ovrshot to th low sid. Evn th most rcnt rn by th S&P 500, which has bn vry strong at +18% ovr th past yar (xclding dividnds), has otpacd th consnss otlook. It is also worth noting that th crrnt targt for th S&P 500, basd on th avrag of contribting stratgists, is 1,717. hat implis only a 1.3% gain. Sm a tad barish in or viw. Looking at th individal company lvl, th rslts ar litrally all ovr th map. his is not a scintific approach by any strtch, bt w took th SX 60 constitnts and masrd th implid pric chang basd on th companis consnss pric targt on yar ago. W thn plottd ths against how th prics actally changd ovr th past yar (bottom chart). Now, if ths wr accrat, th dots shold land on or nar th diagonal black lin, maning th pric chang matchd th pric targt implid chang. So whr wr th biggst rrors? Rality fll vry short of th mark for gold companis. Many had targts implying 20-30% gains a yar ago bt trnd ot to dclin by 40-50%. Positiv srpriss, th two triangls at th top, wr Magna and Valant. Portfolio Implications As mntiond arlir in this articl, w don t s pric targts. W do implmnt rvisit lvls for many of or holdings both abov and blow whr th stock is trading. his is a componnt of or risk managmnt procss bt w don t bliv picking a pric a yar ot is a constrctiv way of managing mony. Pls, it viws a position in isolation whn it shold b viwd as wll in th contxt of th ovrall portfolio. S&P 500 pllbacks dring past fw yars 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 S&P 500 (lft) % dclin from high (right) Oct-11 Dc-11 Fb-12 Apr-12 Jn-12 Ag-12 Oct-12 Dc-12 Fb-13 Apr-13 Jn-13 Ag-13 Oct-13 0% -2% -4% -6% -8% -10% -12% -14% -16% S&P vs. Consnss argt for th S&P 1,800 1,600 1,400 1,200 1,000 800 600 S&P 500 Actal 1-yar Consnss pric targt (advanc a yar) Oct-03 Jn-04 Fb-05 Oct-05 Jn-06 Fb-07 Oct-07 Jn-08 Fb-09 Oct-09 Jn-10 Fb-11 Oct-11 Jn-12 Fb-13 Oct-13 Jn-14 SX 60 constitnt pric changs vs. targts Actal Rtrn 1 yar 120% 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 10% 10% 30% 50% 70% 1 yar pric targt (as of Oct 2012) Sorc: Macqari Privat Walth, Bloombrg
Macqari Privat Walth h Rndown 3 CHAR OF HE WEEK DIVERGENCES & A LONGER ERM LOOK A HE S&P h hadlins this wk hav bn panic-indcing, phoric and almost vrything in btwn. Btwn th dbt ciling and th dysfnctional political sitation in th U.S, th markts hav had a lot on thir mind. At tims lik ths, whn thr sms to b an imminnt crisis, it s sally bst to tak a dp brath and tak a stp back. In th chart world, that mans taking a longr-trm viw of th broad indx. h chart of th wk is a 10-yar look at th S&P 500, with a spcific focs on momntm and bradth. What I m looking at: - h 10-yar chart rally pts th movmnt ovr th past copl of wks into prspctiv. h markt has only dclind 1.3% from th all-tim high - Sinc th spring, th RSI has bn making sccssiv lowr lows and lowr highs, indicating wakning momntm as th S&P 500 has gon on to mak highr highs. Othr poplar momntm masrs sch as th MACD (not pictrd) hav also bn falling ovr sinc May - h prcntag of stocks abov thir 200-day moving avrags has stalld and has bn hld ndr a dcrasing trndlin sinc May. h lvl crrntly sits at 80%, which has in th past bn a significant lvl that braks bfor contind waknss in stock markt. It is difficlt for a markt to contin to grind highr whn a fifth of all stocks hav brokn blow thir longr avrags - If w shold s any largr pll back ovr th cors of th nxt fw months, th lin drawn from th prvios markt pak in 2007 will b an ara whr th markt finds som major spport
Macqari Privat Walth h Rndown 4 What it all mans: As yo can s from th chart abov, ths priods whn th markts mov on way whil th indicators mov anothr can last for som tim. his is not a timing gam; it is simply a statmnt of cation. Rsistanc will rmain at th prvios high (1725) and nar-trm spport rmains arond 1650. h daily RSI rading on th S&P 500 sits at 58, as long as this rmains blow 65, th short-trm otlook has a barish tilt, kping in mind that th longr-trm p trnd rmains solidly intact. OHER CHARS A A GLANCE REAIL AND FINANCIALS Plas don t shoot th mssngr, bt dspit thos in dnial, Christmas rally is jst arond th cornr. What that mans is mch mor attntion will b paid to rtail sals and rtailrs in gnral. Rtails stocks ar a grat lading indicator; if thy ar lading th markts, typically th conomy is in prtty good shap. h rtail EF XR is pictrd to th lft, and w s a copl of clar pattrns in formation. Unfortnatly w can t always say what th pattrn is ntil it rachs compltion. Sort of lik th pictr of th old and yong womn in on, this chart is showing what cold b a dobl top, or an ascnding triangl pattrn. W ll wait for confirmation to s which way this braks. It is crrntly stck blow horizontal rsistanc whil making highr lows. Momntm is wakning, bt th pric action always has th final say. It is also worth noting that XR faild to mak a highr high dring th last mov p.
Macqari Privat Walth h Rndown 5 Compard to U.S. rtailrs, th chart for th Canadian Financials looks xtrmly promising. h sctor has jst brokn ot form its latst consolidation, its scond in th past thr months. Sinc Jly th RSI has nvr falln blow 50, indicating that vn throghot th sidways markts thr rmaind a bllish tndncy. h brakot to th psid, ot of th box along with a srg in momntm and volm spik (not pictrd) sggsts frthr strngth for th banks and insranc companis. ECONOMIC CALENDAR CANADA Dat Day im Rlas Srvy Prior 18 Oct Fri 8:30 AM Consmr Pric Indx (MoM) 0.1% 0% 18 Oct Fri 8:30 AM Consmr Pric Indx (YoY) 1% 1.1% ECONOMIC CALENDAR US Dat Day im Rlas Srvy Prior 15 Oct 8:30 AM Empir Manfactring 8 6.3 15 Oct 7:59 AM Chang in Nonfarm Payrolls 180k 169k 15 Oct 7:59 AM Prodcr Pric Indx (MoM) 0.2% 0.3% 15 Oct 7:59 AM Prodcr Pric Indx (MoM) 0.6% 1.4% 15 Oct 7:59 AM Advanc Rtail Sals 0% 0.2% 15 Oct 7:59 AM Factory Ordrs 0.3% 2.4% 15 Oct 7:59 AM rad Balanc 39.5B 39.1B 15 Oct 7:59 AM Unmploymnt Rat 7.3% 7.3% 17 Oct h 8:30 AM Initial Joblss Claims 341k 374k 17 Oct h 7:59 AM CPI (MoM) 0.2% 0.1%
Macqari Privat Walth h Rndown 6 17 Oct h 7:59 AM Hosing Starts 910k 891k 18 Oct Fri 7:59 AM Indstrial Prodction 0.4% 0.4% *h U.S. shtdown may contin to dlay som rlass EARNINGS CALENDAR CANADA No major Canadian annoncmnts nxt wk EARNINGS CALENDAR US Company Symbol Sctor Pric Rport Dat im Estimat CIIGROUP INC C Financials 48.79 15 Oct 13 08:00 1.039 INEL CORP INC Information chnology 23 15 Oct 13 Aft mkt 0.541 JOHNSON&JOHNSON JNJ Halth Car 88.72 15 Oct 13 1.321 COCA COLA CO/HE KO Consmr Stapls 37.59 15 Oct 13 Bf mkt 0.533 ABBO LABS AB Halth Car 33.52 16 Oct 13 Bf mkt 0.516 AMERICAN EXPRESS AXP Financials 74.72 16 Oct 13 Aft mkt 1.218 BANK OF AMERICA BAC Financials 14.154 16 Oct 13 07:00 0.201 BANK NY MELLON BK Financials 30.74 16 Oct 13 06:30 0.576 EBAY INC EBAY Information chnology 54.35 16 Oct 13 16:00 0.626 IBM IBM Information chnology 184.99 16 Oct 13 Aft mkt 3.955 PEPSICO INC PEP Consmr Stapls 80.66 16 Oct 13 07:00 1.17 US BANCORP USB Financials 36.68 16 Oct 13 Bf mkt 0.755 BAXER INL INC BAX Halth Car 65.59 17 Oct 13 Bf mkt 1.191 CAPIAL ONE FINA COF Financials 71.01 17 Oct 13 16:05 1.806 GOOGLE INC CL A GOOG Information chnology 870.9 17 Oct 13 Aft mkt 10.373 GOLDMAN SACHS GP GS Financials 158.06 17 Oct 13 07:30 2.445 PHILIP MORRIS IN PM Consmr Stapls 85.12 17 Oct 13 07:00 1.434 UNIEDHEALH GRP UNH Halth Car 73.66 17 Oct 13 Bf mkt 1.526 UNION PAC CORP UNP Indstrials 157.48 17 Oct 13 08:00 2.477 VERIZON COMMUNIC VZ lcommnication Srvics 46.88 17 Oct 13 07:30 0.742 GENERAL ELECRIC GE Indstrials 24.35 18 Oct 13 Bf mkt 0.354 HONEYWELL INL HON Indstrials 85.41 18 Oct 13 Bf mkt 1.242 MORGAN SANLEY MS Financials 27.72 18 Oct 13 07:15 0.397 SCHLUMBERGER LD SLB Enrgy 89.45 18 Oct 13 Bf mkt 1.242 HALLIBURON CO HAL Enrgy 50.17 21 Oct 13 0.824 Links to othr wbsits or rfrncs to prodcts, srvics or pblications othr than thos of Macqari Privat Walth Inc.(MPW) on this wbsit do not imply th ndorsmnt or approval of sch wbsits prodcts, srvics or pblications by MPW. MPW maks no rprsntations or warrantis with rspct to, and is not rsponsibl or liabl for, ths wbsits prodcts, srvics or pblications his matrial is providd for gnral information and is not to b constrd as an offr or solicitation for th sal or prchas of scritis mntiond hrin. Past prformanc may not b rpatd. Evry ffort has bn mad to compil this matrial from rliabl sorcs howvr no warranty can b mad as to its accracy or compltnss. Bfor acting on any of th abov, plas sk individal financial advic basd on yor prsonal circmstancs. Howvr, nithr th athor nor Macqari Privat Walth Inc. (MPW)) maks any rprsntation or warranty, xprssd or implid, in rspct throf, or taks any rsponsibility for any rrors or omissions which may b containd hrin or accpts any liability whatsovr for any loss arising from any s or rlianc on this rport or its contnts. Macqari Privat Walth Inc. is a mmbr of Canadian Invstor Protction Fnd and IIROC.
Macqari Privat Walth h Rndown 7 No ntity within th Macqari Grop of Companis is rgistrd as a bank or an athorizd forign bank in Canada ndr th Bank Act, S.C. 1991, c. 46 and no ntity within th Macqari Grop of Companis is rglatd in Canada as a financial instittion, bank holding company or an insranc holding company. Macqari Bank Limitd ABN 46 008 583 542 (MBL) is a company incorporatd in Astralia and athorizd ndr th Banking Act 1959 (Astralia) to condct banking bsinss in Astralia. MBL is not athorizd to condct bsinss in Canada. No ntity within th Macqari Grop of Companis othr than MBL is an athorizd dposit-taking instittion for th prposs of th Banking Act 1959 (Astralia), and thir obligations do not rprsnt dposits or othr liabilitis of MBL. MBL dos not garant or othrwis provid assranc in rspct of th obligations of any othr Macqari Grop company