Fear of Festering Banking Troubles Inhibits Sustainability of Market Rallies, Concludes Latest Lookout Report
NEW YORK, Nov. 18, 2011 /PRNewswire/ -- In the most recent issue of the Lookout Report -- a biweekly research note from S&P Capital IQ's Global Market Intelligence unit that draws upon the firm's unique analytical assets, including Capital IQ, S&P Indices, S&P Leveraged Commentary and Data, and company and funds research -- analysts note that simmering risks of another global banking crisis -- this time from fiscal concerns in Europe -- have repeatedly short-circuited the stock market's attempts to sustain rallies following successive quarterly reports of much better-than-anticipated S&P 500 corporate earnings. Among the observations from these findings is a belief that while S&P 500 retailers reported a robust third quarter on increasing strength in consumer spending, the fourth quarter will be even more telling as the holiday season determines how willing shoppers are to spend their discretionary income.
This information is published in the Lookout Report for November 18, 2011. The report, which also features market insights and commentary on corporate earnings, leveraged loan trends, commodity index activity and more is available here.
Following are additional highlights in this issue of the Lookout Report:
S&P Index Equity Commentary: Everything Is Beautiful, At Least On Paper
Overall, third-quarter numbers for the S&P 500 Index are good on both the balance and income sheets, with strong earnings and cash flow helping to drive the current market. Operating earnings and as reported earnings both set records, both with or without the special valuation gains reported by the bulge bracket firms, and topped the previous records set in the second quarter.
Leveraged Commentary And Data: The Gap Widens Between U.S. And European Leveraged Loans
Since Europe's debt crisis flared anew in August, European loans have traded off relative to U.S. paper. On Nov. 10, the average price of loans in the S&P European Leveraged Loan Index (ELLI) stood at 85.24% of par, seven points inside that of the U.S.-based S&P/LSTA Leveraged Loan Index (S&P/LSTA Index).
R2P Corporate Bond Monitor
In the fixed-income markets, risk-reward profiles--as measured by our average Risk-to-Price (R2P) scores--increased from Nov. 1 to Nov. 14. Scores stabilized or increased across the board, except for the industrials and energy sectors in Europe (which decreased by 4% and 7%, respectively).
Market Derived Signal Commentary: Retailers' CDS Spreads Reflect Positive Sentiment
Over the past month, the average credit default swap (CDS) spread for retailers tightened 35 basis points (bps), or 4.6%, to 272 bps, compared with the overall consumer discretionary sector, which tightened 12 bps, or 0.6%, to 261 bps, according to CMA DataVision. The average spread for retailers places the group in speculative-grade territory, 18 bps wide of the 'BBB-' consumer discretionary benchmark.
Capital Market Commentary: IPO Activity Is Strong In The Information Technology Sector
This week marks one the busiest weeks of the year for IPO activity. As the total number of offerings continues to increase, the information technology (IT) sector is poised to reach its highest level for IPO activity in several years. The current pace of activity for the IT sector suggests the full-year 2011 IPO total could eclipse the 2010 total.
S&P Index Commodity Commentary: Energy Vs. Non-Energy
Commodity prices have shown strength in November despite equity weakness and dollar appreciation. However, rapidly increasing energy prices and declining industrial metals prices have done little to alleviate the already poor economic outlook reflected in the S&P GSCI Index in 2011.
Quantitative View: All Or Nothing--Tough Times For Active Managers
We found that strategies such as capital efficiency are nearly perfectly correlated (-.81) with market direction. In other words, when the market retreats, these strategies perform well. When the market rallies, strategies focused on volatility and price momentum turned in the best performance. Valuation and analyst expectations have shown the weakest relationship, particularly in October, to market direction.
The Lookout Report provides cross-market and cross-asset class views of current data and forward-looking insights from leading S&P market specialists. Key areas of focus include aggregated corporate earnings, market and credit risk evaluation, capital markets activity, index investing and proprietary data and analytics. The report previews the issues most likely to drive market expectations or cause a market disturbance in the weeks ahead. It can be accessed on S&P.com, the S&P Global Credit Portal and Capital IQ.
About S&P Capital IQ
S&P Capital IQ, a brand of the McGraw-Hill Companies (NYSE: MHP), is a leading provider of multi-asset class data, research and analytics to institutional investors, investment advisors and wealth managers around the world. We provide a broad suite of capabilities designed to help track performance, generate alpha, identify new trading and investment ideas, and perform risk analysis and mitigation strategies. Through leading desktop solutions such as Capital IQ, Global Credit Portal and MarketScope Advisor desktops; enterprise solutions such as S&P Securities Evaluations, Global Data Solutions, and Compustat; and research offerings including Leveraged Commentary & Data, Global Market Intelligence, and company and funds research, S&P Capital IQ sharpens financial intelligence into the wisdom today's investors need.
SOURCE S&P Capital IQ
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