July 15 2016 Market Minute
New high’s for the Dow Jones Industrial and SP 500 this week. The Dow’s new high is surpassing the previous high on 5-21-2015 of 18,288. It only took 14 months to do so. Of coarse in between the May 2015 high and today its low was 15,500, twice. Once August 2015 and again February 2016.
No other international indices are reaching new highs. This includes the Japanese Nikkei, Germany’s DAX, UK’s FTSE, and France’s CAC. China’s SSE doesn’t really count given the actions of their ‘National Team’ buying stocks to prop up their market when it needs it.
Like the Dow and the SP 500, these indices hit their highs May 2015 too. Perhaps they will catch up with the US indices or we’ll catch ‘down’ with theirs.
Who’s buying US equities and why you may ask? Well, Corporate Stock Buybacks were 161.39 Billion in the 1st quarter of 2016 and there is still another 156 Billion unused but authorized for share purchases. When a publicly traded company buys back shares it increases, all things being equal, ‘Earnings Per Share’. Some call this ‘Financial Engineering’. Especially when one considers that many companies have been issuing bonds and using the proceeds to buy back stock.
The US Treasury auction this week sold 12 Billion Dollars of 30 Year Treasury Bonds at 2.172%. This is the lowest yield ever. Demand was driven by foreign investors. The highest demand from foreign investors ever!
Germany, for the first time ever, sold 10 Year Bunds at a yield of (-0.05%). Switzerland did the same this week, selling 10 Year Bonds at (-0.023%).
None of the above should be surprising given the markets belief in the ‘omnipotence’ (unlimited power) of the SCB’s (Super Central Banks).
Source: Wall Street Journal, Thompson One