Daily Management Review

UBS Claims a Major Bubble Just Burst and it is Good for Stocks


03/04/2016




UBS Claims a Major Bubble Just Burst and it is Good for Stocks
Wall Street strategists claim that a major bubble in the market just burst for the bears.
 
Better-than-expected U.S. data and a stable Chinese yuan has led to a popping of the global "negativity bubble," and that could drive equities significantly higher in March, said UBS' Julian Emanuel in an interview on CNBC's "Fast Money" on Wednesday.
 
"Essentially, people were defensively positioned coming in to 2016. Then, all of a sudden, the numbers started to get a little bit better," explained Emanuel, who serves as executive director for U.S. equity and derivatives strategy at UBS.
 
While GDP in the fourth quarter of 2015 grew at an annualized rate of 1 percent, positive U.S. data includes January overall retail sales, which rose 0.2 percent. Additionally, the U.S. dollar hit a new one-month high on Tuesday.
 
The indication that the U.S. will not head into recession was given by jobs data according to Emanuel. U.S. initial jobless claims remain near cycle lows at 272,000 while unemployment is at 4.9 percent, the lowest level since 2008, despite slight rises in February.
 
UBS claims that alarm bells could be triggered by any spike of up to 350,000 jobless claims adding that there was no such spike at the appeared to be in sight at the moment. Historically, spikes have occurred during recessions dating back to 1991, 2001 and 2009.
 
The 45 lever for Supply Management Manufacturing PMI – which is considered as "the danger zone", is far away for the index. The Supply Management Manufacturing PMI is below 60 but still holding well above 45, he said.
 
"That data doesn't show expansion, but it's just a little bit better than what we're expecting. [From there] you get an outsized market reaction to the upside," said Emanuel. 
 
UBS still believes that that markets are poised for gains and "remains comfortable" with an S&P 500 2016 year-end price target of 2,175, which is among the most bullish on Wall Street and this despite depressed sentiment, tightening financial conditions, a shaky political backdrop and elevated volatility in assets and earnings. That's a nearly 10 percent rise from the current price of around 1,986. 
 
"A turn has happened in February where assets from the Mexican peso to unleaded gas to retail stocks in the S&P all turned together," said Emanuel. With small pieces of good news, that the rally will carry on regardless of concerns over instability, on the overall, the investor mentality has changed, he noted.
 
Hence he expects additional rate hikes in 2016 by the Fed as it continues on its course of rate increase. Emanuel feels interest rates need to move higher, and is therefore encouraged at the prospect of more increases in order for volume in the markets to pick up.
  
"We're only looking for two [rate hikes], in September and December," said Emanuel. "The Fed is not going to [raise] until it feels good and ready to go," Emmanuel said.
 
(Source:www.cnbc.com) 






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