Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Stock Market: Four New Warning Signs Emerge

By for Profit Confidential | September 19, 2014

New Warning Signs EmergeAccording to the Investment Company Institute, investors have been taking money out of U.S. equity funds since April of this year.

Between April and July of 2014, investors pulled $32.0 billion from long-term stock market mutual funds that invest in U.S. stocks. While August’s monthly figures are not available, looking at weekly data, it appears investors ran away from the stock market in August as well. (Source: Investment Company Institute web site, last accessed September 16, 2014.)

How does a stock market rise when investors are selling? Well, there is a bigger anomaly in the stock market you need to be aware of.

Another indicator is suggesting investors are scared about the stock market. The yields on long-term U.S. bonds have been declining since March despite the Federal Reserve’s prediction that interest rates are to rise sharply next year and in 2016.

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

As the chart above shows, yields on long-term U.S. bonds continue to go lower. Again, this is on the backdrop of the Fed getting out of the money printing business (and warning investors that interest rates are going to rise).

U.S. bonds have historically gone down when the Fed has told us interest rates are going to rise. But the fear of higher rates (and lower bond prices) is overwhelmed by the strong demand for U.S. bonds, as scared stock market investors jump into U.S. bonds—where they believe their money will be safe.

There are definite cracks starting to show in the stock market. While we hear and read about the main indices moving higher, there are fewer and fewer companies reaching new price highs, which makes me question the strength of the overall stock market.

According to data compiled by Bloomberg, 47% of companies on key stock indices like the NASDAQ Composite Index are down at least 20% from their peaks made in the last 12 months. As for the broader Russell 2000, 40% of the st… Read More

Why the Old School Dow Theory Still Applies

By for Profit Confidential

The Most Important Stocks to FollowGetting a sense of where stocks are going to go in the year ahead is always difficult with the major indices at their all-time highs.

The fundamental backdrop is still very favorable for equities. While the Federal Reserve has put off raising interest rates for the near future, the cost of capital, especially for corporations, remains extremely low. And corporate balance sheets remain in excellent condition with strong cash positions and good prospects for rising dividends going forward.

The stock market recovered extremely well from the financial crisis and subsequent crash in 2008/2009. But it wasn’t until early 2013 that I saw the beginning of a new cycle for stocks, or a bull market as it were.

Until then, I viewed the market’s performance purely as a recovery period from the previous cycle, which was the technology bubble.

Many of the technology stocks have only now recovered to their previous highs set in 1999 and 2000. The recovery cycle took a long time to play out and the catalyst for its breakout was, not surprisingly, the Federal Reserve.

Stocks can move significantly higher in a rising interest rate environment, but only from a low base, which is what we have now. And within the context of a new market cycle or bull market, the economy can experience a full-blown recession and stocks can experience meaningful corrections.

The two most important catalysts for the equity market near-term are what corporations actually report about their businesses and the Federal Reserve’s actions.

The surprising weakness in oil prices should be evident in corporate financial results (especially in the fourth quarter). Old economy industries that consume vast amounts of fuel, such as railroads and airlines, should see some benefit to earnings. This bodes well for stocks in general.

Second-quarter earnings, especially among large-caps, was better than expected and corpora… Read More

My Top Five Picks in the Booming Airline Sector

By for Profit Confidential

My Top Five Picks in the Booming Airline SectorThe Boeing Company (NYSE/BA) is going to space and its stock price is following. The top company in the airline sector just won a joint $6.8-billion contract along with SpaceX to build “space taxis” to ferry NASA astronauts to and from the International Space Station.

For Boeing, it’s just more evidence of why it is the “Best of Breed” in the airline sector and a valid component in anyone’s long-term core holdings.

SpaceX, or Space Exploration Technologies Corporation, is a project of Elon Musk’s, the man who is also the brains behind the creation and success of Tesla Motors, Inc. (NASDAQ/TSLA). Musk apparently wants to eventually offer space travel for commercial use, so this deal from NASA is moving him in the right direction.

The airline sector is hot and will continue to expand as the wealth creation around the world grows, especially in the emerging markets, such as China, Asia, and India. When income levels rise, people want to travel, and this has clearly been reflected in the superlative demand for airplanes out of China. Boeing believes China is the top aviation growth area worldwide.

The International Air Transport Association (IATA) estimates that North America will continue to be the largest airline sector market with profits of about $8.6 billion this year. The Asia-Pacific airline sector is predicted to be the second biggest with about $3.7 billion in earnings this year. Europe comes in third with an estimated $3.1 billion. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)

And whether you own Boeing, Embraer S.A. (NYSE/ERJ), or another of the numerous aerospace parts and services stocks, there is money to be made in the airline sector, and I expect this trend to continue.

The chart of the Dow Jones U.S. A… Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
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