The concept of corporate earnings being the single biggest factor that drives key stock indices like the S&P 500 higher has been thrown out the window.
While I continue to see analysts issue buy recommendations for the S&P 500, the fact of the matter is that profits at companies that make up the S&P 500 are declining. For the first quarter of 2014, corporate earnings for the S&P 500 companies are actually expected to decline by 1.6%. (Source: FactSet, April 11, 2014.) That’s the biggest drop in public company profits since 2009!
But the stock market doesn’t care if corporate earnings are declining…just like it doesn’t care if interest rates are rising. These are clear signs the market is acting irrationally—an indicator of a stock market bubble.
Just look at what happened with The Coca-Cola Company (NYSE/KO). This well-known S&P 500 company reported that its first-quarter 2014 corporate earnings declined by eight percent and revenues dropped four percent compared to the same period one year early. (Source: The Coca-Cola Company web site, last accessed April 15, 2014.)
But the market took Coca-Cola’s stock price higher on the bad results!
Below is the chart of Coca-Cola’s stock price, just as the markets opened (circled area) after the company reported its poor corporate earnings results. The stock gapped up 2.8%! This confirms my take that the fundamentals don’t count anymore to investors.
At the end of the day, all of this seems too familiar to us. This is what we have seen prior to other stock market sell-offs: investors discounting all forms of time-proven stock market valuations because they believe stock prices will keep rising no matter what.
I see the upside for key stock indices like the S&P 500 as being very limited and the probability of a massive downside move is very likely…. Read More
First-quarter earnings results for Harley-Davidson Inc. (HOG) were good. The motorcycle manufacturer did a solid job boosting its bottom line on what was a decent gain in sales, particularly internationally. First-quarter earnings per share grew 22% to $1.21.
U.S. dealers sold 35,730 new motorcycles in the quarter for a three-percent gain. International dealers sold 21,685 new motorcycles during the quarter, up 11%, with comparative Asia-Pacific sales up 21%.
This produced total bike sales of $1.31 billion in the 2014 first quarter for a gain of 13% over the same quarter of 2013. Gross margin was higher and management reiterated previous guidance of a seven- to nine-percent increase in motorcycle shipments this year.
It was a solid quarter for the company, and the stock bounced nicely higher on the news.
So far this earnings season, the numbers have been pretty modest. Two emerging trends from reporting companies include strengthening business conditions in Europe and Asia, along with the confirmation of existing 2014 guidance. (See “Two Big Trends to Emerge This Earnings Season?”) Generally, the numbers are OK.
Stocks have been able to work through recent jitters and the main indices. Most of the economic data hitting the wires is actually meeting consensus expectations, and this is helping investor sentiment.
However, the NASDAQ Composite and Russell 2000 both have a lot higher to go if the market is to resume an upward trend. The Dow Jones Industrial Average is holding up extremely well.
Harley-Davidson got slammed in 2007 and 2008, dropping from more than $70.00 a share to less than $10.00 in the March low of 2009. What a buying opportunity.
The stock’s been working its way back up to its all-time record-high and, over the last two years, has handily beat the S&P 500. The company’s seven-year stock chart is featured below:
Chart courtesy of www.StockCharts… Read More
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