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

Dow Jones Transportation Index

The Dow Jones Transportation Index is one of the most famous indexes. It is an average of twenty companies within the transportation sector. Many analysts and economists closely follow the Dow Jones Transportation Index as a key indicator for the strength of the American economy. If an economy is growing strongly, this would mean that many goods are transported using one or several of the companies within the Dow Jones Transportation Index.

The Stocks Making a Comeback in the Last Two Earnings Seasons

By for Profit Confidential

Stocks Making a Comeback in the Last Two Earnings SeasonsWhat has been very encouraging over the last two earnings seasons is the strength we’re getting in small-cap technology companies (stock market action aside). A lot of smaller technology companies are reporting a significant improvement in revenues, and that means that consumers are opening up their wallets, if only just a little.

I’m not a fan of large-cap, retail technology stocks as stock market investments. Sure, Apple Inc. (NASDAQ/AAPL) is a great company, and I like their computers, but the company just priced itself out of its own market. Apple is now struggling to grow. Dell Inc. (NASDAQ/DELL) did the same thing. It priced itself out of its own market (the other way around); and while it once was a great investment on the stock market, it’s been terrible for the last dozen years.

What we’re getting now are countless smaller names in enterprise technology saying that their revenues are growing, which is more important than earnings growth. This is exactly what the economy needs. Big-cap companies will continue to have to deal with weakness from global operations; but domestic small-cap tech stocks are like a breath of fresh air, and the stock market is beginning to notice.

Take a look at Qlik Technologies Inc. (NASDAQ/QLIK). This is the second growing company I recently found out of Radnor, PA. (See “Great Old Economy Business That Isn’t Full of Hot Air.”) Qlik makes business intelligence software, which is used by corporate and government customers to share data. This is a growing company, but the position slowed on the stock market last spring, after a very strong start in 2010. Qlik’s stock … Read More

First-Quarter Earnings the Catalyst for Correction?

By for Profit Confidential

First-Quarter EarningsNo matter how you look at this stock market, the fact of the matter is that a lot of stocks are trading right at their all-time or 52-week highs on the back of mostly flat earnings. This makes it tough to be a buyer. In fact, I wouldn’t be a buyer in this market at all.

Sure, there are trades out there; there always are. And yes, stocks aren’t expensively priced, but that’s the point. They are fairly priced, because revenues and earnings growth are so modest. This is the time to reap, not sow new positions.

While I’m not one who roots for disaster, the best thing that could happen for long-term stock market investors is a major price correction this year. Unless gross domestic product (GDP) is plunging or there is some sort of external shock to the system, it would make for an attractive new entry point.

Right now, there is a little momentum in U.S., Chinese, and German economic news, and this is giving an otherwise trendless stock market some hope. I call this market “trendless,” because I don’t like the trading action, and there seems to be a high amount of collective uncertainty. Investors aren’t piling into the stock market, because there’s no reason to with little earnings growth. Even though there’s no other asset class with the potential to beat the rate of inflation, there is little enthusiasm for stocks at their highs.

You can’t really ignore the stock market going forward, but you can attribute less attention to the main stock market indices. Good businesses are going to trade with less correlation to … Read More

Things Are Looking Up! Let’s Hope They Don’t Wreck It

By for Profit Confidential

Let’s Hope They Don’t Wreck ItI’ve been looking at all the earnings to date (they often aren’t a calendar quarter, but a fiscal quarter), and so far, I would say that the majority of companies are beating consensus expectations. Corporate earnings are definitely managed, but this is a good development. If the reduced earnings outlooks in the third quarter are partly responsible for the “outperformance,” then the revenues figures are the real good news. It’s too early to tell whether this early trend will become a reality this fourth-quarter earnings season.

There was some good economic news last week, but the stock market didn’t really react to it. I suppose investors are content to sit on the sidelines until the earnings really roll in. There are a lot of stocks that aren’t performing that well in this market, and this is troublesome; but I have to admit, the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite are holding up well.

It’s a very good sign that the Dow Jones Transportation Index (or Average) has broken out of its long consolidation. Dow theory might be “old-school,” but I believe in it. FedEx Corporation (NYSE/FDX) is looking strong on the stock market, and so are Union Pacific Corporation (NYSE/UNP) and JB Hunt Transport Services, Inc. (NASDAQ/JBHT). The airlines, as a group, are still way down, but they recently saw a significant turnaround on the stock market. The one exception in this group is Alaska Air Group, Inc. (NYSE/ALK), which has been doing outstandingly well over the last few years.

So far this earnings season, I see a lot of potential. Looking at the numbers to date, … Read More

Earnings Season Is Here; Will the Numbers Be Kind?

By for Profit Confidential

Earnings SeasonThere is positive momentum going into fourth-quarter earnings season. The earnings results we’ve had so far from brand-name large-caps are encouraging. We can’t forget, however, that expectations and consensus estimates have come down a lot, especially because of third-quarter earnings results. I think the stock market will be pleasantly surprised when it gets results from the key financial and technology stocks. Outperformance should be plentiful, but only because of the reduced outlooks.

Oracle Corporation (NASDAQ/ORCL) reported great numbers in its latest earnings report. The stock is trading right at its 52-week high, and if you eliminate the huge upward spike in the company’s share price in 2000, its long-term stock market chart is excellent.

Oracle Corporation Chart

Chart courtesy of www.StockCharts.com

Oracle is a good barometer for enterprise technology spending. After its recent earnings report, across the board, Wall Street analysts increased their expectations for the coming quarters. The fact that Oracle recently reported such a good quarter bodes well for the rest of the technology sector.

Another big-name company, which experienced tough business conditions last quarter, is NIKE, Inc. (NYSE/NKE). The company’s most recent earnings report showed a marked improvement in its financial metrics, with particular strength coming from the U.S. market. NIKE is a good barometer on consumer spending, and the company’s long-term track record on the stock market is excellent. NIKE’s stock market chart is featured below:

NIKE Inc Chart

Chart courtesy of www.StockCharts.com

Still, no one is expecting runaway growth, in terms of earnings or revenues. And there is no bankable trend in the economy as of yet. Strength in fourth-quarter earnings could easily turn out to be a one-shot deal.

I’m … Read More

Stock Market: All the Cards Have Been Played

By for Profit Confidential

Stock Market: All the Cards Have Been PlayedOn the day of the Federal Reserve’s announcement regarding targeted low interest rates and a new bond-buying program, the stock market started out strong, only to sell off by the end of the day. This has happened countless times over the last couple of months, and it’s a sign that this market is tired. The stock market is finally seeing through the Federal Reserve, and investors now realize that no further policy action can do anything to help U.S. employment numbers.

This has got to be one of the most accommodative Federal Reserve’s in history. On Wall Street, you couldn’t really ask for a more compliant central banker, and the artificially low interest rates are very helpful for the bond market (by bond market, I mean the system itself, not investors). Corporations are benefiting from the Federal Reserve with lower borrowing costs, but they aren’t investing in new plant and equipment. Large-cap companies are awash in cash, and it’s a lot easier for them to keep hoarding it, or return it to shareholders in the form of dividends or share buybacks. (See “More Dividend Increases Coming Soon—Is This Good or Bad?”) A lot of participants are benefiting from the Federal Reserve’s action, except for the average individual who is looking for work.

One stock market index that just can’t seem to go anywhere these days is the Dow Jones Transportation Index (or average). This index basically hasn’t done anything for the last five years, and if you believe in Dow theory, the stock market will not advance materially without confirmation from transportation stocks. This index is stuck in a rut, … Read More

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