Dow Jones
The Dow Jones Industrial Average, or Dow Jones, is a weighted index representing the stock price action of 30 of the largest U.S. corporations. It is the world’s most widely followed stock market index. The Dow Jones Industrial Average was created on May 26, 1896 and is named after Charles Dow and Edward Jones. The earnings and revenues of large corporations are often leading economic indicators. Hence, economists often look at the Dow Jones Industrial Average as an indicator of economic activity. If the index is hitting new highs, economic activity can be expected to be brisk in the next six months. Comparatively, if the index is falling to new lows, poor economic times could lie ahead.
Why Dow Jones Laggards Are Important Leading Indicators
By Mitchell Clark, B.Comm. for Profit Confidential
There very well could be more upside in the Dow Jones Industrial Average.
Many components have been underperforming the stock market significantly; if there is to be any real economic recovery, these companies should feel it.
As an index, the Dow Jones Industrial Average seems a little out of date and not particularly reflective of today’s world or the rest of the stock market.
But regardless, it’s still the global benchmark, and ownership of both the index and component companies is vast.
Even though Merck & Co., Inc. (NYSE/MRK) is a great pharmaceutical company (and dividend payer), on the stock market, the position is back to where it was in 1997.
Another Dow Jones component looking for improvement is Hewlett-Packard Company (NYSE/HPQ), which has its own specific set of problems.
Then there’s Alcoa Inc. (NYSE/AA), which reports early. This stock market laggard is still trading at the same level it was in 1989, taking share splits into consideration.
And there are several other Dow Jones components that are laggards.
It’s pretty clear that institutional investors have made a profound bet on the safest blue chips, most evident in January and February.
While business conditions for a lot of companies are flat, both interest rates and monetary environments remain very accommodative. In addition, there are efforts being made regarding fiscal policies in many important economies.
China effected a policy to slow its frothy economy and real estate market, and it succeeded.
So, with many countries trying to get their fiscal affairs in order, the potential for genuine economic growth (in a year or two) is being cultivated.
If this came … Read More
The Great Big Gamble: Can a Little Earnings Growth Turn into a Lot?
By Mitchell Clark, B.Comm. for Profit Confidential
At a recent dinner with old pals, the conversation migrated from cars, sports, food, and family to the economy and the unbelievable performance of the stock market.
Everyone said that in their respective professions (a manufacturing sales manager, an insurance adjuster, a foodservice executive, and a bank manager) business conditions were flat.
I’ve heard this from many people. Countless businesses are holding steady, but despite profound efforts, they can’t generate meaningful top-line growth.
Yet, the stock market just hit an all-time record high on modest first-quarter earnings results.
Quite obviously, this stock market is overbought.
Wall Street and institutional investors are in the business of betting on the future using someone else’s money.
Corporate earnings over the last several quarters have held up. But the earnings have mostly been squeezed out of worker productivity and cost controls.
Blue-chip balance sheets continue to grow stronger, and the lack of certainty in the global marketplace has dampened the willingness of corporations to make new investments.
The result is continued growth in quarterly dividends and share buybacks; and this is one of the many reasons why institutional investors have been buying this stock market—there is nowhere else to go.
I think it is still worth keeping a sharp eye on the crucial movements in the Dow Jones Transportation Average. It is old-school, but I believe that many component companies do provide a decent reflection of economic activity in the U.S.—at least from a corporate perspective. (Read “BlackRock Takes In Billions for Equities: A Signal the Stock Market Is Near a Top?”)
What I learned from many large-cap earnings reports was that sales … Read More
BlackRock Takes in Billions for Equities: A Signal the Stock Market Is Near a Top?
By Mitchell Clark, B.Comm. for Profit Confidential
Stability peppered with a little growth is what the stock market is looking for.
Tomorrow, Kimberly-Clark Corporation (NYSE/KMB) will report. Like many other blue chips, the company broke out significantly on the stock market and is looking decent before its earnings report.
BlackRock, Inc. (NYSE/BLK) announced solid first-quarter earnings. Assets under management grew to a record $3.94 trillion, while net inflows grew to $39.4 billion, with $33.7 billion for equities.
There is still momentum for money to be put to work in this stock market.
The key is a broadening of the breakout. The stock market can’t sustain a strong performance through blue chips alone. And revenues and earnings have to perform.
The stronger U.S. dollar was clearly evident in Johnson & Johnson’s (NYSE/JNJ) earnings results. (See “Some Big Company Earnings Look Good, but Market Set for a Correction.”)
For Johnson & Johnson, first-quarter revenues grew 8.5% to $17.5 billion, but would have grown about 10% if not for the dollar’s strength. Earnings beat consensus, and the company backed its view for 2013 (the safe play). Johnson & Johnson’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
This year’s stock market breakout is in much need of a correction. Blue chip valuations still seem reasonable to me, but it’s unrealistic to expect the stock market to keep heading upward without a substantial correction.
To keep this stock market alive, the Dow Jones Transportation Average must stay above 6,000. This really isn’t a technical level, but more of a psychological one.
The industrial supply company, W.W. Grainger, Inc. (NYSE/GWW) reported very solid revenues and earnings, particularly … Read More
Unbelievable Stock Market Now Destined for Greatness?
By Mitchell Clark, B.Comm. for Profit Confidential
“Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” – Sir John Templeton
Templeton’s first point—pessimism—is where I think the stock market and many investors are right now.
The powerful breakout in the Dow Jones Transportation Average and many blue chips on the stock market is very significant.
Pessimism regarding the stock market and the financial world is everywhere. But the U.S. stock market can advance in the face of poor unemployment, currency wars, budget sequestration, feeble banks, and massive monetary stimulus. It just proved that.
With just a little more certainty, the Dow Jones Industrials could easily jump another thousand points. There are continued low interest rates and extremely healthy balance sheets, plus tons of cash sitting on the sidelines.
Institutional investors are chomping at the bit to buy this market.
Buying in the Dow Jones Transportation Average and Dow Jones Industrials illustrates the jitters that big investors have. But that’s okay. Blue chip leadership is never bad. In fact, it’s always good.
The Dow Jones Transportation Average is off its high and is toying with its 50-day moving average (MA) right now. With the exception of the 2008/2009 stock market collapse, the Dow Jones Transportation Average has been flat for a number of years.
To me, its recent breakout and the participation from the rest of the stock market reveals the pent-up demand from institutional investors to put cash to work. With so much cash still sitting on the sidelines, there’s a lot of ammunition that could move this market much higher. The stock chart for the Dow Jones Transportation Average is … Read More
From Financial Crisis to Bubble, Is the Next Cycle Now in Play?
By Mitchell Clark, B.Comm. for Profit Confidential
What if the powerful breakout in the Dow Jones Transportation Average in December of 2012 was the beginning of a new, multiyear upcycle for the stock market?
The stock market has clawed its way upward since the financial crisis hit in 2008. Recent trading volume has been mediocre, accentuating the move, but the majority of companies on the Dow reported solid fourth-quarter earnings.
Corporations are buying back shares, increasing their dividends, and for a lot of blue chips, balance sheets are in excellent shape—way better than before the financial crisis. Valuations are below historical norms.
Bull markets typically start in a stealthy manner. All of a sudden, institutional sentiment changes on a dime. At the beginning of a new upcycle in the stock market, it’s corporate profitability that leads all other metrics. Regrettably, it’s not about Main Street.
Current aggregated data by FactSet on earnings are calling for a solid advance in the bottom half of 2013 and 2014. It may not be believable yet, but many corporations are expecting this.
There is a tremendous amount of cynicism and doubt among individual investors (and rightly so). Many people have been sidelined since the financial crisis and throughout the recession. Since the financial crisis, individual investor sentiment has grown worse. A contrarian indicator? Maybe. Overperformance in the Dow Jones Industrials produced two significant periods of underperformance within the last 12 years. But the normalized trend of the Dow Jones Industrials is good.
Chart courtesy of www.StockCharts.com
The Federal Reserve is absolutely committed to re-inflating assets and keeping interest rates low. U.S. national debt is growing significantly (along with the … Read More
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