Not only is the business environment a tough one for the retailers, but for the manufacturers who produce the goods for sale, it has also been an uphill battle. Bellwether electronics company Sony Corporation (NYSE/SNE) announced on Tuesday that its earnings for April to June came in at almost three hundred and twenty-seven million dollars, down about 50% year-over-year, and well below the four hundred and eighty-six million dollar estimate by Wall Street. Sony blamed the strong yen and weakness in its cell phone operations as some of the reasons for the decline.
The report by Sony should not be a surprise, as it is expected given declines in sales at electronic retailers such as Best Buy Co., Inc. (NYSE/BBY). To make matters worse, Sony also reduced its earnings guidance for the fiscal year to $2.24 billion from $2.71 billion.
The reality is that the climate for stocks continues to be one of concern, especially if oil reverses course and turns higher from the current mid-$120.00 level. Markets sold off on Monday after a brief five-percent rally in stocks. This clearly demonstrates the capping of upside moves at this stage.
News of a surging U.S. deficit is also a concern given the election year and the fact that a new administration will inherit the massive deficit, which is estimated to be around $492 billion by the time the budget is presented in 2009, The continued rise in the deficit limits what the government can do should the economy fail to rebound given the housing market and financial concerns.
As an investor, you need to remain prudent. Risk-adverse investors should stay on the sidelines and wait for the selling overhang to disperse before jumping in. Others may want to enter via options as an alternative for risk management, limiting any major downside losses.