I always make it a habit to check in with some bellwether stocks just to see what they are doing. Some may not be the top performers in their respective industries anymore, but I find that following big, brand-name stocks really helps with my market view. Some of the companies I like to check with periodically are IBM Corp., General Electric Company, Hewlett-Packard Company, Caterpillar Inc., Deere & Company, and The Procter & Gamble Company. I look at stock charts, earnings reports, and major new corporate developments.
What I’m trying to discover by taking in all this information are trends in both the economy and the overall direction of stock prices.
What jumps out at you if you look up the stock charts of these companies is that there’s been a remarkable turnaround in the fortune of these stocks over the last month. Clearly, there’s a very good reason why the Dow Jones Industrial Average is trading at a new all-time high.
The stock market leadership from the biggest and most well- established companies bodes well for the broader market. There is good reason to be optimistic for the rest of this year.
Most of the above-mentioned companies reported solid earnings results in the first quarter this year. This is when the gross domestic product (GDP) numbers came in at their slowest pace in years. What this tells me is that the slowing economy is mainly due to only a few sectors and not commensurate with the entire economy. It also suggests to me that the broader economy is in a much healthier state than Wall Street gives it credit for.
So, the good news is that if the real estate sector stabilizes and inflation is kept under control, I believe economic growth will accelerate later this year. This will provide solid fundamental environment for a good stock market performance. It’s going to be touch-and-go for a while, but the overall trend for stocks is positive.