The economy is primarily analyzed using the Gross Domestic Product (GDP) and employment levels. The GDP is a measure of all the goods and services produced in an economy. Economic growth is when the current and future periods of time are experiencing an expansion in GDP. As businesses increase their sales and are more confident about future activity, they hire more people. The new hires are more confident about their future and spend a portion of their income on business and the cycle continues. The stock market usually leads an economic recovery, because stock investors look to the future. If investors foresee an economic recovery 12 months from now, they will start to accumulate shares in companies that will benefit.
While corporate earnings continue to come in solid, stocks continue to be sold.
It’s not all the time that stocks follow oil prices, but they certainly have this time around and the selling momentum has gained on deflationary pressures from producer prices to declining expectations for global economic growth.
And the selling is happening to companies that beat consensus with their earnings, like J.B. Hunt Transport Services, Inc. (JBHT), which beat Wall Street estimates for sales and earnings in what was a very solid quarter for the trucking company.
For J.B. Hunt, sentiment just wasn’t strong enough to carry the stock materially higher, even in the face of declining prices for diesel fuel, which is a big bonus for that company’s bottom-line.
The autumn sell-off also flies in the face of reduced pressure on the Federal Reserve to begin raising rates as recent data shows a softening of economic activity on a global basis.
If oil was the catalyst and economic data the accelerator, it’s important to remember where stocks have come from. The equity market has been due for a material correction for a number of quarters. It didn’t even need a reason for a correction only because share prices have come so far over the last several years.
The breakdown in oil prices has been truly spectacular and is now seriously affecting the business case for many energy producers.
And the breakdown isn’t just due to increasing domestic production; it’s a breakdown in sentiment based on declining expectations for the global economy.
So stocks have sold off and they may go further, but a five to 10% price … Read More
Now that the Dow Jones Industrial Average has fallen 1,035 points (six percent) from its mid-September peak, the question investors are asking is “how far will she go?” For small-cap investors, the drama is greater, as the Russell 2000 Index has fallen 12.5% from its July peak.
Since 2009, every market pullback presented investors with an opportunity to get back into stocks at discounted prices. Even some editors here at Lombardi Publishing Corporation see the recent pullback in stocks as an opportunity.
But what happens if it is different this time? How about if stocks just keep falling?
If you have been a long-term follower of my column, you know I have been adamant about an economic slowdown in the global economy.
And let’s face it: the American stock markets have been addicted to the easy money policies of the Federal Reserve, namely money printing and record-low interest rates. But that is all coming to an end now. The Fed will be out of the money printing business soon and it has warned us on several occasions that interest rates will need to rise.
The International Monetary Fund (IMF) is now (or should I say, is finally) warning about an economic slowdown in the global economy. In its most recent global growth forecast, the IMF said, “With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialize or fall short of expectation.” The IMF also said the global economy may never see the kind of expansion it experienced prior to the financial crisis. (Source: “IMF says economic … Read More
If there’s one thing the stock market needs, it’s a distraction from global growth worries and geopolitical events. And corporate earnings are the ticket for that as this season’s numbers are starting to pour in.
Pharmaceutical benchmark Johnson & Johnson (JNJ) once again beat Wall Street consensus, generating another good quarter of both sales and earnings growth.
The company completed a major divestiture of its ortho-clinical diagnostics division during its latest quarter; even so, it was able to generate domestic sales growth of 11.6% over the same quarter last year. Total consolidated sales grew 5.1% to $18.5 billion. Excluding the impact of the company’s recent divestiture, domestic sales would have increased 14.8% comparatively.
Excluding gains, litigation accrual, tax adjustments, and integration costs from the large acquisition of Synthes, Inc., Johnson & Johnson’s bottom-line earnings grew 9.5% to $4.5 billion, or 10.3% to $1.50 on a diluted earnings-per-share basis.
Once again, global pharmaceutical sales, including over-the-counter products, were the driver of growth, up 18.1% over the same quarter last year.
Johnson & Johnson clearly continues to have operational momentum. Positive price action in the stock may be slow near-term commensurate with the broader market, but this company is still delivering the goods.
Management increased its full-year earnings guidance and a $5.0-billion share repurchase program is still available at their discretion.
Another big-name corporation reporting solid earnings results was Wells Fargo & Company (WFC), the largest U.S. mortgage lender. The company beat Street consensus on revenues and matched the earnings estimate.
And Citigroup Inc. (C) experienced a big increase in its revenues, too, coming in at $19.6 billion, up from $17.9 billion. … Read More
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