Following a period of protracted decline in economic activity, a recovery occurs when business activity is increasing. This is viewed primarily with increases in Gross Domestic Product (GDP) and employment levels. 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 see an economic recovery 12 months from now, they will start to accumulate shares in companies that will benefit.
Stocks are going to gyrate around second-quarter earnings, but that’s exactly what this market needs—the corporate bottom line and expectations for the rest of the year.
With so many stocks trading at their all-time record-highs, I view investment risk in equities as being high at this time.
This is actually a tough environment in which to be an investor looking for new positions. There’s not a lot of value around and good businesses have already been bid.
It’s been years now since the stock market was first in need of a material price correction, and the next one will probably come out of nowhere.
It could be a shock from the Federal Reserve, but the central bank has been extremely delicate in how it effects and communicates monetary policy. More likely, stocks will be vulnerable to an unforeseen shock like a geopolitical event or a big derivative trade gone bad.
The risks are out there and stocks are long overdue for a reckoning.
With this in mind, I’m still a fan of the market’s existing winners, especially dividend-paying blue chips. In the absence of a shock, I think they’ll just keep pushing new highs going right into 2015.
3M Company (MMM) is an enterprise worth following and owning as a long-term, income-seeking investor.
The company’s earnings are material and offer good market intelligence, even if you aren’t interested in owning the stock.
The position has tripled in value on the stock market since the beginning of 2009, while also paying some great dividends.
The stock is still strong in the current environment, and the company represents exactly the kind of … Read More
By no surprise to me whatsoever, the government’s third and final estimate of first-quarter U.S. gross domestic product (GDP) came in at a negative annual pace of 2.9%. (Source: U.S. Bureau of Economic Analysis, June 25, 2014.) The U.S. economy’s growth rate in the first quarter of this year was the worst since 2009.
I’ve been writing since the fall of 2013 that the U.S. economy would see an economic slowdown in 2014. I have been one of the few economists warning of a recession in 2014. My calls are not to scare or create fear; rather, they are based on the government’s own data.
Not to boast, but it’s like the creators of the first-quarter U.S. GDP report have been reading Profit Confidential! Everything we have been warning about came out in this most recent GDP report.
I’ve been harping on about how the U.S. consumer was tapped out…and low and behold, consumer spending in the U.S. economy increased by only one percent in the first quarter of 2014. In the fourth quarter of 2013, consumer spending increased by 3.3%. The fifth year into the so-called economic “recovery” and consumers are pulling back on spending for the simple reason that they don’t have money to spend.
The poor have no money; the middle class has been wiped out. And the rich are far from spending enough to make up for the lack of spending by the poor and middle class.
But have no fear, dear reader; stocks are up. The stock market is telling us we have nothing to worry about? It seems so.
I, for one, … Read More
Don’t buy into the notion that there’s economic growth in America!
We’ve already seen U.S. gross domestic product (GDP) “unexpectedly” decline in the first quarter of 2014, and now there are signs of another contraction in the current quarter. (The technical definition of a recession is two negative quarters of GDP—we’re halfway there!)
As you know, consumer spending is the biggest part of our U.S. economy, accounting for about two-thirds of our GDP. And consumers are pulling back.
Consumer spending in the U.S. economy declined 0.26% in April from March. This was the first monthly decline since December of 2013. (Source: Federal Reserve Bank of St. Louis web site, last accessed June 4, 2014.)
And while consumer spending is one indicator that suggests a recession may soon be coming into play in the U.S. economy, there’s also one very interesting phenomenon occurring that suggests the very same.
The Federal Reserve is serious about pulling back on its quantitative easing program. And in anticipation of the Fed pulling back on money printing (when it first indicated it would start tapering), the yields on bonds shot up.
But since 2014 began, and the Federal Reserve actually started to taper, the yield on the long-term 30-year U.S. bond has declined more than 12%.
Chart courtesy of www.StockCharts.com
If the Fed is pulling back on printing (it has said it wants to be out of the money printing business by the end of this year), why are bond yields declining?
From a fundamental point of view, it suggests the market anticipates very slow growth for the U.S. economy ahead.
Dear reader, the perfect … Read More
There still is no real trend in the equity market. One day, stocks sell off big-time; the next, the S&P 500 and Dow Jones Industrial Average hit new record-highs.
This is a very tough market to figure; anything can happen when monetary policy is highly accommodative.
A lagging NASDAQ Composite isn’t a worry. Neither is the Russell 2000 index. Stocks won’t come apart so long as so many large-caps are pushing their highs.
And not all technology stocks are retrenching, either. Some of the old technology bellwethers are actually doing quite well these days. Microsoft Corporation (MSFT) is trading right at a multiyear high, with a 2.8% dividend yield and a forward price-to-earnings ratio of approximately 14.
Even Intel Corporation (INTC), which is having a pretty tough time generating much in the way of top-line growth, is recovering on the stock market and is very close to breaking out of a multiyear price consolidation. Intel currently offers a 3.4% dividend yield and is not expensively priced.
One day, stocks are reacting to geopolitical events in Ukraine; the next, it’s Chinese economic data, then it’s mergers and acquisitions…
If anything, the reaction to first-quarter earnings was pretty muted. But even though the beginning of the year started out with considerable downside, stocks recovered strongly after policy reassurance from the Federal Reserve. While the action’s still choppy, underlying investor sentiment is holding up.
This is a market that continues to favor existing winners, but not necessarily at the speculative end. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) The reticence that launched blue chip … Read More
One week ago today, the Bureau of Labor Statistics reported 288,000 jobs were added to the U.S. jobs market in April. The unemployment rate fell to 6.3% from 6.7 % in March. (Source: Bureau of Labor Statistics, May 2, 2014.) Even the most optimistic of economists weren’t expecting a jobs creation number this big.
But it’s just the same old story…
When you look closer at the details of the jobs market, the employment picture actually looks terrible.
First and most important, the number of long-term unemployed in the U.S. economy remains very high. As of April, individuals who were out of work for more than six months made up 35% of all unemployed in the jobs market. The longer they are out of work, the harder it will become for them to find another job.
The number of part-time workers in the U.S. jobs market continues to increase. More part-time employees essentially means less personal earnings and, eventually, less consumption.
In April, there were 7.46 million Americans who were working part-time—up from 7.18 million in February and 7.41 million in March. These workers are working part-time because they can’t find full-time work.
Back in early 2008, the number of part-time workers in the U.S. economy was below five million. (Source: Federal Reserve Bank of St. Louis web site, last accessed May 2, 2014.) Yes, we’ve created close to 2.5 million part-time jobs since the Great Recession—that’s the majority of all jobs created since 2008.
Adding to the misery, low-wage employment in the U.S. jobs market continues to soar. In April, more than 30% of the jobs to be had … Read More
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