Federal Reserve
Created in 1913 with the enactment of the Federal Reserve Act, the Federal Reserve (the Fed) is the central banking system of the U.S. The Fed functions as the bank of the U.S. government, overseeing the nation’s financial institutions. As the central bank, the Fed safeguards and manages the U.S. economy and its money supply with its economic and monetary policies, which makes it a very powerful global player. Ben Bernanke is the current chairman of the Federal Reserve.
Truth Behind 1Q 2013 Earnings and What’s Next for Stocks
By Michael Lombardi, MBA for Profit Confidential
This shouldn’t be a surprise to the readers of Profit Confidential.
According to an analysis done last week by the Wall Street Journal, in the first quarter of 2013, corporate earnings growth of companies in the key stock indices like the S&P 500 wasn’t really due to companies doing better. Rather, “research tax breaks” are what pushed 1Q13 earnings up for many S&P 500 companies. (Source: Wall Street Journal, June 14, 2013.)
Consider Intel Corporation (NASDAQ/INTC). The company spent $10.1 billion on research and development, which essentially lowered its effective tax rate from 28.2% in the first quarter of 2012 to 16.3% in the first quarter of 2013! This bolstered Intel’s corporate earnings.
Other big names in the S&P 500 like Google Inc. (NASDAQ/GOOG), Abbott Laboratories (NYSE/ABT), The Boeing Company (NYSE/BA), Yahoo! Inc. (NASDAQ/YHOO), and Xerox Corporation (NYSE/XRX) were able to use “research tax breaks” to also boost their corporate earnings.
While this technique helped companies boost 1Q13 earnings, profit expectations aren’t so rosy going forward.
Expectations for corporate earnings for the S&P 500 companies continue to drop. At the end of the first quarter (March 31), second-quarter corporate earnings were forecasted to grow at 4.5%. Now, corporate earnings growth for the second quarter is estimated to be only 1.3%. (Source: FactSet, June 7, 2013.)
Only four out of 10 industry sectors in the S&P 500 are expected to show corporate earnings growth in 2Q13. The information technology sector of the S&P 500 is expected to report a decline of 6.3% in corporate earnings this quarter and the health care sector could see its profits slide four percent!… Read More
Who Wins in an Artificially Monetized World?
By Mitchell Clark, B.Comm. for Profit Confidential
If there is going to be genuine economic growth in mature economies, the leadership will have to come from the U.S. economy.
The convulsions taking place in the Japanese capital markets are emblematic of the monetary exuberance that both captivates investor sentiment and distorts its reality.
It’s a trader’s paradise with such volatility, based not on Main Street fundamentals, but on the ability and willingness of policymakers to puppeteer capital markets.
While liquidity and certainty are hugely important to investor sentiment, all the financial engineering should soon produce its own blowback. Investment risk in capital markets remains high.
Investor sentiment among institutional investors in U.S. equities still has strength to carry this market higher if corporations perform.
Corporate earnings are managed, but that’s how the system works. There’s been a paring down of earnings estimates for the second quarter.
E. I. du Pont de Nemours and Company (NYSE/DD), or simply DuPont, reduced its expectations for its first half of operating profits due to the weather (the wettest spring in almost 120 years in the farmbelt states). The company said full-year earnings per share will be at the low end of its forecast, between $3.85 and $4.05. Agriculture is the company’s most important operating division. (See “Why DuPont’s Earnings Results Are So Typical for This Stock Market.”)
Capital markets, especially the equity market, are looking for catalysts. From what I read, there are still great expectations for the Japanese equity market. Unscientific investor sentiment among fund managers maintains an outlook of perpetual volatility in that market.
Getting back to the U.S. market, economic news is not robust, but there … Read More
Wine, Steak, and the State of the U.S. Stock Market
By George Leong, B.Comm. for Profit Confidential
I was recently out to dinner with a friend who manages tens of millions of dollars in private equity. While the Dow and the S&P 500 are still within two to three percent of their recent highs, my friend is not happy. In fact, he is kind of disappointed with the current trading action in the stock market.
As we move along into our discussion and dinner, I was really not surprised to hear that he was disappointed by the lack of a pullback in the stock market.
The S&P 500 was down five percent a few weeks back. At that point, I was hoping for a more sustained pullback; just like my friend, I had cash around and was ready to pounce on a buying opportunity in the stock market that subsequently really never materialized.
I could have accumulated on the five-percent adjustment, but my feeling was that there was more to come and there would be a bigger sale on Wall Street. (Read “Bull Market Not Over, but a Correction May Be on the Horizon.”)
The current 23% correction in the Nikkei 225 would be ideal here, but I doubt that will happen, as the Japanese stock market was way overextended and due for a setback.
When I asked my friend what kind of adjustment he was looking for, to my surprise, he responded that he was not really sure and would need to evaluate the situation at that time.
Yet by the time our second bottle of wine arrived, he was more open to questions; he suggested he would need to see a correction … Read More
Finally Some Good News for the U.S. Economy?
By Michael Lombardi, MBA for Profit Confidential
Finally, some good economic news is coming to the U.S. economy…
The U.S. Census Bureau has reported that retail and food services sales for the month of May, adjusted for seasonal effects, increased 0.6% from April and 4.3% from the same period a year ago.(Source: U.S. Census Bureau, June 13, 2013.) This is the first report I’ve seen in a long time that shows increasing consumer spending in the U.S. economy.
And the Thomson Reuters/University of Michigan Consumer Confidence Index for May showed consumer spending increasing as well. The index registered at 84.5 in May, improving from 76.4 in April. (Source: Bloomberg, May 31, 2013.) This was the highest level the index has been at since July of 2007.
While this is all good news, my concerns about the U.S. economy remain…
Since the financial crisis in the U.S. economy, the Federal Reserve has been increasing the size of its balance sheet (printing trillions of dollars in new money) and the U.S. government has been spending rigorously, all for the sake of spurring economic growth. Consumer spending in the U.S. economy makes up 70% of our gross domestic product (GDP); hence, it’s vitally important that consumer spending rises if we are to have a sustainable economic recovery.
As it stands, the Federal Reserve is still creating $85.0 billion a month in new money to purchase government bonds and mortgage-backed securities. This may be the biggest reason why economic numbers like May’s retail sales are looking better.
But the unemployment rate in the U.S. economy is still staggeringly high. According to the most recent jobs market report, there … Read More
Profit Confidential — IT'S FREE!
"A Golden Opportunity for Stock Market Investors"
