Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Key Stock Indices

Key stock indices are the main barometers of the market’s health. The key stock indices are the ones that most investors pay attention to when trying to understand where the market stands. For the U.S., the key stock indices include the Dow Jones Industrial Average and the S&P 500. But the key stock indices can also include sub-groups that are crucial to a healthy market, such as the Dow Jones Transportation Index. In every country, there are key stock indices that one can follow to better understand the health of that country’s market.

One in Five Companies Warning on Earnings?

By for Profit Confidential

All of a Sudden, Quarterly Corporate Earnings Are in TroubleTraditionally, the first big American public company to kick off each new corporate earnings season is Alcoa Inc. (NYSE/AA). For the current quarter, Alcoa reported a net loss of $178 million, or $0.16 per diluted share. The company stated it had some special restructuring costs in the quarter; if you were to exclude them, its corporate earnings were $0.09 per share. (Source: Alcoa Inc., April 8, 2014.)

As usual, investors grasping for any good news as a reason to push stock prices higher didn’t hold back. The chart below shows what happened as soon as the market for Alcoa shares opened after its corporate earnings release.

Alcoa Inc ChartChart courtesy of www.StockCharts.com

Alcoa’s stock prices gapped up almost five percent on its news that “it lost money but really didn’t lose money if restructuring charges were excluded.”

But how did Alcoa really do? The first thing I would do as an investor is see if sales at Alcoa are rising. In this case, Alcoa reported its revenue fell 6.5% in the quarter from the same quarter last year.

Then I would look at stock buybacks. Did Alcoa buy back any of its stock in the quarter that would have the effect of boosting its quarterly per-share earnings? Well, lo and behold, in the first quarter, the number of Alcoa’s diluted shares declined by more than five percent!

Please don’t get me wrong. I’m not saying Alcoa shares are a sell. In fact, I don’t follow the company at all. But when I see the stock market pushing the stock price of a company higher despite the company reporting a corporate earnings loss, … Read More

Why the Chances of a Total Collapse in Stock Prices Are Increasing

By for Profit Confidential

Why You Shouldn't Be Buying Stocks NowMark Twain once said, “Whenever you find yourself on the side of the majority, it’s time to pause and reflect.” For stock market investors, the time to pause and reflect is now.

Everywhere you look (except in these pages), you’ll find individual investors and institutions bullish on key stock indices. It’s like they believe they can only continue going in one direction—up. Not much attention is being paid to the fundamentals that suggest a market sell-off is nearing.

In January and February, investors bought $43.29 billion worth of long-term stock mutual funds. While March’s money flows into mutual funds are not available, looking at the weekly data, it suggests investors continued to buy the key stock indices. (Source: Investment Company Institute, last accessed April 2014.)

Please look at the chart below of the National Association of Active Investment Managers (NAAIM) Exposure Index. This index looks at how exposed managers are to the key stock indices.

NAAIM Exposure Index ChartChart courtesy of www.StockCharts.com

This chart says fund managers are heavily exposed to key stock indices, with 90% of their portfolios invested in stocks. The exposure to the key stock indices has been high since the beginning of 2014, but at the same time, stock prices have been coming down.

Sadly, this isn’t all. Pension funds, the so-called conservative investors, have increased their exposure to key stock indices as well. Take the New York State Teachers’ Retirement System, for example. It is one of the biggest in the U.S. In 2013, the net assets of the fund increased to $95.4 billion. Its exposure to the equity market was $39.87 billion—roughly 41% of all assets … Read More

Significant Divergence Between Copper Prices and Stock Market Not to Be Ignored

By for Profit Confidential

Two Leading Indicators Warn of a Stock Market TopIn the midst of all the optimism we see towards key stock indices these days, there are two leading indicators that are flashing warning signals. They say, “Be careful, and don’t get caught up in the euphoria.”

Let’s start with the amount of money investors are borrowing to buy stocks…

Margin debt, the amount of money borrowed to purchase stocks, is one of the leading indicators of where key stock market indices will go. Historically, the higher margin debt gets, the more risk for key stock indices. This indicator predicted the top of the stock market in 2007 and the Tech Boom top of 2000.

As it stands, margin debt on the New York Stock Exchange (NYSE) is at its highest point ever recorded—$451 billion. (Source: New York Stock Exchange web site, last accessed March 25, 2014.) Sadly, this fact continues to be ignored by stock advisors. Yes, investors have borrowed almost half a trillion dollars to buy NYSE-listed stocks!

Another key indicator that suggests key stock indices are stretched is copper prices.

Since the beginning of the year, copper prices have plunged lower. What’s interesting about this is that copper prices usually top before the key stock market indices do; they usually bottom before stocks as well. In the chart below, I have plotted copper prices (black line) over the S&P 500 and circled areas where copper has acted as a leading indicator of key stock indices.

SPX S&P 500 Large Cap ChartChart courtesy of www.StockCharts.com

Copper prices topped in 2007 before key stock indices did. Then in 2009, they bottomed out well before the S&P 500, about three months earlier. Then in 2011, … Read More

Just How Stupid Do Public Companies Think Investors Are?

By for Profit Confidential

When All Else Fails to Explain Declining Earnings, Blame the WeatherAccording to FactSet, between January 1 and mid-March of this year, 195 of the S&P 500 companies have used the word “weather” in some manner in their conference calls. This is 81% higher than the same period a year ago, when 108 of the S&P 500 companies used the term “weather” in their conference calls. (Source: FactSet, March 14, 2014.)

Public companies in key stock indices are preparing investors for poor first-quarter earnings by saying poor (extra cold) weather conditions this year are putting a damper on sales.

Take FedEx Corporation (NYSE/FDX) as an example of the many companies on key stock indices blaming the weather for dismal corporate earnings. While presenting its most recent quarterly corporate earnings for the three months ended February 28, the CEO of the company said, “While severe winter weather often affects our (fiscal) third-quarter results, the impact from multiple severe storms and frigid temperatures was significantly more pronounced this year and we are reducing our full-year earnings per share guidance as a result of the weather impact.” (Source: “FedEx Corp. Reports Third Quarter Results,” FedEx Corporation, March 19, 2014.)

How can you lay blame on one quarter’s “bad weather” for the entire year’s earnings performance? The way I look at it, the “weather” is just a “blame factor” for companies in key stock indices that are facing earnings growth issues.

Stock analysts have really been busy lowering their corporate earnings expectations for companies in key stock indices. In the first quarter of this year, on average, analysts expect the corporate earnings of the S&P 500 companies to increase by only 0.3%. At the end … Read More

Two Most Important Charts on Stocks You Will See This Year

By for Profit Confidential

What a Bubble Looks LikeThis month marks the fifth year of the rally in stocks that started in March of 2009. Back then, the Dow Jones Industrial Average traded as low as 6,400 and uncertainty was severe. In the midst of all this, a buying opportunity of a lifetime was born. I told my readers to buy close to when the market bottomed in March of 2009.

Five years later, the opposite is happening. I continue to believe the stock market is reaching a top; I continue to tell my readers stocks are very risky. The upside potential for the stock market is diminishing and the risks of a severe downside move are increasing: preserve your capital is my message now.

From March of 2009 to the end of February 2014, the S&P 500 has gone up about 155%. Other indices like the Dow Jones Industrial Average and NASDAQ Composite have shown similar—if not better—performances.

But as key stock indices soar, we are seeing the fundamentals that traditionally drive stocks higher weaken. Corporate insiders are dumping stocks at an alarming rate; corporate earnings growth has dropped to its slowest pace since 2009; the Volatility Index is near the low it was at just before stocks collapsed in 2007; and margin debt on the NYSE has reached a record high—all very bearish factors.

And from a technical point of view, something interesting has also happened on the key stock indices. Below is the weekly chart of the S&P 500.

$ SPX S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Since the beginning of 2012, there hasn’t been any major correction or pullback in the stock market and trading volume has steadily … Read More

« Older Entries

One in Five Companies Warning on Earnings?

By for Profit Confidential

All of a Sudden, Quarterly Corporate Earnings Are in TroubleTraditionally, the first big American public company to kick off each new corporate earnings season is Alcoa Inc. (NYSE/AA). For the current quarter, Alcoa reported a net loss of $178 million, or $0.16 per diluted share. The company stated it had some special restructuring costs in the quarter; if you were to exclude them, its corporate earnings were $0.09 per share. (Source: Alcoa Inc., April 8, 2014.)

As usual, investors grasping for any good news as a reason to push stock prices higher didn’t hold back. The chart below shows what happened as soon as the market for Alcoa shares opened after its corporate earnings release.

Alcoa Inc ChartChart courtesy of www.StockCharts.com

Alcoa’s stock prices gapped up almost five percent on its news that “it lost money but really didn’t lose money if restructuring charges were excluded.”

But how did Alcoa really do? The first thing I would do as an investor is see if sales at Alcoa are rising. In this case, Alcoa reported its revenue fell 6.5% in the quarter from the same quarter last year.

Then I would look at stock buybacks. Did Alcoa buy back any of its stock in the quarter that would have the effect of boosting its quarterly per-share earnings? Well, lo and behold, in the first quarter, the number of Alcoa’s diluted shares declined by more than five percent!

Please don’t get me wrong. I’m not saying Alcoa shares are a sell. In fact, I don’t follow the company at all. But when I see the stock market pushing the stock price of a company higher despite the company reporting a corporate earnings loss, … Read More

Why the Chances of a Total Collapse in Stock Prices Are Increasing

By for Profit Confidential

Why You Shouldn't Be Buying Stocks NowMark Twain once said, “Whenever you find yourself on the side of the majority, it’s time to pause and reflect.” For stock market investors, the time to pause and reflect is now.

Everywhere you look (except in these pages), you’ll find individual investors and institutions bullish on key stock indices. It’s like they believe they can only continue going in one direction—up. Not much attention is being paid to the fundamentals that suggest a market sell-off is nearing.

In January and February, investors bought $43.29 billion worth of long-term stock mutual funds. While March’s money flows into mutual funds are not available, looking at the weekly data, it suggests investors continued to buy the key stock indices. (Source: Investment Company Institute, last accessed April 2014.)

Please look at the chart below of the National Association of Active Investment Managers (NAAIM) Exposure Index. This index looks at how exposed managers are to the key stock indices.

NAAIM Exposure Index ChartChart courtesy of www.StockCharts.com

This chart says fund managers are heavily exposed to key stock indices, with 90% of their portfolios invested in stocks. The exposure to the key stock indices has been high since the beginning of 2014, but at the same time, stock prices have been coming down.

Sadly, this isn’t all. Pension funds, the so-called conservative investors, have increased their exposure to key stock indices as well. Take the New York State Teachers’ Retirement System, for example. It is one of the biggest in the U.S. In 2013, the net assets of the fund increased to $95.4 billion. Its exposure to the equity market was $39.87 billion—roughly 41% of all assets … Read More

Significant Divergence Between Copper Prices and Stock Market Not to Be Ignored

By for Profit Confidential

Two Leading Indicators Warn of a Stock Market TopIn the midst of all the optimism we see towards key stock indices these days, there are two leading indicators that are flashing warning signals. They say, “Be careful, and don’t get caught up in the euphoria.”

Let’s start with the amount of money investors are borrowing to buy stocks…

Margin debt, the amount of money borrowed to purchase stocks, is one of the leading indicators of where key stock market indices will go. Historically, the higher margin debt gets, the more risk for key stock indices. This indicator predicted the top of the stock market in 2007 and the Tech Boom top of 2000.

As it stands, margin debt on the New York Stock Exchange (NYSE) is at its highest point ever recorded—$451 billion. (Source: New York Stock Exchange web site, last accessed March 25, 2014.) Sadly, this fact continues to be ignored by stock advisors. Yes, investors have borrowed almost half a trillion dollars to buy NYSE-listed stocks!

Another key indicator that suggests key stock indices are stretched is copper prices.

Since the beginning of the year, copper prices have plunged lower. What’s interesting about this is that copper prices usually top before the key stock market indices do; they usually bottom before stocks as well. In the chart below, I have plotted copper prices (black line) over the S&P 500 and circled areas where copper has acted as a leading indicator of key stock indices.

SPX S&P 500 Large Cap ChartChart courtesy of www.StockCharts.com

Copper prices topped in 2007 before key stock indices did. Then in 2009, they bottomed out well before the S&P 500, about three months earlier. Then in 2011, … Read More

Just How Stupid Do Public Companies Think Investors Are?

By for Profit Confidential

When All Else Fails to Explain Declining Earnings, Blame the WeatherAccording to FactSet, between January 1 and mid-March of this year, 195 of the S&P 500 companies have used the word “weather” in some manner in their conference calls. This is 81% higher than the same period a year ago, when 108 of the S&P 500 companies used the term “weather” in their conference calls. (Source: FactSet, March 14, 2014.)

Public companies in key stock indices are preparing investors for poor first-quarter earnings by saying poor (extra cold) weather conditions this year are putting a damper on sales.

Take FedEx Corporation (NYSE/FDX) as an example of the many companies on key stock indices blaming the weather for dismal corporate earnings. While presenting its most recent quarterly corporate earnings for the three months ended February 28, the CEO of the company said, “While severe winter weather often affects our (fiscal) third-quarter results, the impact from multiple severe storms and frigid temperatures was significantly more pronounced this year and we are reducing our full-year earnings per share guidance as a result of the weather impact.” (Source: “FedEx Corp. Reports Third Quarter Results,” FedEx Corporation, March 19, 2014.)

How can you lay blame on one quarter’s “bad weather” for the entire year’s earnings performance? The way I look at it, the “weather” is just a “blame factor” for companies in key stock indices that are facing earnings growth issues.

Stock analysts have really been busy lowering their corporate earnings expectations for companies in key stock indices. In the first quarter of this year, on average, analysts expect the corporate earnings of the S&P 500 companies to increase by only 0.3%. At the end … Read More

Two Most Important Charts on Stocks You Will See This Year

By for Profit Confidential

What a Bubble Looks LikeThis month marks the fifth year of the rally in stocks that started in March of 2009. Back then, the Dow Jones Industrial Average traded as low as 6,400 and uncertainty was severe. In the midst of all this, a buying opportunity of a lifetime was born. I told my readers to buy close to when the market bottomed in March of 2009.

Five years later, the opposite is happening. I continue to believe the stock market is reaching a top; I continue to tell my readers stocks are very risky. The upside potential for the stock market is diminishing and the risks of a severe downside move are increasing: preserve your capital is my message now.

From March of 2009 to the end of February 2014, the S&P 500 has gone up about 155%. Other indices like the Dow Jones Industrial Average and NASDAQ Composite have shown similar—if not better—performances.

But as key stock indices soar, we are seeing the fundamentals that traditionally drive stocks higher weaken. Corporate insiders are dumping stocks at an alarming rate; corporate earnings growth has dropped to its slowest pace since 2009; the Volatility Index is near the low it was at just before stocks collapsed in 2007; and margin debt on the NYSE has reached a record high—all very bearish factors.

And from a technical point of view, something interesting has also happened on the key stock indices. Below is the weekly chart of the S&P 500.

$ SPX S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Since the beginning of 2012, there hasn’t been any major correction or pullback in the stock market and trading volume has steadily … Read More

Stock Margin Debt Reaches Record-High, Surpassing 2007 Pre-Crash Level

By for Profit Confidential

Proof Stocks Are Near Their TopAs key stock indices like the S&P 500 make new highs, bullishness increases almost daily, and stock advisors are saying buy more.

I am not surprised by this. All of these irrationalities tell us something very important: the bear is doing a great job of luring investors back into stocks as it gets ready to take their money away once again.

Dear reader, heed the warning signs of a market top…

Those who are very close to the companies in key stock indices are selling their shares at an extreme pace. According to CNBC, in February, insiders sold $5.3 billion worth of shares and bought roughly $268 million worth of shares; for every one dollar of stock they bought in February, they sold about $20.00 worth. (Source: “Insider Activity and Concentration by Industry,” CNBC web site, last accessed March 5, 2014.)

According to the Vickers Weekly Insider Report, corporate insiders are more bearish on the stocks of the companies they work for today than at any other time since 2007. (Source: MarketWatch, March 4, 2014.)

But insider selling activity isn’t the only indicator that worries me about the direction of the key stock indices. We see problems in corporate earnings, as well.

The number of companies warning about their corporate earnings for the first quarter of 2014 continues to increase. So far, 84 companies on the S&P 500 have issued negative guidance about their first-quarter 2014 corporate earnings. (Source: FactSet, February 28, 2014.) Remember: corporate earnings, at the core, are what drive the key stock indices higher. Even analysts aren’t very optimistic about corporate earnings; they are expecting first-quarter … Read More

Reckless New Fad: Companies Raise Money to Buy Back Stock, Pay Dividends

By for Profit Confidential

The Tale of Share Buybacks Few TellLast Thursday, the CEO of DIRECTV (NASDAQ/DTV) said “…we are pleased to announce a share repurchase program of $3.5 billion. This repurchase program reflects our strong balance sheet and confidence in continued strong DIRECTV revenue, earnings and free cash flow growth, as well as our belief that our stock is far below our intrinsic value.” (Source: “DIRECTV Announces Fourth Quarter and Full Year 2013 Results,” DIRECTV, February 20, 2014.)

DIRECTV is buying back its shares because it believes they are undervalued? Since when did CEOs of companies on key stock indices become stock pickers?

In 2013, DIRECTV’s total corporate earnings came in at $2.85 billion. That means the company is spending 122% of what it made in 2013 to buy back its stock. Talk about pumping up per-share earnings!

Cisco Systems, Inc. (NASDAQ/CSCO), another major component of key stock indices, reports it is “raising” $8.0 billion to repay some of its debt. It will use the remainder of the money to buy back its shares and pay dividends. (Source: Cisco Systems, Inc., February 24, 2014.) Yes, instead of raising money to invest in equipment, technology, or research and development (R&D), the new fad is for companies to raise money to buy back their shares and pay dividends.

These are only two examples of companies in key stock indices using share buybacks to make their per-share corporate earnings look better. There are many others that are doing the exact same thing.

Dear reader, with corporate earnings growth falling to its lowest level since 2009, companies have no choice but to prop up earnings via stock buyback programs. Companies in key stock … Read More

On the Way to Higher Stock Prices, Something Suddenly Happened

By for Profit Confidential

Stock Investors Lose Touch with RealityOn February 24, the S&P 500 broke to a new all-time high. There was panic buying as soon as the markets opened that day, as the chart below depicts.

Looking at this, I can’t help but ask if investors have completely lost touch with reality. It seems the fundamentals that drive stock prices higher—corporate earnings—have been ignored.

And as investors are driving key stock indices higher, the state of the global economy is becoming worrisome. This can’t be stressed enough: the U.S. economy isn’t immune to a disturbance in the global economy. But this isn’t all; if the global economy sees an economic slowdown, the companies on U.S. key stock indices suffer as well.

S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

One clear example of this, as it stands, is Caterpillar Inc. (NYSE/CAT), a giant industrial goods manufacturer and component of the S&P 500. The company reported that annual sales declined 16% in 2013. Caterpillar’s revenues were $55.65 billion compared to $65.87 billion. The company’s corporate earnings per share were down more than 32% in 2013. The reason for this: a challenging business environment in the global economy. (Source: Caterpillar Inc., January 27, 2014.)

The global economy is going to disappoint in 2014.

First in line is Asia. Look anywhere on that continent, and you will see economic slowdown looming in the air. China, the biggest economic hub in the region and the second-biggest in the global economy, is outright slowing down. In February, the manufacturing activity in the country dropped to a seven-month low. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) registered at 48.3 in February compared to 49.5 in … Read More

The Great Social Media Stock Bubble of 2014

By for Profit Confidential

Allan Greenspan Be Bearish on the Stock Market Right NowA few days ago, I woke up to news that reminded me of the “Dot-com Boom” of the late 90s and early 2000. I’m sure you remember those days—the days when any company with “.com” attached to it received a lot of attention….and a high stock price. Investors bought these stocks without any concern for non-existent revenues; forget earnings.

These days, social media stocks are the new “dot-com” wonders. We recently heard that Facebook Inc. (NYSE/FB) bought “WhatsApp,” an instant messaging application for smartphones, for $19.0 billion. The valuation doesn’t make much sense; the company has only 50 employees, 460 million monthly users, and no clear business model.

Last year, we saw Twitter, Inc. (NYSE/TWTR) do an initial public offering (IPO). On its very first day of trading, the stock price increased by more than 70%. This company lost more money in 2013 than it did in 2012. Twitter’s loss per share in 2013 amounted to $3.41 compared to a loss of $0.68 in 2012. (Source: Twitter, Inc., February 5, 2014.) But investors shouldn’t fear; in the last quarter of 2013, hedge funds got into the game and bought Twitter’s stock.

Dear reader, I’m not saying Facebook or Twitter is a sell. What I am saying is that the behavior we see on the key stock indices, especially for social media stocks, is not sustainable. It resonates with what we have seen in the past—investors pouring money into companies with no business model to generate profits.

In Allan Greenspan’s past words, key stock indices are showing signs of “irrational exuberance.”

I’m concerned about the big picture for key stock … Read More

Stock Prices and U.S. GDP; Historic Relationship Turns Bearish

By for Profit Confidential

Historic Relationship Tur​ns BearishIn the first five weeks of this year, investors bought $22.0 billion worth of long-term stock mutual funds. (Source: Investment Company Institute, February 12, 2014.)

But as investors poured money into the stock market, hoping to ride the 2013 wave of higher stock prices, stocks did the opposite and went down. The Dow Jones Industrial Average is down three percent so far this year.

Looking at the bigger picture, corporate earnings and key stock indices valuations are still stretched. The S&P 500’s 12-month forward price-to-earnings (P/E) ratio stands at 15.1. This ratio is currently overvalued by roughly nine percent when compared to its 10-year average, and 15% compared to its five-year average. (Source: FactSet, February 14, 2014.)

This isn’t the only indicator that says key stock indices have gotten too far ahead of themselves. In the chart below, I have plotted U.S. gross domestic product (GDP) against the S&P 500.

S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

The chart clearly shows a direct relationship between GDP and the S&P 500. When U.S. GDP increases, the S&P 500 follows in the same direction, and vice versa. When we look at the 2008–2009 period (which I’ve circled in the chart above), we see that when GDP plunged, the S&P 500 followed in the same direction.

Going into 2014, we saw production in the U.S. economy decline; consumer spending is pulling back, unemployment is still an issue, and the global economy is slowing. U.S. GDP is far from growing at the rate it did after the Credit Crisis. Take another look at the chart above. In 2011, you’ll see U.S. GDP was very strong; but after … Read More

What Cars and Stocks Have in Common These Days

By for Profit Confidential

All of a Sudden 2014 Looks a Lot Like 2007Mom and pop investors bought lots of stocks last year as the key stock indices reached all-time highs. By late 2013, the fear of “missing out” on future stock market gains was back. Sound similar to 2007?

According to the Investment Company Institute, investors bought $160.9 billion worth of stock mutual funds in 2013. This was the first time since 2007 when these types of mutual funds saw inflows. In 2007, investors bought $73.9 billion worth of long-term stock mutual funds. (Source: Investment Company Institute web site, last accessed February 11, 2014.)

And stock advisors are outright optimistic. For example, Birinyi Associates Inc.’s Laszlo Birinyi, a well-known money manager, is saying that the S&P 500 will hit 1,900 by the next quarter (it’s at 1,820 now). His argument: don’t bet against stocks because they have too much momentum. (Source: BusinessWeek, February 10, 2014.) Back in 2007, we heard many bullish calls for higher stock prices; we heard calls from well-known stock advisors saying key stock indices like the Dow Jones Industrial Average would hit 20,000 (seven years later, it’s stuck at 16,000).

One way I gauge optimism and complacency in the marketplace is by accessing auto sales. Car sales in the U.S. economy have reached 2007 levels again, and there are predictions that they will grow even further. After almost going bankrupt, the automakers are making all kinds of money again, paying their people very well once more. The new CEO of General Motors Company (NYSE/GM) will be paid $14.4 million in 2014, 60% more than what the previous CEO of the company made. (Source: Reuters, February 10, 2014.) … Read More

Why 2014 Is Looking More and More Like 2007

By for Profit Confidential

Perfect Storm in the Making for Key Stock IndicesIf there is an investment theme I would follow in 2014, it would be this:

Preserve your capital, be worried about the economy, and don’t for a second believe that key stock indices are going to provide returns like they did in 2013. This year may just be the year when the floor is taken out from beneath stock prices.

Why am I so bearish on 2014? It’s because I believe a perfect storm is in the making for key stock indices.

The main driver of key stock indices, corporate earnings, is under pressure. Of the 344 companies on the S&P 500 that have reported their corporate earnings for the fourth quarter of 2013, 3.3% of them surprised the market with better-than-expected earnings—43% below the four-year average “surprise” rate of 5.8%. (Source: FactSet, February 7, 2014.) Corporate earnings are far from exceptional.

In respect to the future, so far, for their first-quarter corporate earnings forecasts, 57 of the S&P 500 companies have issued negative corporate earnings guidance compared to 14 companies that have issued a positive outlook. (Source: Ibid.) Buying stock when companies in key stock indices are worried about their corporate earnings has never been a wise move.

Then we have the issue of the slow pullback on money printing by the Fed. The Federal Reserve is now printing $65.0 billion a month in new money as opposed to the $85.0 billion a month it printed in 2013. Not a big deal? It has been for the emerging markets, as the U.S. dollar strengthens and emerging market currencies collapse, putting further pressure on U.S. companies that sell abroad.

The … Read More

Uncertainty in Emerging Markets Creating Certainty in Only One Market

By for Profit Confidential

This Is the Only Play that Will RewardFasten your seatbelt, dear reader. We’re in for a global financial crisis, a currency fiasco, and a stock market collapse all in the same year!

I’m being too bearish? Not after you read this…

In their search for economic growth in 2009, the Federal Reserve and other major central banks in the global economy started lowering interest rates and printing paper money.

While the central banks of the world wanted economic growth, they inadvertently created the “trade” for big investors like financial institutions and banks. I talked about this last Friday. (See “Stock Market: The Great Collapse Back to Reality Begins.”)

The “trade” had investors borrowing money from low interest rate countries and buying bonds in high interest rate countries, pocketing the spread. In the world of finance, this is often referred to as the “carry trade.” It works as long as the currencies of the low interest rate country and the higher interest rate country stay stable.

But now, the “trade” is backfiring as the currencies of emerging markets go into free fall.

China, the biggest economy in the emerging markets and second-biggest in the global economy, got most of the “trade” money. According to the Bank for International Settlements, in 2013, foreign currency loans and borrowing by Chinese companies from other countries was close to a trillion dollars. In 2009, it was only $270 billion. (Source: Telegraph, February 1, 2014.)

European banks have the biggest exposure to emerging markets, having lent them $3.0 trillion. Breaking down this number even further, British banks have loaned $518 billion to the emerging markets; Spanish banks come in second … Read More

What Happened on Yellen’s First Day on the Job

By for Profit Confidential

Why Stock Market Bulls Should Be WorriedFebruary 4 was a terrible day for key stock indices. The S&P 500 and the Dow Jones Industrial Average plummeted by more than two percent each and broke below important support levels.

That day was also Janet Yellen’s first day on the job as chief of the most important central bank in the world.

Was Wall Street giving Yellen a message? Was that message, “Think twice before pulling back on money printing”?

While the severity of the sell-off in the stock market in January and into February of this year has caught many by surprise, to us, it was one more of those “I told you so” moments. And it should have been of no surprise to our readers at all, since we’ve been “singing the blues” of an overpriced and overbought market for months.

Here are four important points my readers need to know about the stock market:

Looking at the bottom of the chart below, you will clearly see an increase in stock market trading volume. As the stock market went down in January and into February, volume increased. When volume rises sharply during a stock market downturn, it means panic selling is setting in. February 4, 2014, was the highest volume day on the Dow Jones Industrial Average in about five months.

Dow Jones Industrial Average Chart

Chart courtesy of www.StockCharts.com

Secondly, the Dow Jones Industrial Average has fallen below its 200-day and 50-day moving averages, as I’ve circled in the chart above. This move is considered bearish among technical analysts and suggests stock market sentiment is turning negative very quickly.

Thirdly, insiders continue to aggressively dump the stocks of the companies … Read More

The Great Squeeze Play

By for Profit Confidential

The Growing Disparity Between Corporate Profits and WagesAs more and more public companies warn about weak fourth-quarter corporate earnings reports, quite a number of them are resorting to the use of words like “corporate restructuring” or “cost cutting.” At the very core, these cost-cutting measures mean reducing the number of employees working at these companies.

Let’s face the facts: companies on key stock indices are struggling to keep revenue and profits rising. The share buyback “thing” is getting old (after all, how much money do these companies have to throw at stock buybacks?), so to show better corporate earnings, reducing work forces is the easiest thing to do.

Wal-Mart Stores, Inc. (NYSE/WMT) says it plans to lay off 2,300 assistant managers and hourly employees at its Sam’s Club stores. (Source: CNBC, January 24, 2014.)

Abbott Laboratories (ABT) recently let go an unspecified number of employees at its Lake County headquarters. In the conference call to investors about its fourth-quarter corporate earnings, the CFO of the company simply said, “[the company] will take further actions to reduce out expenses… get our support structure at appropriate levels.” (Source: “Abbott Laboratories launches round of layoffs,” Chicago Tribune, January 28, 2014.)

And as I told you last week…

Intel Corporation (NASDAQ/INTC) said it will be reducing its workforce by 5,000 this year. Here’s what the company spokesman, Chris Kraeuter, had to say: “This is part of aligning our human resources to meet business needs.” (Source: “Intel to reduce global workforce by five percent in 2014,” Reuters, January 17, 2014.) Intel had flat fourth-quarter 2013 corporate earnings.

Hewlett-Packard Company (NYSE/HPQ), another major company in the key stock indices, is taking a … Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.