Earnings Outlook for Blue-chip Stocks Could Mark End for Bear Market Rally
Thursday, January 26th, 2012
By Michael Lombardi, MBA for Profit Confidential
Now it’s the blue-chip leaders in the stock market warning of slow growth.
The stock market has experienced a 20%-plus rise since October, spearheaded by blue-chip names. But the party may not last for long…the bear market rally is showing cracks.
Many companies have been reporting their fourth-quarter numbers with their earnings outlook for 2012:
Kimberly-Clark Corporation (NYSE/KMB), a worldwide consumer products blue-chip leader, reported fourth-quarter earnings that disappointed Wall Street and issued an earnings outlook for 2012 that was anything but rosy. The company cited a slowdown in developed economies—the U.S. and Europe being the principal ones—as what is reducing demand.
LM Ericsson Telephone Company (NASDAQ/ERIC), the world’s largest maker of equipment for mobile phone networks, surprised the market with a 50% drop in quarterly profit. The results were even worse than the blue-chip firm had anticipated, with its 2012 earnings outlook very weak.
Siemens AG (NYSE/SI),Europe’s blue-chip engineering group, also reported weak earnings and a tepid earnings outlook, as delays in orders impacted revenue and profits. Siemens warned that Europe is facing a mild recession.
What was surprising was not so much the trouble from Europe, but the fact that orders from China slowed 17% in the quarter, a source of growth Siemens was banking on.
Siemens’ earnings outlook calls for a pickup in growth in the second half of 2012. With consumer demand flat on its back in both the U.S. and Europe, which in turn is affecting the export markets in Asia, it is difficult to see where the rise in consumer demand is going to come from.
Expect earnings outlook reports from the major eurozone blue-chip companies to be very negative in the weeks and months ahead. The stock market is a leading indicator; it trades based on the earnings outlook for companies that trade in the market.
The bear market rally that started in March 2009 is unraveling on several fronts. Economic growth will slow worldwide in 2012 (see: 2012 Economic Growth Slashed Across Most Countries). Blue-chip companies from Asia, to Europe, to America are delivering earnings outlooks for 2012 that are negative. The most accommodative monetary policy we have seen in our lifetime, a combination of money printing and multi-year zero interest rate policies, will eventually lead to rapid inflation, which will bring interest rates higher.
Earnings outlooks from blue-chip companies that are negative, rapid inflation, and higher interest rates…a lethal three-way combination for stocks! Rapid inflation will not happen tomorrow. Neither will higher interest rates. They will creep in. But, remember, the stock market is a leading indicator. The market will head down before these events start to happen.
Where the Market Stands; Where it’s Headed:
We are in a bear market rally in stocks that started in March of 2009. Yesterday, by attempting to spur economic growth by saying it would keep interest rates near zero until the end of 2014, the Fed gave its first shot in months at extending the rally.
The next silo, I believe, to be fired by the Fed is QE3. After that, there’s not much that can be done to stop the bear market rally from expiring. Enjoy it while it lasts.
What He Said:
“Consumer confidence does not change overnight. In the U.S., 70% of GDP is based on consumer spending. And in my life, all the recessions I have seen or studied have only come to an end when consumers started spending. With consumer sentiment getting worse, and with the U.S. personal savings rate near record lows, it may take two or three years for consumers to start spending again.” Michael Lombardi, in PROFIT CONFIDENTIAL, February 25, 2008. By the end of 2008, the rest of the world was realizing that the recession would be much longer and deeper than most had realized.
Next Post: Interest Rates at Zero Until 2014 Mean Only One ThingPrevious Post: A Different Kind of Market…and
it’s Booming in this Economy
Tags: Bear Market Rally, blue-chip, china, earnings outlook, Europe, eurozone, interest rates, rapid inflation, stock market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
