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

Recession

An economic slowdown is a contraction in the economy. This can be viewed by using several indicators, including lower gross domestic product (GDP), higher unemployment, lower industrial production, lower business investment, a decline in retail sales, and a decrease in corporate profits. Not all of these factors need to be declining for an economic slowdown, but these are some of the main indications to watch for regarding the overall health of the economy. Some consider a recession to be occurring when there are two consecutive down quarters of gross domestic product (GDP). According to the National Bureau of Economic Research, a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real money, employment, industrial production and wholesale retail sales.”

Why the Old School Dow Theory Still Applies

By for Profit Confidential

The Most Important Stocks to FollowGetting a sense of where stocks are going to go in the year ahead is always difficult with the major indices at their all-time highs.

The fundamental backdrop is still very favorable for equities. While the Federal Reserve has put off raising interest rates for the near future, the cost of capital, especially for corporations, remains extremely low. And corporate balance sheets remain in excellent condition with strong cash positions and good prospects for rising dividends going forward.

The stock market recovered extremely well from the financial crisis and subsequent crash in 2008/2009. But it wasn’t until early 2013 that I saw the beginning of a new cycle for stocks, or a bull market as it were.

Until then, I viewed the market’s performance purely as a recovery period from the previous cycle, which was the technology bubble.

Many of the technology stocks have only now recovered to their previous highs set in 1999 and 2000. The recovery cycle took a long time to play out and the catalyst for its breakout was, not surprisingly, the Federal Reserve.

Stocks can move significantly higher in a rising interest rate environment, but only from a low base, which is what we have now. And within the context of a new market cycle or bull market, the economy can experience a full-blown recession and stocks can experience meaningful corrections.

The two most important catalysts for the equity market near-term are what corporations actually report about their businesses and the Federal Reserve’s actions.

The surprising weakness in oil prices should be evident in corporate financial results (especially in the fourth quarter). Old economy industries … Read More

About That $38-Million Ferrari…

By for Profit Confidential

The Other Side of the Ferrari StoryA 1962 Ferrari 250 GTO Berlinetta has set a new record selling for $38.1 million at an auction in Pebble Beach, California. News of the sale was all over the Internet and made it into major newspapers like The New York Times, The Wall Street Journal, and the Los Angeles Times.

But it’s not just old, rare cars that are selling. The high-end luxury car market is also booming. For example, Maserati sold 6,573 cars this past July, compared to only 1,536 cars a year ago. (Source: Motor Intelligence web site, last accessed September 2, 2014.)

The markets for high-end real estate and high-end fashion goods are hot in the U.S. economy, too.

The mainstream is looking at the boom in various luxury markets and calling it economic growth. Truth be told, only a very small fraction of Americans can afford to live a lavish lifestyle and buy expensive cars, homes, and other gadgets.

The other side of the story—the story of the 99%-plus—usually goes untold.

What follows below is a picture (I personally took) of a sign posted in every grocery store I went into in a prominent town very close to New York City. The picture not only shows how the average American is struggling, but it also puts a big dent in the theory of economic growth in the U.S. economy.

We Accept WIC Check and Food Stamp
Americans are using food stamps and other government assistance programs like never before. The truth is that if the U.S. economy was witnessing economic growth, we wouldn’t have 46.25 million Americans and 22.5 million households using food stamps in the U.S. economy…. Read More

Another Warning Sign: Stocks Hit Highs on Collapsing Volume

By for Profit Confidential

The Only Bear Left StandingSo the S&P 500 has touched the 2,000 mark.

Will the S&P 500 continue to march to new highs?

Well, my opinion towards the stock market hasn’t changed. I remain skeptical for a variety of reasons, many of which I have shared with my readers over the past few months.

But I have a new concern about the stock market, something that hasn’t been touched on by analysts: trading volume is collapsing.

Please look at the table below. It shows the performance of the S&P 500 and its change in trading volume.

Year Performance Change in Volume
2012 11.73% - 17.58%
2013 14.50% - 24.91%
2014 8.40% - 44%*

*Until August 25, 2014

Data source: StockCharts.com, last accessed August 25, 2014

Key stock indices like the S&P 500 (it is the same story for the Dow Jones) are rising as volumes are declining, suggesting buyers’ participation in the stock market advance is very low. For a healthy stock market rally, any technical analyst will tell you that you need rising volume, not declining volume.

It’s Economics 101: rising demand pushes prices higher. In the case of the S&P 500, we have declining demand (low trading volume) and rising prices. Something doesn’t make sense here.

Looking at the economic data, it further suggests key stock indices are stretched. We continue to see the factors that are supposed to drive the U.S. economy to deteriorate.

Just look at the housing market. The number of new homes sold continues to decline. In January, the annual rate of new-home sales in the U.S. was 457,000 units. By July, it was down more than 10% … Read More

Why These Housing Stocks Are Still Attractive

By for Profit Confidential

Why I Still Believe Housing Is AttractiveIn spite of some doom and gloom scenarios for the housing market, so far it has been full steam ahead as the sector continues to blaze along since bouncing out of the Great Recession in 2008.

With interest rates and mortgage rates continuing to be relatively low, and with the jobs market producing more than 200,000 new jobs monthly, the ingredients are there for continued strength in the housing market, which I view as a good buying opportunity.

Yes, while it’s true much of the easy money has been made in the housing market, there are still opportunities to squeeze some profits out from homebuilder stocks.

Housing starts and building permits continue to be fairly strong with more than one billion annualized units for each segment in July.

As I previously said, the low rate environment and jobs growth will continue to provide the catalyst for growing the housing market. And I expect this to hold for at least another year or so until rates move higher to levels that will hurt the housing market.

One of the top housing market stocks is Toll Brothers, Inc. (NYSE/TOL), which just produced an impressive fiscal third quarter (ended July 31) in which revenues grew at 53% year-over-year to $1.06 billion. The company delivered 1,444 units at an average of $732,000. Toll also drove earnings up 110%, more than double the prior year’s same quarter.

The company ended with a strong backlog of $3.1 billion and 4,204 units at an average of $737,000. Currently trading at 15.56X its FY16 earnings per share (EPS) and a price-to-earnings growth (PEG) ratio of 0.42, the … Read More

What Recovery?

By for Profit Confidential

The Biggest Boom in the U.S. EconomyAccording to Fed Chairwoman Janet Yellen, “More jobs have now been created in the recovery than were lost in the downturn… the unemployment rate, at 6.2% in July, has declined nearly 4 percentage points from its late 2009 peak.” (Source: “Labor Market Dynamics and Monetary Policy,” Federal Reserve, August 22, 2014.)

Great news, right? On the surface, yes. But when you look closer at the numbers, the jobs market paints a very different picture as to what is going on in this country.

Prior to the Great Recession, in January of 2007, there were 4.24 million Americans who were working part-time because they couldn’t find full-time work. In July of this year, the number of Americans working part-time (because they couldn’t find full-time work) was 76% higher at 7.51 million. (Source: Federal Reserve Bank of St. Louis web site, last accessed August 25, 2014.)

The boom in the jobs market has been in part-time work! How do you feed a family with part-time employment?

But the jobs market misery doesn’t end there…

In January of 2007, the average duration of unemployment in the U.S. economy was 16.3 weeks. In July of 2014, this number stood at 32.4 weeks. Once unemployed today, people are taking over seven months to find another job—double the time it took to find a job before the Great Recession. (Source: Ibid.)

And let’s not forget that the “official” government unemployment numbers exclude those people who have given up looking for work. If we look at the jobs market and include those people who have given up looking for work and those who have part-time jobs because … Read More

« Older Entries

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

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