Stock Market Outlook & Prediction for 2014
Lombardi Publishing was established in 1986 as an investment newsletter providing stock market analysis to its readers. Today, we publish 26 paid-for investment letters, most of which provide stock market direction and individual stock picking analysis.
In 2001, Michael Lombardi started his famous daily economic newsletter Profit Confidential. Written by Lombardi Financial editors who have been offering stock market guidance for years to Lombardi customers, Profit Confidential provides a macro-picture on where the stock market is headed, what sectors are hot, and which sectors to avoid.
Over the years, Michael’s financial commentary and the accuracy of his economic predictions have garnered him global attention, and the confidence of over one million investors in more than 140 countries.
Michael Lombardi has been widely recognized as predicting five major economic events over the past 10 years.
1) In 2002, he famously told readers to get into gold
2) Told them to get out of the housing market in 2006
3) Predicted the recession of late 2007
4) Warned readers to get out of stocks in the fall of 2007
5) Advised readers to get back into stocks in March 2009
In 2002, Michael’s Profit Confidential famously advised readers to buy gold-related investments when gold bullion traded under $300.00 an ounce. “I’ve been pushing gold bullion and gold shares for over a year now. Back in January 2002, I personally started buying gold shares.” (As published in Profit Confidential, December 13, 2002.)
In 2006, Profit Confidential “begged” its readers to get out of the housing market years before it plunged. Michael started warnings abut the coming U.S. housing crisis right at the peak of the boom. On August 2, 2006 Michael Lombardi predicted, “I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The U.S. could be headed for its first annual decline in home prices on record, adjusted for inflation. And, I really believe this could be a catastrophe for the U.S. economy.”
Michael was also one of the first to predict the U.S. economy would be in a recession by late 2007. On March 22, 2007, he warned, “Over the past few weeks, I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy, and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fuelled the housing boom that peaked in 2005, has yet to arrive.”
At the same time Michael wrote this, former Federal Reserve Chairman Alan Greenspan was quoted as saying, “The worst is over for the U.S. housing market, and there will be no economic spillover effects from the poor housing market.”
Michael Lombardi also warned his readers in advance of the crash in the stock market of 2008. On November 29, 2007, Michael Lombardi predicted, “The Dow Jones Industrial Average, the S&P 500, and the other major stock market indices finished yesterday with the best two-day showing since 2002. I’m looking at the market really of the past two days as a classic stock market bear trap. As the economy gets closer to contraction, 2008 will likely be a most challenging economic year for America.”
The Dow Jones peaked at 14,279 in October, 2007. A “sucker’s rally” developed in November 2007, which Michael quickly classified as a bear trap for his readers. One year later, the Dow Jones Industrial Average was at 8,726.
And, Profit Confidential turned bullish on stocks in March of 2009, and rode the bear market rally from a Dow Jones Industrial Average of 6,440 on March 9, 2009, to 12,876 on May 2, 2011, a gain of 99%.
But, Michael is not resting on his laurels from the past 10 years.
In 2013, Michael predicts the devaluation of the U.S. dollar that started in early 2009 will accelerate as the U.S. economy deteriorates, that gold prices will continue to rise, and that the euro is done. Michael also predicts that inflation will be a big, big problem for the U.S.; probably for the rest of the decade. Finally, Michael believes 2013 will be a poor year for stocks.
It’s not all doom and gloom, though. He also has ways investors can protect their holdings, and even make money off the weak economy.
Let’s start with the U.S. housing market. Has the recovery for it ended or just stalled?
My answer comes in one sentence: While it’s always a matter of location, only the high-end housing market is doing well, while the general market is weak.
I can see it in the mortgage numbers. People just aren’t taking loans to buy homes in the U.S. economy. In fact, mortgage applications are tumbling.
In the second quarter of 2014, Bank of America Corporation (NYSE/BAC) funded $13.7 billion in residential home loans and home equity loans—down 49% from a year earlier, when it funded $26.8 billion in similar loans. (Source: Bank of America Corporation, July 16, 2014.)
JPMorgan Chase & Co (NYSE/JPM) originated $16.8 billion in mortgages in the second quarter (ended June 30, 2014)—down 66% from a year ago. (Source: JPMorgan Chase & Co., July 15, 2014.)
And Wells Fargo & Company (NYSE/WFC) also reported a massive decline in mortgage originations. In the second quarter of 2014, it originated $47.0 billion in new mortgages—down 62% from the second quarter of 2013. (Source: Wells Fargo & Company, July 11, 2014.)
So even though interest rates continue at a record low, people are not borrowing to buy homes in the U.S. economy.
But it’s not just the housing market that is weak. The entire U.S. economy is soft…masked by an artificial stock market rally and skewed “official” government statistics that don’t give us a true picture of the unemployment situation or inflation.
We’ve all heard by now that Microsoft Corporation (NASDAQ/MSFT) is planning job cuts of almost 20,000. (Source: USA Today, July 15, 2014.) … Read More
One stock that’s experiencing serious upward price momentum is in the equipment rental business. Momentum stocks might typically be associated with other market sectors, but United Rentals, Inc. (URI) is doing fantastic operationally and the market is bidding.
It’s kind of odd to think of an equipment rental company soaring on the stock market, but United Rentals is doing just that. In its most recent quarter, the company handily beat Wall Street consensus and raised its full-year guidance.
According to the company, its second quarter produced sales of $1.4 billion, up 16.7% from $1.2 billion in the same quarter last year.
Management said that the company is experiencing solid demand in non-residential construction. It’s renting out more equipment at higher margins than normal.
Second-quarter earnings were $94.0 million, or $0.90 per diluted share, compared to $83.0 million, or $0.78 per diluted share, representing a gain of about 15%.
Adjusted earnings per share were $1.65 on a diluted basis, which was way above Wall Street consensus.
United Rentals is one of the largest equipment rental companies in the world, with more than 12,000 employees. The company is considered a mid-cap stock and has been doing extremely well since the middle of 2012, which you can see in the stock chart below.
Chart courtesy of www.StockCharts.com
Not only did United Rentals beat consensus, but it also raised its outlook for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and tightened its revenue range to $5.55–$5.65 billion for all of 2014, up from the previous outlook of $5.45–$5.55 billion.
Many companies do not have their SEC Form 10-Q documents ready when they … Read More
The tally as of this morning:
The stock market is up 2.4% so far in 2014 as measured by the Dow Jones Industrial Average, while gold bullion is up 8.1% for the year.
“As an investor, do I get into gold or stocks at this point in the year?”
Well, if you’ve been reading my articles for a while, you know I’m not a fan of stocks right now. I simply believe the stock market has become a Federal Reserve–induced bubble.
And while there has been a lot written about price manipulation in the gold market, and while mighty Goldman Sachs still says the metal is headed lower in price, investors should look at gold bullion right now…that’s both old gold investors (so they can average down their cost) and new gold investors taking their first position.
Here are my reasons why…
In 2013, the Indian central bank and government imposed tariffs and restrictions on the importation of gold bullion into India, as they believed the demand for gold bullion in the country was hurting its national accounts. In the first quarter of this year, India started to ease its gold importation restrictions, and bang, last month, gold bullion imports into the country increased by 65% over June of last year. (Source: Bloomberg, July 16, 2014.) Demand for gold bullion in China, which I’ve documented in these pages, is also very strong.
Inflation, what gold bullion acts as a hedge against, is starting to gain momentum. The Producer Price Index (which tracks changes in the prices producers pay) increased by 0.4% in June from the previous month; that’s an annualized … Read More
The numbers are still coming in pretty good this earnings season and corporate outlooks are holding up well for the year.
Stocks have been trading off of Federal Reserve Chairman Janet Yellen’s monetary policy report to Congress, and less so on earnings.
This market is tired and you can see it in the trading action of individual stocks that beat the Street with their earnings. Most market reaction is pretty mute.
One that wasn’t, however, was Intel Corporation (INTC). The company’s second quarter really got institutional investors fired up. The stock was $26.00 a share mid-May; now it’s close to $34.00, which is a very big move for this company.
Microsoft Corporation (MSFT) doesn’t report until next week, but the company’s shares moved commensurately with Intel’s.
Earnings strength from these older technology benchmarks is really good news for both the stock market and the economy in general. It means that the enterprise market is spending money again, and that’s exactly what the technology industry needs.
Even Cisco Systems, Inc. (CSCO) got a boost from Intel’s earnings results. This stock has been trying to break out of a long price consolidation. It hasn’t really done anything on the stock market since its bubble burst in 2000.
I actually view Microsoft as an attractive company for equity portfolios looking for higher-quality stocks.
The position is very fairly priced and offers a current dividend yield of just less than three percent. And management has a multifaceted business plan focused on growth in personal computers (PCs), the cloud, and devices.
But the best potential with a company like Microsoft is its prospects for … Read More
The numbers are in from Johnson & Johnson (JNJ) and they’re good. The position sold off on the news, which is no big surprise considering how well it’s done since the beginning of the year.
Johnson & Johnson is still mostly a pharmaceutical play, but it won’t likely be able to produce the same growth results it experienced from its hepatitis C drug in its most recent quarter.
The company adjusted its earnings-per-share guidance slightly higher and lowered its full-year sales guidance also just slightly.
The second quarter saw the company produce sales growth of nine percent to approximately $19.5 billion and adjusted earnings growth (excluding one-time items) of about 12% to $1.66 a share, which handily beat Wall Street consensus. (See “Why This Institutional Favorite Tops My List of Stocks.”)
While I do think that second-quarter earnings from blue chips will be pretty decent, it’s not unreasonable at all for these positions to sell off on the news. Stocks have come a long way, even just since the beginning of this year.
The stock market needs a break, or at the very least, another material price consolidation. It would be a healthy development for the long-run trend.
Another company that just reported a decent second quarter was CSX Corporation (CSX), which is the biggest railroad in the eastern U.S. market.
Management cited broad-based economic momentum in its rail freight business. The company’s numbers basically met consensus with second-quarter sales growth of 6.5% to $3.24 billion and earnings of $529 million, or $0.53 per share, up a penny from consensus.
The company plans to increase its capital spending … Read More
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