Stability peppered with a little growth is what the stock market is looking for.
Tomorrow, Kimberly-Clark Corporation (NYSE/KMB) will report. Like many other blue chips, the company broke out significantly on the stock market and is looking decent before its earnings report.
BlackRock, Inc. (NYSE/BLK) announced solid first-quarter earnings. Assets under management grew to a record $3.94 trillion, while net inflows grew to $39.4 billion, with $33.7 billion for equities.
There is still momentum for money to be put to work in this stock market.
The key is a broadening of the breakout. The stock market can’t sustain a strong performance through blue chips alone. And revenues and earnings have to perform.
The stronger U.S. dollar was clearly evident in Johnson & Johnson’s (NYSE/JNJ) earnings results. (See “Some Big Company Earnings Look Good, but Market Set for a Correction.”)
For Johnson & Johnson, first-quarter revenues grew 8.5% to $17.5 billion, but would have grown about 10% if not for the dollar’s strength. Earnings beat consensus, and the company backed its view for 2013 (the safe play). Johnson & Johnson’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
This year’s stock market breakout is in much need of a correction. Blue chip valuations still seem reasonable to me, but it’s unrealistic to expect the stock market to keep heading upward without a substantial correction.
To keep this stock market alive, the Dow Jones Transportation Average must stay above 6,000. This really isn’t a technical level, but more of a psychological one.
The industrial supply company, W.W. Grainger, Inc. (NYSE/GWW) reported very solid revenues and earnings, particularly in the U.S. and Canada, which was 89% of its business in the first quarter.
The position leapt upward on the stock market to an all-time high. Its daily sales increased seven percent in both January and February, with March showing four-percent growth. Revenue growth was reported in the light and heavy manufacturing, natural resources, commercial, and contractor markets.
The company boosted the low end of its existing 2013 guidance range for both revenues and earnings.
There is evidence now that the North American market is an economic island that’s just puttering along. While this is better than declining numbers, economic participation from the rest of the world would be helpful.
The U.S. stock market is basically at an all-time high on mediocre revenue and earnings growth. It needs to take a serious break soon, or it’ll be a bubble and a burst—again.
Going forward, balance sheets are on my to-do list. Corporations are in much better shape than they were just a few years ago, and if they can stay this way, they can weather the next storm.