You know the stock market is stuck in a rut when it doesn’t react to news, either good or bad. That’s the market we have now: directionless trading with no real expectation of a trend. Part of the current stock market malaise has to do with political negotiations regarding the fiscal cliff and the uncertainty this creates. Any final agreement on the issue should help the stock market; this can’t happen soon enough.
The Dow Jones Transportation Index (or average) has been surprisingly strong over the last several weeks. The bounceback was likely due to a combination of factors, including a technical rebound among many components and lower diesel prices. This index has been a real laggard in the stock market, and it really has to break 5,400 to signal any lasting bullish sentiment.
Corporate earnings from Oracle Corporation (NASDAQ/ORCL) were good, and it’s a sign that enterprises are spending on information technology to improve productivity. There’s been a lot of uneven share price action among large-cap technology stocks. Enterprise-level technology companies are outperforming more consumer-oriented businesses, and this highlights the reticence consumers have to spend. There’s also a technology migration taking place, and it’s away from the personal computer (PC) and Microsoft Corporation’s (NASDAQ/MSFT) “Windows” operating system.
Oracle’s stock market chart is below:
Chart courtesy of www.StockCharts.com
One of the strongest indices over the last 12 months has been the NASDAQ Biotechnology Index. Many biotechnology stocks have been the market’s best performers this year. Not too long ago, we looked at Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN) in this column. . (See “It’s a Traders’ Market with Only a Few Stocks Doing Great.”) This stock experienced a well-deserved price correction after going up for two years straight. It is in a tentative recovery now, and the company’s earnings estimates keep going up. Alexion is a liquid biotechnology stock that’s good for traders. The company’s stock market chart is featured below:
Chart courtesy of www.StockCharts.com
I’m becoming a little more bullish on corporate earnings as the year comes to an end. If we get strong earnings growth from technology and financial stocks, then the stock market is going to materially advance. There is an economic recovery at hand, and the latest gross domestic product (GDP) numbers on the U.S. economy were surprisingly good. The key, I would say, is for this recovery not to get messed up by some outside shock. Regardless of the numbers, however, investor sentiment is taking a hit in the absence of a solid deal on the fiscal cliff.
As a group, the financials report their quarterly earnings very soon in the New Year, and as always, they will set the tone for the rest of the earnings season. Another quarter of revenue weakness is likely, with big multinationals operating in Europe and China. The best prospects for earnings growth should be from companies with large domestic operations. Earnings from railroad stocks will also be an important indicator.
Earnings Picture Starts off Bright with Oracle was last modified: January 9th, 2014 by Mitchell Clark, B.Comm.
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 28, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 28, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)