Last week’s trading action in the stock market was just plain awful; not even good news could get investors buying. And while all the risks, like sovereign debt, the upcoming “fiscal cliff,” and slowing earnings growth, are significant, they aren’t surprising; in fact, they are already a part of current investor sentiment. Geopolitical events in the Middle East aside, I call this the lull, the period of time between earnings seasons when stock market investors tend to focus more on worries and less on corporate reality.
This stock market isn’t going anywhere without Apple Inc. (NASDAQ/AAPL), Google, Inc. (NASDAQ/GOOG), and Amazon.com, Inc. (NASDAQ/AMZN)—the “AGA stocks.” While the majority of large-cap technology stocks have been breaking down for some time now, the AGA stocks have only recently capitulated. Earnings growth in the rest of the sector is becoming a hard thing to come by, and countless brand names among technology stocks are significantly down in price.
Of course, a lot of other stock market leaders recently began to turn. The Walt Disney Company (NYSE/DIS) has been one of the best-performing Dow stocks; but the position recently broke its 50-day moving average (MA) and, at $45.00 a share, will soon break its 200-day MA. The stock is currently trading around $47.00.
Chart courtesy of www.StockCharts.com
Even Wal-Mart Stores, Inc. (NYSE/WMT) has succumbed to the mini bear. This Dow stock held up right until the end of October before going into a meaningful downtrend. The company’s third-quarter earnings were solid, but like so many other large companies, revenues came in disappointingly light. Wal-Mart’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Investors are looking at current expectations for earnings growth (which are flat), they are seeing declining revenue growth, and they are then re-evaluating their exposure to the stock market. Even with dividend income, if corporate earnings aren’t growing, then they are not worth paying for. And given the investment risk in the stock market, which is significant, cash is a more attractive asset.
The stock market is currently oversold and due for a technical rebound (see “Many Stocks Already Experiencing Their Own Market Correction”), but this doesn’t mean it won’t go down further. With sovereign debt, the upcoming fiscal cliff, and current geopolitical events to focus on, the main stock market averages are likely to continue their decline. Earnings expectations are now secondary.
Mini Bear Finally Breaks This Market’s Toughest Stocks was last modified: November 19th, 2012 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. 30, 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. 30, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)