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

Stock Market

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.

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

Why I Like These Two Health Care Stocks

By for Profit Confidential

If You Can Stand the Risk… Two Strong Healthcare StocksOne of the problems with pure-play biotechnology stocks is that they are 100% risk-capital securities in which the probability of success is entirely beyond your control.

But healthcare and related industry investments are very much worthwhile in an equity market portfolio for the simple reason that they can be so profitable.

One company that serves the healthcare industry, but isn’t a pure-play drug discovery enterprise, is Bio-Reference Laboratories, Inc. (BRLI). Based in Elmwood Park, New Jersey, this stock is an interesting way to play the sector.

Bio-Reference is the third-largest diagnostic laboratory in the U.S. The company’s customers are physicians, hospitals, long-term care facilities, and government institutions. It has laboratory testing facilities in nine states and provided 7.8 million laboratory test requisitions in 2013, which continue to grow at a double-digit rate.

The company’s latest quarter set a new record in total revenues. Sales grew a solid 20% to $222 million on a 16% increase in patient count and a three-percent increase in revenue per patient.

Quarterly earnings came in at $15.3 million, or $0.55 per diluted share, compared to $14.7 million, or $0.53 per diluted share, in the same quarter last year.

Company management said its earnings per share for the upcoming fiscal quarter should grow approximately 15% above the most recent quarter.

Over the last 10 years, Bio-Reference has really found its stride as an enterprise and the stock is finally breaking out of a two-year price consolidation.

The company is now involved in genetic testing and believes that this will be a growth business going forward.

The stock jumped after the company’s recent earnings results and is … Read More

Feel Like You Are Missing Out?

By for Profit Confidential

Stock Market Correction Very HighIf you follow the financial news, it feels like the stock market is moving higher and higher…a situation in which investors often feel they are missing out.

But the reality of the situation is very different. So far this year, almost eight full months in, the Dow Jones Industrial Average is up only three percent.

Would you buy stocks with the Dow Jones trading at 17,100, near a record-high price-to-earnings (P/E) multiple and a record-low dividend yield? I wouldn’t. Hence, the question changes from “Am I missing out?” to “Is it worth the risk?”

On Monday, the chief market strategist at BMO Capital Markets said, “Longer term we are in the camp that believes U.S. equities are the place to be. They are the most stable asset in the world.” (Source: “Bull market will charge higher for 15 more years says strategist,” Yahoo! Finance, August 18, 2014.)

The belief that “stocks are the place to be” has gone mainstream now. And that’s very dangerous.

The reality of the situation: (1) stocks are trading at very high historical levels when measured by the P/E multiple and dividend yield; (2) the Fed is stopping its money printing program; (3) investors are pulling money out of the stock market; (4) consumer spending is tumbling; (5) stock advisors have remained too bullish for too long; and (6) the chances of a 20% stock market correction are very high.

According to the Investment Company Institute (ICI), between April and June, mutual funds that invest in U.S. stock markets witnessed net withdrawals of $19.1 billion. While July’s monthly figures are not updated just yet, looking at … Read More

Two Important Economic Signals to Share with My Readers This Morning

By for Profit Confidential

U.S. Consumer Confidence CollapsingA good gauge for me on how consumers in the U.S. economy are faring has always been the statistics coming out of Wal-Mart.

Wal-Mart Stores Inc. (NYSE/WMT) reported its operating income in its second quarter (ended July 31, 2014) declined by 2.4%. Its subsidiary, Sam’s Club (wholesale store), saw its operating income, after taking out fuel, decline by 10.2%. (Source: Wal-Mart Stores Inc., August 14, 2014.)

For its entire 2015 fiscal year, Wal-Mart now expects to earn in the range of $4.90 to $5.15 per share compared to its previous estimate of $5.10 to $5.45 per share.

The performance of Wal-Mart is very important to economists like me because the massive reach of Wal-Mart is a good indicator of consumer spending. Wal-Mart is the biggest private employer in the world, with a staff of approximately two million, and the largest retailer in the world. More than one hundred million people visit a Wal-Mart store weekly.

So when Wal-Mart comes out with soft earnings, it gives me a reason to be concerned about the direction of consumer spending. But that’s not the only thing I’m worried about in respect to the economy.

According to FactSet, of those major public retailers that have reported their second-quarter same-store sales, 46.8% of them have reported sales below estimates.

Retail sales are stagnant for the simple fact that consumer spending is getting very soft here in the fifth year of the so-called economic “recovery.”

Below is a chart of the widely followed University of Michigan Consumer Sentiment Index.

University of Michigan Consumer Sentiment Chart

Chart courtesy of www.StockCharts.com

As you can see, consumer sentiment has tumbled to its lowest level … Read More

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