Stock Market Looking Up—Will It Last?
Wednesday, January 23rd, 2013
By Mitchell Clark, B.Comm. for Profit Confidential
This is a stock market that wants to go higher, but it needs a little more certainty in the marketplace in order to do so. Corporate earnings are now rolling in, and so far, the numbers have been decent. Still, there’s no runaway growth in earnings, and even companies that beat consensus aren’t seeing the typical reaction in share price as in previous markets.
The Dow Jones Transportation Average is holding up; there’s real strength in this stock market, and that’s a very positive signal. Union Pacific Corporation (NYSE/UNP) reports this week, and this will be an important benchmark, not only for the company itself, but also for general economic conditions. Wall Street consensus calls for revenues of $5.3 billion and earnings per share of $2.16. I read every word of this company’s earnings reports; what each says is a good barometer on the state of the industrial economy. Union Pacific’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Also important within the Dow Jones Transportation Index is FedEx Corporation (NYSE/FDX), which recently reported a five-percent gain in its latest quarterly revenues. Earnings dropped in its latest quarter, but this was a result of Hurricane Sandy and reduced international volumes. The Street didn’t seem to mind, and the company’s shares recently shot up on the stock market. FedEx’s stock chart is below:
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Chart courtesy of www.StockCharts.com
On the S&P 500, 1,500 is an easy target, and there are a lot of stocks that are doing very well, trading at or near their highs. (See “Going Large-Cap for Capital Gains? Yep, and It Works.”) But there are still a lot of problems in this world, and investment risk hasn’t gone away. Practically, however, there isn’t any place for investor cash other than the stock market. Interest rates don’t pay enough and earnings, while not robust, are still solid.
The stock market is experiencing a great start to 2013, just like it did in 2012. We could be in for another “sell in May and go away” type of scenario, but that’s not unusual. One thing we’ve learned from this market and the economy is that there’s no consistency. The economic news from the eurozone is still pretty flat, but China has some renewed momentum. From my perspective, I still would rather see stock market investors focus on more domestic-oriented businesses. Europe has too much debt, and China, while incredibly exciting, isn’t trustworthy yet.
There was quite a bit of disappointment from the stock market during third-quarter earnings season. Large, international businesses were feeling the weakness abroad. I’m not saying that things are getting better in all industries in the U.S. economy, but corporations are in extremely good shape, and there should be earnings growth this year.
The employment and income situation continues to be a problem for the U.S. economy. Right now, there is no incentive for corporations to spend their cash. As odd as it is for me to write this, it’s up to the politicians to get their act together and provide more certainty for capital markets. With more agreement through policy action, corporations will make more investments in this economy and employment and the stock market will benefit.
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