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

The Fed’s Running the Show and Risk Keeps Going Up

Monday, February 25th, 2013
By for Profit Confidential

250213_PC_clarkThere just isn’t enough real economic growth out there for a rising stock market—at least not much more than has already been achieved. News from the Federal Reserve of the central bank considering how to end quantitative easing sent the stock market much lower, revealing just how artificial the whole system is.

I actually think the current stock market is fairly valued, but it shouldn’t be going up in value with modest revenues and earnings growth. The Federal Reserve is the catalyst for today’s trading action, but first-quarter earnings season will be a catalyst for investor sentiment. Some companies and industries are doing better than others. The choppy recovery in the U.S. economy is now being reflected in earnings results, as corporations can no longer cut any more costs. Revenue growth is now the key.

On the release of the minutes from the Federal Reserve meeting, stock markets around the world sold off, literally. All the positive action so far this year has been incredibly tenuous, and the low trading volume said it all. I think we’re now in a mini-correction, induced by recent news from the Federal Reserve, although it won’t be a market-breaking pullback.

Right now, the prospects for gold, silver, and oil are terrible, and the near-term action in resource stocks is headed downward. We also have a lot of solid, dividend paying large-caps that are trading right near their highs and are due for a break.

It’s odd that the stock market reacted so negatively to the Federal Reserve’s latest news. Investors have been complaining about all the easy money and artificially low interest rates. The predictability of the stock market’s reaction to the Federal Reserve is telling of the herd mentality of the system. Wall Street really is just a big game.

The stock market is going to be convulsing near term, and the key for investors will be to keep focusing on what corporations are saying about their businesses. Wal-Mart Stores, Inc. (NYSE/WMT) reduced its first-quarter guidance just slightly because of higher gas prices and increased payroll taxes, but its fourth-quarter earnings beat consensus. The company also announced an 18% increase to its quarterly dividend, which is always welcome news. (See “Show Me the Money? Just Ask Costco.”)

  • Double your money every year for 24 years running?

    Since 1989, we've made 912 option picks, with an average annualized profit of 166.17% per recommendation.

    All from Lombardi's best option picks!

    Click here to learn more.

Federal Reserve monetary policy is responsible for the stock market action since the financial crisis and recession of 2008/2009. Corporations and the economy have been responsible for the slow growth in revenues and earnings since then, and the stock market is appropriately valued. Therefore, the near-term fundamentals haven’t really changed.

We have seen continued recovery in the U.S. housing market and even in employment (especially employment in the private sector). The industrial economy reported continued strength in the fourth quarter of 2012, and the technology sector is holding its own. All in all, the stock market is where it should be, and economic growth will be low and slow for the near future.

It’s going to be another wacky year for stocks, thanks to the Federal Reserve. Anything is possible these days, which is why it pays to be conservative with your holdings. For me, dividend paying blue chips continue to be the only stocks to own. Everything else really is a gamble.

VN:F [1.9.22_1171]
Rating: 7.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: +1 (from 1 vote)
The Fed’s Running the Show and Risk Keeps Going Up, 7.0 out of 10 based on 1 rating

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. 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, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. Add Mitchell Clark to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.