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


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.”)

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.

Retire on one hot stock

Presenting Our Top Stock Pick for 2015!

It is one of the leading companies in its industry. With quarterly revenue of $800 million and growing this company is generating over $300 million every three months in free cash flow!

"A Golden Opportunity for Stock Market Investors" is yours FREE when you opt-in to get our daily e-letter Profit Confidential. With Profit Confidential you are receiving the opinions and commentaries of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate, and other investments so we can tell you what we believe today's financial news will mean for you tomorrow!

Combined, we have over 100 years' experience in analyzing various investment markets. Our analysts include MBAs, BAs, B.Comms, P.Engs, MAs, LLBs...and most importantly, years of experience investing and managing our own money successfully!

To opt-in to our FREE e-letter Profit Confidential and to get your FREE report, "A Golden Opportunity for Stock Market Investors," enter your e-mail address in the box below. You can unsubscribe at any time.

We hate spam as much as you do. Check out our Privacy Policy.

About the Author | Browse Mitchell Clark's Articles

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 »

Related Articles

Investors: This Could Send Gold Prices Soaring in 2015
By Michael Lombardi


For the rest of 2015, what's your take on oil?

View Results

Loading ... Loading ...
Profit Confidential
From: Michael Lombardi, MBA
Subject: Golden Opportunity for Stock Market Investors

Read this message