Where’s the Good News? Companies Just Meeting Expectations
The S&P 500 Index really needs to break the 1,475 level in order to achieve a meaningful breakout from its current consolidation, which has lasted just over a month. Frankly, I’ll be surprised if it can do so; this stock market looks tired and spent. As a generality, I wouldn’t be buying stocks in the large-cap space at this time; I’d hold out for the next correction. But the stock market today is right where it should be—it’s not too hot or too cold; therefore, it’s unclear as to how things will end up this year.
Corporate earnings are mostly coming in as expected, and so is visibility. You can bet that companies will be conservative with their year-end forecasts; corporate earnings are managed and that’s a fact of life in the stock market. What we haven’t had so far are any major home runs, and it’s no surprise. It’s pretty difficult for corporate earnings to really accelerate in an environment with very little economic growth.
Corporate earnings from Johnson & Johnson (NYSE/JNJ) were good, and the stock provided a boost to the Dow Jones Industrials. I think PepsiCo, Inc. (NYSE/PEP) is representative of the state of corporate earnings and the stock market. The company recently beat consensus for the third quarter, but maintained its full-year outlook to be on the safe side. PepsiCo’s stock chart appears below:
Chart courtesy of www.StockCharts.com
Corporate earnings from the financials have come in mostly as expected, and the group moved slightly higher. But corporate earnings from benchmark technology stocks have been disappointing so far, with International Business Machines Corporation (NYSE/IBM) and Intel Corporation (NASDAQ/INTC) reporting challenging revenue conditions. (See “Will the Stock Market Tank On Earnings Warnings?”) Intel’s stock chart does not look very encouraging:
Chart courtesy of www.StockCharts.com
We’ve had some dividend increases, but not as many as I hoped for, and I think this plays into the conservative corporate outlooks going into 2013. Despite large cash positions and extremely healthy balance sheets, large-cap companies are keeping the cash close to home; they are seemingly as uncertain about the current state of the economy as Main Street.
Corporate earnings need to show meaningful growth if the stock market is to accelerate going forward, and right now, it doesn’t look like this is going to happen. The stock market went up this summer based on expectations for a third round of quantitative easing (QE3), not because of expectations for strong corporate earnings. Now that corporate earnings are basically meeting expectations, the stock market has to figure out where it wants to go next. More consolidation is my bet.
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 »
Forecasts Aug. 28, 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. 28, 2015
|Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)||$1014.15|
|Trailing 12-month Price/earnings multiple (Most Recent Quarter)|
|Dow Jones Industrial Average Dividend Yield||2.71%|
|10-year U.S. Treasury Yield||2.14%|