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

Why Corporate Earnings Are Taking a Back Seat to the Fed

Monday, August 19th, 2013
By for Profit Confidential

blue chipsThe second-quarter earnings season is considered over, but there are still a number of companies reporting. And the same trend continues—the numbers are anemic.

Making the case for a rising stock market in the face of little sales growth and earnings results that are basically just meeting expectations is difficult. The stock market’s performance for the last few years has been very much due to the monetary expansion, followed by a slight improvement in general business conditions.

What is clear is that corporate balance sheets continue to be extremely healthy. However, the lack of investment in new plants, equipment, and employees remains a big problem. There is more certainty in the marketplace, but corporations just aren’t making much in the way of bold new investments.

Despite the mediocrity, there are still a number of blue chips whose earnings estimates are being increased by Wall Street. In a lot of the earnings results from blue chips over the last several quarters, sales increases have mostly been due to rising prices, not necessarily rising volumes. This is emblematic of the very slow growth environment the U.S. economy continues to experience, as well as the economic misnomer that price inflation is tame.

The velocity of money, which is the willingness of both corporations and individuals to spend cash, continues to be faint. Improving balance sheets is an excellent development for the long run, but cash hoarding means no growth near term. It’s a trend that’s likely to continue.

While not much of an advocate for buying in the stock market today, I do think that it’s wise for investors to stick with the safest names—to keep holding those blue chips who have been the market’s leaders to date.

  • The Two Most Important Pictures Investors Will See This Year

    Within the next 90 days, a new economic catastrophe will be headed our way.

    It will blindside most Americans. And this time, the government and the Federal Reserve will not be able to help.

    It will cause a surge in personal bankruptcies and massive layoffs. It will make the recession of 2008 pale in comparison.

    It will crash retirement plans: I'm talking stocks, bonds, maybe even your own bank account.

    To get a firsthand look at what we're so worried about now, a catastrophe that has already been set in motion, I urge you to...

    See the two most important pictures investors will see this year FREE when you click here.

Some of these names include: The Procter & Gamble Company (PG), Johnson & Johnson (JNJ), Pepsico, Inc. (PEP), The Walt Disney Company (DIS), Nike Inc. (NKE), The Home Depot, Inc. (HD), and Union Pacific Corporation (UNP), to name a few. (See “Where to Find an Investment Opportunity in a Market That’s Much Too High.”) These are the proven blue chips, with increasing dividends providing the earnings certainty that institutional investors will continue to pay for.

The way the stock market finishes this year is highly dependent on the Federal Reserve and the amount of monetary stimulus stirring the system. This is a market about the perception of certainty, not the reality of it. Economic news of late shows the U.S. economy to be very tame in its recovery, with regional- and industry-specific fractions very much a reality.

As things go in capital markets, good news in the form of positive economic statistics or earnings produces a falling stock market. Good news also increases the probability of a reduction in monetary stimulus.

This is the reality of the extreme short-term focus of capital markets. For equities, the market –extremely focused on the Fed; corporate earnings are secondary.

VN:F [1.9.22_1171]
Rating: 0.0/10 (0 votes cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)

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.