Posts Tagged ‘bull market’
Getting a sense of where stocks are going to go in the year ahead is always difficult with the major indices at their all-time highs.
The fundamental backdrop is still very favorable for equities. While the Federal Reserve has put off raising interest rates for the near future, the cost of capital, especially for corporations, remains extremely low. And corporate balance sheets remain in excellent condition with strong cash positions and good prospects for rising dividends going forward.
The stock market recovered extremely well from the financial crisis and subsequent crash in 2008/2009. But it wasn’t until early 2013 that I saw the beginning of a new cycle for stocks, or a bull market as it were.
Until then, I viewed the market’s performance purely as a recovery period from the previous cycle, which was the technology bubble.
Many of the technology stocks have only now recovered to their previous highs set in 1999 and 2000. The recovery cycle took a long time to play out and the catalyst for its breakout was, not surprisingly, the Federal Reserve.
Stocks can move significantly higher in a rising interest rate environment, but only from a low base, which is what we have now. And within the context of a new market cycle or bull market, the economy can experience a full-blown recession and stocks can experience meaningful corrections.
The two most important catalysts for the equity market near-term are what corporations actually report about their businesses and the Federal Reserve’s actions.
The surprising weakness in oil prices should be evident in corporate financial results (especially in the fourth quarter). Old economy industries … Read More
Large-cap technology stocks, particularly old-school names, have really been on the rise, though they remain an untold story this year.
Microsoft Corporation (MSFT) is on a major upward price trend and is getting close to its all-time record-high set during the technology bubble of 1999.
The company’s stock market performance has been tremendous as of late, rising from around $27.00 a share at the beginning of 2013 to its current level of approximately $47.00, its 52-week high. Its share price has increased by more than $10.00 this year alone. (See “Eight Stocks to Beat the Street.”) And that’s with a current dividend yield of 2.6% and a trailing price-to-earnings ratio of just less than 15.
I think Microsoft is going to keep on ticking higher right into 2015 based on its sales and earnings growth momentum combined with a solid interest on the part of institutional investors seeking earnings predictability in a slow-growth environment.
Microsoft would be a solid investment-grade pick in this market for those investors considering new positions and looking for income.
Even without the company’s dividends, it should experience solid sales and earnings growth going into its next fiscal year. And in an environment where institutional investors are bidding old-school names that are offering earnings reliability, $50.00 a share shouldn’t be too difficult for Microsoft to achieve by year-end.
Share price momentum in previous technology growth stocks like Microsoft and Intel is indicative of a bull market, but one that’s still risk-averse.
Price momentum in these stocks is healthy for the broader market because large-cap tech companies like Amazon.com, Inc. (AMZN) and Facebook, Inc. (FB) … Read More
There’s good resilience to this market. On most days, the NASDAQ Composite is still beating both the S&P 500 and Dow Jones Industrial Average comparatively, which is bullish. Lots of stocks are pushing new highs and many seem to be breaking out of their previous near-term trends.
NIKE, Inc. (NKE) is a large-cap, dividend-paying company that I view as attractive for long-term investors.
The stock has been in consolidation, trading range-bound since the beginning of the year but is finally breaking out and pushing through the $80.00-per-share level.
This position went up tremendously last year and has been due for a break. The company has experienced solid revenue and earnings growth over the last several quarters.
The stock’s reacceleration looks meaningful, and I suspect the position is in for a new uptrend.
The other company that I feel is a good example of the kind of stock that could make for a great holding in any long-term equity market portfolio is The Walt Disney Company (DIS). (See “Why This Is Still My Favorite Entertainment Stock.”)
I’m not surprised this position is still ticking higher. But it has been moving up very consistently since October of 2011.
The stock just broke the $90.00-per-share level. This time two years ago, the company was trading for $30.00 a share, which is incredible capital appreciation for such a mature large-cap enterprise.
Institutional investors are still buying earnings reliability, and I think this trend will hold right through 2015.
Both NIKE and Disney offer earnings reliability and the fact of the matter is that it’s difficult for any company to generate double-digit growth…. Read More
So long as transportation stocks are ticking higher, the stock market is much less susceptible to a price retrenchment.
The Dow Jones Transportation Average just blew past 8,500, recently hitting a new record-high after taking a well-deserved break around mid-July and August.
Airline stocks led the index’s recent price strength. Some examples: JetBlue Airways Corporation (JBLU) was $8.00 a share in May, now it’s pushing $13.00. Meanwhile, Southwest Airlines Co. (LUV) was $20.00 a share at the beginning of the year, recently hitting a price of more than $33.00 for a new all-time record-high.
But it isn’t just airline stocks that are doing well on the Dow Jones Transportation Average; railroad stocks and trucking companies are pushing through to new highs, too, and earnings estimates for a lot of these companies are increasing, especially for 2015.
It may seem like an old-school concept, but strength in transportation stocks is still a leading indicator for the broader market. Price strength in these stocks often shows up at the beginning of a new business cycle.
Union Pacific Corporation (UNP) is one of my favorite railroad stocks for investors and it’s a great benchmark for determining your investment strategy, even for those not interested in the company. Monitoring this stock is a great way to gain market and economic intelligence.
This position still has good potential for further capital gains and earnings forecasts have been going up across the board—including estimates for the company’s third and fourth quarters, all of 2014, and all of 2015.
The stock’s been in a well-deserved price consolidation since May, but it recently broke out of this trend … Read More
Countless stocks are pushing new highs and a lot of them are still blue chips. The Dow Jones Industrial Average is lagging the other indices this year, but this is not unusual.
The fact that many blue chips are still slogging higher is further indication of a bull market, despite all the shocks, risks, and the fact that stocks haven’t experienced a real correction for a number of years now.
PepsiCo, Inc. (PEP) had a great second quarter (for such a mature brand). The company increased its quarterly dividend once again and Wall Street earnings estimates for this year and next have been going up across the board.
What large corporations and well-known business brands say about their operating conditions is as useful as any other kind of information or opinion regarding the equity market. Stocks get overvalued and undervalued, but the best investing information I’ve found is what corporations actually report about their businesses, regardless of whether a company meets, beats, or comes in below consensus.
What Caterpillar Inc. (CAT) says about its global heavy equipment sales is material information, even if you aren’t interested in buying the stock. The same goes for Intel Corporation (INTC), The Boeing Company (BA), Visa Inc. (V), and The Walt Disney Company (DIS).
Second-quarter earnings season came in better than expected, and while many blue chips reiterated their existing guidance, I suspect it’s a simple strategy to make it easier to beat the Street by keeping expectations modest.
It could easily be another great year for stocks with a fundamental backdrop that is still so favorable to equities. And this includes the reality … Read More
The stock market has an underlying strength to it, seemingly only to be undone by geopolitical events. Fed action always has the potential to shock the system. Negative economic news isn’t fazing this market.
On the back of a pretty decent second quarter, many corporate outlooks predict another year of decent growth, particularly with earnings.
While the stock market retrenched recently, positive days are still led by the Dow Jones Transportation Average, the Russell 2000 Index, and the NASDAQ components, which are traditionally positive for broader sentiment.
Some speculative fervor has come back to two stock market sectors that are traditionally volatile—biotechnology stocks and restaurant stocks.
But there really isn’t an underlying trend to latch onto. Jumping on the bandwagon of risky stocks seems unwise considering the stock market is at an all-time record-high.
This is a market where equity investors have to be highly selective and wait for the right opportunities to present themselves, if you’re considering new positions at all.
This can be in the form of a specific sector theme (like oil and gas, for example) or looking for good companies that have retrenched for their own specific reasons.
In any case, with the stock market at a record high, it’s difficult to find value, and new positions become entirely reliant on market momentum, not necessarily individual corporate achievement.
There are very few companies that I would consider now, but within the context of a long-term stock market portfolio, investors want their money to be put to work.
In equities, I still think that portfolio safety is the name of the game. This is a market that … Read More
As evidence of the continuing bull market, Kinder Morgan, Inc.’s (KMI) massive acquisition of its partnership companies is a significant sign that business conditions remain strong in the energy industry.
Kinder Morgan surprised the marketplace by announcing plans to purchase Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB) in an enormous $70.0-billion consolidation.
The wealth effect from the news was immediately significant, with all partnership units rising substantially on the stock market.
Kinder Morgan Energy Partners is the largest master limited partnership in the United States and has been a top choice among income-seeking investors. The partnership was worth approximately $80.0 billion, or $80.00 per unit, with a 6.9% yield before news of its acquisition. It opened 20% higher, close to $100.00 per unit, on news of the deal.
Investors can choose cash or take up new shares in Kinder Morgan, Inc., which plans to increase its dividend 16% in 2015 to $2.00 a share. The company also plans to increase its dividend by at least 10% per year until 2020, and it’s likely that there will be a number of smaller divestitures over the coming quarters.
Once the company acquires all its related corporate entities, it will be the largest energy infrastructure company in North America. Management expects its debt to be investment grade, and the combined company should be able to garner a lower cost of capital.
The current environment is a great time to be in energy infrastructure. Transportation and storage of hydrocarbons is a growth business with rising domestic production.
And it’s tough to find double-digit … Read More
If there ever was an equity security epitomizing the notion that the stock market is a leading indicator, Caterpillar Inc. (CAT) would fit the bill.
This manufacturer is in slow-growth mode, but it’s been going up on the stock market as institutional investors bet on a global resurgence for the demand of construction and other heavy equipment and engines.
And the betting’s been pretty fierce. Caterpillar was priced at $90.00 a share at the beginning of the year. Now, it’s $110.00, which is a substantial move for such a mature large-cap. (See “Rising Earnings Estimates the New Catalyst for Stocks?”)
The stock actually offers a pretty decent dividend. It’s currently around 2.6%.
While sales and earnings in its upcoming quarter (due out July 24, 2014) are expected to be very flat, Street analysts are putting their focus on 2015. Sales and earnings estimates for next year are accelerating, and it’s fuel for institutional investors with money to invest.
The notion that the stock market leads actual economic performance is very real. Just like there are cycles in the economy, the stock market itself is highly cyclical. And while every secular bull market occurs for different reasons, there are commonalities in the price action.
Caterpillar’s share price is going up on the expectation that its sales and earnings (on a global basis) will accelerate next year.
Transportation stocks, as evidenced by the Dow Jones Transportation Average, are the classic bull market leaders.
Transportation, whether it’s trucking, railroads, airlines, or package delivery services, is as good a call on general economic activity as any. The Dow Jones Transportation Average was … Read More
Oracle Corporation (ORCL) announced a quarterly revenue gain of three percent, but Wall Street was looking for more and the company’s share price retreated on its earnings results.
If it weren’t for the Federal Reserve, we probably would be in a correction, if not a consolidation, which has been the broader market’s go-to trend when it should have retreated further.
It’s such a mixed bag out there both in terms of economic news and corporate reporting.
While I think dividend-paying blue chips have the advantage going into the second-quarter earnings season, if the Federal Reserve wasn’t so extremely sensitive to Wall Street, this market would probably be a lot lower.
Even the Fed’s recent language is assuaging. If this market had to operate on its own (with free market interest rates and liquidity), things would be a lot different.
But this isn’t the environment we live in. Economic history clearly supports the scenario that it doesn’t pay to fight the Fed and that Wall Street will move mountains when it has Fed certainty.
Lots of investors bemoan the quarterly earnings cycle or game, but I don’t. I want to know a public company’s up-to-date financial results as frequently as possible.
While earnings are managed, over time, a business can’t manufacture success unless it’s a fraud (which, sadly, does happen).
Big companies have the operational leverage and the cash to keep boosting their earnings per share. Oracle’s latest financial results were uninspiring, and while recognizing that this is a very mature business with growing competition in the cloud, the position advanced a material 10 points since last June—this seems so overdone…. Read More
The Dow Jones Transportation Average keeps powering ahead, and the rest of the stock market is very close behind it.
The strong performance of this index is confirmation of further Dow theory gains. The Dow Jones Industrial Average has been fighting its way higher since May 20.
Some of the performances of transportation stocks have been truly spectacular and very much a reflection of a bull market.
Alaska Air Group, Inc. (ALK) just bounced off $100.00 a share. It was $50.00 a share late June last year.
Union Pacific Corporation (UNP), which has been one of my favorite benchmark stocks for gauging industrial economic activity and the stock market, is right around $200.00 a share. (See “Buybacks, Dividends, Stock Splits: Business Is Getting Better for This Must-Watch Stock.”)
It was $150.00 a year ago, which is a very good capital gain for such a mature large-cap enterprise.
And Southwest Airlines Co. (LUV) just hit an all-time record-high, about double what it was trading at this time last year.
The Dow Jones Transportation Average is old economy, but it is a very meaningful gauge for the rest of the stock market. I advise all investors to follow the index on a frequent basis. The broader market is highly unlikely to break down without a commensurate move in transportation stocks.
The NASDAQ Composite and Russell 2000 can certainly be more volatile, but generally speaking, so long as the Dow Jones Transportation Average is holding up, so will the rest of the market.
Since the financial crisis, big corporations have been very unwilling to invest in new operations. But in what … Read More
The spot price of oil has been eerily steady for quite some time; this is quite unusual for the world’s most traded commodity.
It’s been a peculiar year in capital markets, and there’s definitely an uncertainty in sentiment, especially in the equity market with no real trend for investors to latch onto. It makes me think that equity investors should be proactive now and take a hard look at their portfolios for investment risk.
Speculative fervor has been reduced and while small-cap stocks, initial public offerings (IPOs), biotechnology stocks, and super-high-valued stocks have taken it on the chin, this is not unreasonable for the longer-run trend in equities.
The Dow Jones Transportation Average just hit another record-high and its long-term chart, while impressive, actually looks kind of scary. The capital gains are tremendous since the March 2009 low, which begs the question as to when it’s going to reverse.
Historically, most of the average’s declines have come in the form of short bursts of downside, peppered by several multiyear periods of non-performance.
The stock market is highly unlikely to break down without a commensurate move in transportation stocks. But there is clearly room for downside in these share prices. Delta Air Lines, Inc. (DAL) has doubled in value since just last September.
Caution. Caution. Caution. If you eliminate the bubble capital gains produced by stocks comprising the S&P 500 index during the late 1990s and their price recovery during the mid-2000s, the long-term chart still reveals an incredible performance. The crash of 1987 now looks like a blip. The 100-year chart of the S&P 500 is featured below:
Chart … Read More
There still is no real trend in the equity market. One day, stocks sell off big-time; the next, the S&P 500 and Dow Jones Industrial Average hit new record-highs.
This is a very tough market to figure; anything can happen when monetary policy is highly accommodative.
A lagging NASDAQ Composite isn’t a worry. Neither is the Russell 2000 index. Stocks won’t come apart so long as so many large-caps are pushing their highs.
And not all technology stocks are retrenching, either. Some of the old technology bellwethers are actually doing quite well these days. Microsoft Corporation (MSFT) is trading right at a multiyear high, with a 2.8% dividend yield and a forward price-to-earnings ratio of approximately 14.
Even Intel Corporation (INTC), which is having a pretty tough time generating much in the way of top-line growth, is recovering on the stock market and is very close to breaking out of a multiyear price consolidation. Intel currently offers a 3.4% dividend yield and is not expensively priced.
One day, stocks are reacting to geopolitical events in Ukraine; the next, it’s Chinese economic data, then it’s mergers and acquisitions…
If anything, the reaction to first-quarter earnings was pretty muted. But even though the beginning of the year started out with considerable downside, stocks recovered strongly after policy reassurance from the Federal Reserve. While the action’s still choppy, underlying investor sentiment is holding up.
This is a market that continues to favor existing winners, but not necessarily at the speculative end. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) The reticence that launched blue chip … Read More
A lot of stocks are rolling over, breaking their 50- and 200-day simple moving averages (MAs). This is a tired market that could very well consolidate or correct right into the fourth quarter.
And the economic data has been softer, as well. Throw in geopolitical tensions with Russia and we have the makings of a material price retrenchment.
There’s still resilience, however, in some of the most important stock market indices. Stocks composing the Dow Jones Transportation Average are holding up extremely well, especially compared to the Russell 2000, the NASDAQ Biotechnology index, and the NASDAQ Composite index itself.
While the main market indices are mostly flat on the year, I don’t think investors can expect any capital gains until perhaps the fourth quarter.
From my perspective, relative price strength in the Dow Jones industrials, transportation stocks, and most of the S&P 500 index means that the longer-run uptrend remains intact.
With speculative fervor still coming out of initial public offerings (IPOs) and select biotechnology stocks, this action is an indicator of a tired market that’s long in the tooth, as investors are clearly less willing to speculate on those stocks that don’t offer income or relative safety in their earnings.
Risk aversion won’t kill a secular bull market. But it does mean that risk-capital opportunities are a lot less plentiful. Currently, among speculative stocks, one of the only sectors still experiencing decent price action is oil and gas drilling and exploration.
This is still a market that I think favors existing winners—blue chips, in particular. (See “Top Stocks for the Coming Correction.”)
These are the stocks to … Read More
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