Posts Tagged ‘Dow Jones Industrial Average’
The NASDAQ Composite index sold off significantly in January to around 4,000. Then it recovered to its current level at 4,300, which is a pretty substantial move.
For a number of months now, the NASDAQ has been outperforming both the S&P 500 and Dow Jones Industrial Average. This relative outperformance continues to be a positive overall sign regarding sentiment.
I don’t really expect much from stocks this year, although the prospect of rising dividends still remains very good in the bottom half. 2013’s stock market performance was so exceptional and so substantial, especially among blue chips, that it’s time for earnings to catch up with share prices.
Not to be excluded, the performance of the Russell 2000 index has also been relatively strong compared to larger-caps. But this index still can’t quite keep up to the outperformance of the NASDAQ.
Stock market leadership from large-cap technology stocks is always a good thing. And a lot of it has been from older brand-name companies, the kind of former fast-growing stocks that are now almost income plays.
Oracle Corporation (ORCL) has been on the comeback trail after several quarters of disappointing results. This position has been treading water since the beginning of 2011, and its recent breakout on the stock market is not immaterial. The company’s five-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Following a similar trading pattern over the last several years, Microsoft Corporation (MSFT) has recently been strong. The stock is up $10.00 a share over the last 12 months, and Wall Street earnings estimates have been going up across the board for this fiscal year and … Read More
In the first five weeks of this year, investors bought $22.0 billion worth of long-term stock mutual funds. (Source: Investment Company Institute, February 12, 2014.)
But as investors poured money into the stock market, hoping to ride the 2013 wave of higher stock prices, stocks did the opposite and went down. The Dow Jones Industrial Average is down three percent so far this year.
Looking at the bigger picture, corporate earnings and key stock indices valuations are still stretched. The S&P 500’s 12-month forward price-to-earnings (P/E) ratio stands at 15.1. This ratio is currently overvalued by roughly nine percent when compared to its 10-year average, and 15% compared to its five-year average. (Source: FactSet, February 14, 2014.)
This isn’t the only indicator that says key stock indices have gotten too far ahead of themselves. In the chart below, I have plotted U.S. gross domestic product (GDP) against the S&P 500.
The chart clearly shows a direct relationship between GDP and the S&P 500. When U.S. GDP increases, the S&P 500 follows in the same direction, and vice versa. When we look at the 2008–2009 period (which I’ve circled in the chart above), we see that when GDP plunged, the S&P 500 followed in the same direction.
Going into 2014, we saw production in the U.S. economy decline; consumer spending is pulling back, unemployment is still an issue, and the global economy is slowing. U.S. GDP is far from growing at the rate it did after the Credit Crisis. Take another look at the chart above. In 2011, you’ll see U.S. GDP was very strong; but after … Read More
For the first time in more than three years, Chinese stocks are beginning to show some promise for growth investors looking for opportunities outside of the United States.
The benchmark Shanghai Composite Index has moved to just above its close of 2013; hence, it’s more or less in line with the S&P 500 and Dow Jones Industrial Average.
Many of you are aware of my continued bullishness for China, as I have talked about this in recent commentaries.
We saw some encouraging estimates on Tuesday. The country’s industrial output is estimated to rise 9.5% this year, which could support gross domestic product (GDP) growth of 7.5%, according to Industry and Information Technology. (Source: “China targets factory output growth of around 9.5 percent in 2014,” Reuters, February 17, 2014.) What’s interesting is that the key areas of growth for this year include telecommunications, along with a big jump in business for software and information technology (IT).
You can play the growth in these areas via Chinese IT services firms, such as iSoftStone Holdings Limited (NYSE/ISS, $5.15, Market Cap: $297 million), a provider of IT services to clients and globally. Services include consulting and solutions, IT services, and business process outsourcing. The company is growing with its headcount increasing 27% to 17,702 in the third quarter compared to the same time in 2012. Broken done, 65.1% of the company’s global sales came from the Greater China area, 21.4% were from the U.S., Europe accounted for 7.3%, and Japan made up 5.8%.
Analysts expect iSoftStone to report revenue growth of 13.6% to $432.81 million in 2013, followed by 17.8% to $510.06 million … Read More
Fasten your seatbelt, dear reader. We’re in for a global financial crisis, a currency fiasco, and a stock market collapse all in the same year!
I’m being too bearish? Not after you read this…
In their search for economic growth in 2009, the Federal Reserve and other major central banks in the global economy started lowering interest rates and printing paper money.
While the central banks of the world wanted economic growth, they inadvertently created the “trade” for big investors like financial institutions and banks. I talked about this last Friday. (See “Stock Market: The Great Collapse Back to Reality Begins.”)
The “trade” had investors borrowing money from low interest rate countries and buying bonds in high interest rate countries, pocketing the spread. In the world of finance, this is often referred to as the “carry trade.” It works as long as the currencies of the low interest rate country and the higher interest rate country stay stable.
But now, the “trade” is backfiring as the currencies of emerging markets go into free fall.
China, the biggest economy in the emerging markets and second-biggest in the global economy, got most of the “trade” money. According to the Bank for International Settlements, in 2013, foreign currency loans and borrowing by Chinese companies from other countries was close to a trillion dollars. In 2009, it was only $270 billion. (Source: Telegraph, February 1, 2014.)
European banks have the biggest exposure to emerging markets, having lent them $3.0 trillion. Breaking down this number even further, British banks have loaned $518 billion to the emerging markets; Spanish banks come in second … Read More
February 4 was a terrible day for key stock indices. The S&P 500 and the Dow Jones Industrial Average plummeted by more than two percent each and broke below important support levels.
That day was also Janet Yellen’s first day on the job as chief of the most important central bank in the world.
Was Wall Street giving Yellen a message? Was that message, “Think twice before pulling back on money printing”?
While the severity of the sell-off in the stock market in January and into February of this year has caught many by surprise, to us, it was one more of those “I told you so” moments. And it should have been of no surprise to our readers at all, since we’ve been “singing the blues” of an overpriced and overbought market for months.
Here are four important points my readers need to know about the stock market:
Looking at the bottom of the chart below, you will clearly see an increase in stock market trading volume. As the stock market went down in January and into February, volume increased. When volume rises sharply during a stock market downturn, it means panic selling is setting in. February 4, 2014, was the highest volume day on the Dow Jones Industrial Average in about five months.
Chart courtesy of www.StockCharts.com
Secondly, the Dow Jones Industrial Average has fallen below its 200-day and 50-day moving averages, as I’ve circled in the chart above. This move is considered bearish among technical analysts and suggests stock market sentiment is turning negative very quickly.
Thirdly, insiders continue to aggressively dump the stocks of the companies … Read More
Copper prices are collapsing, a sign that manufacturing activity in the global economy is slowing.
The chart below shows copper prices are down more than five percent so far this year. Notice the steep decline in copper prices starting this January.
Copper is a major commodity used as a material ingredient in a wide variety of manufactured goods. If copper prices are declining, which means demand is falling, we get an early indication that manufacturers are producing less because customer demand is soft.
At the same time, in another startling development, the Baltic Dry Index (BDI), the next chart below, has collapsed 50% from the beginning of the year.
Chart courtesy of www.StockCharts.com
The BDI basically tracks shipping prices of raw materials in the global economy. When the BDI declines, it means fewer goods are being shipped in the global economy, a sign that the worldwide economy is slowing.
Chart courtesy of www.StockCharts.com
Last but not least, as we have been hearing in the news, the emerging markets in the global economy are in trouble.
Manufacturers in the global economy, not being able to sell enough to developed countries like the U.S. and Europe, were hoping to sell more of their goods to once “fast”-growing emerging markets. But now, economic growth in these countries is slowing, too.
Russia, one of the major emerging markets in the global economy, reported its 2013 economic growth rate was the lowest since 2009! The Russian Federal Statistics Service said the economy grew by 1.3% in 2013 compared to 3.4% in 2012. (Source: Bloomberg, January 31, 2014.)
Other emerging markets like India and China have … Read More
“The trade” was very easy to do not long ago. Anyone with the basic knowledge of how money flows could have done it and profited.
Of course, I’m talking about the Federal Reserve “trade.” The investment strategy was straightforward: borrow money at low interest rates in the U.S., then invest the money for higher returns in emerging markets and bank the difference. If you could borrow money at three percent per annum in the U.S. and invest it for a six-percent return in emerging markets like India, why wouldn’t you?
The “trade” created a rush to emerging markets. And if you didn’t like the emerging markets, you could have invested in the stock market right here in the good old U.S.A. Again, borrowing money at a low rate to buy stocks from companies that were buying back their own stocks at the same time the Fed flooded the system with cold hard cash…how could you go wrong? (No wonder the rich got richer during the Fed’s quantitative easing programs.)
But, as I have written so many times, parties can only last for so long. Eventually, someone takes away the punch bowl. And from the looks of it, the Federal Reserve has pulled its own punch bowl.
In its statement yesterday after its two-day meeting, the Federal Reserve said, “…the Committee (has) decided to make a further measured reduction in the pace of its asset purchases…” (Source: Federal Reserve, January 29, 2014.)
In summary, the Federal Reserve will be buying $65.0 billion worth of bonds in February following its reduced $75.0 billion in purchases in January following its $85.0 billion-a-month bond … Read More
The stock market looks like it’s in big trouble. This shouldn’t be a surprise to my readers; I have predicting this event for months.
So far in 2014, and we are only three weeks into it, the Dow Jones Industrial Average has shed 709 points (4.3%). But I think the explosions for 2014 are just getting started.
History has proven that whenever investor optimism increases, and there’s a general sense of security in the stock market, the market unexpectedly comes crashing down.
Investors and stock advisors just got way too confident and optimistic about the stock market. Since the S&P 500 rose about 30% in 2013, the general consensus was that the rise in stock prices would continue into 2014.
But here’s the reality of the situation…
In 2013, S&P 500 companies posted their slowest earnings growth since 2009. By the end of last year, the number of companies issuing negative corporate earnings guidance for their next quarter reached the highest ever recorded. (Source: FactSet, January 2, 2014.)
The Chicago Board Options Exchange (CBOE) Market Volatility Index (VIX), better known as the “Fear Index,” has reached a six-year low. The VIX is telling us that investors are as confident today (have less fear about stock prices declining) as they were in 2007. Well, we all know what happened after 2007.
The “January indicator” says that if the stock market falls in January, it usually falls for the remainder of the year. So far, January has been a disaster for stocks.
2013 was a record year for stock buybacks, a financial engineering exercise that props up per-share earnings.
And the amount … Read More
You can tell from the activity and the lack of direction in the stock market that the much-anticipated fourth-quarter earnings season has, yet again, been another letdown.
Now I’m not saying the early results this earnings season have been that bad; it’s just that the numbers from corporate America have not been that great.
And with just four days remaining in January, the NASDAQ and Russell 2000 are slightly positive, while the Dow Jones Industrial Average and the S&P 500 are in the red. This creates some anxiety.
As many of you know, I have discussed my views on earnings and, more particularly, the revenue side. I don’t really care that companies beat earnings-per-share (EPS) estimates as many of these so-called sell-side estimates from Wall Street have been adjusted downwards to meet the lower expectations over the past few years.
It’s akin to analysts doing whatever they can to make sure companies can meet lower targets instead of demanding that companies deliver.
So far, the early numbers this earnings season suggest it’s more of the same—and perhaps slightly worse.
Of the 53 S&P 500 companies that have reported so far this earnings season, a mere 57% have managed to beat the mean average based on research from FactSet. (Source: “Earnings Insight,” FactSet, January 17, 2014.) And of the 101 companies that have offered guidance, a staggering 96 companies offered negative EPS guidance, while just 15 companies were positive in their assessment.
Folks, this is not good, considering that Wall Street has already been manipulating estimates. Plus, only 58% of these companies have beaten the mean sales estimates. Again, not good…. Read More
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