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

Posts Tagged ‘Dow Jones Industrials’

The Only Way to Beat Rising Gasoline Prices

By for Profit Confidential

Beat Rising Gasoline PricesWith remarkable consistency, oil stocks continue to do great on the stock market. Even though spot oil seems to be stuck below $100.00 a barrel, gasoline prices have been going up for the last month, as U.S. refiners use January and February for maintenance shutdowns.

Any way you cut it, oil remains a huge part of our daily lives, and most oil stocks are trading at or very near their all-time record highs. I should qualify that—what I mean is that most big oil stocks are trading right at their highs. Even with the U.S. oil production boom (which is very real), smaller oil stocks just don’t go up in value unless the spot price is doing so as well.

I always love consistency in a stock market investment. Consistent growth in earnings, dividends, and share price is absolutely golden, considering the volatility we get in capital markets. Save for pumping from your own oil well, you can only beat rising gasoline prices by owning a part of the company, and the biggest ones offer some of the best consistency the stock market has to offer.

Consider Chevron Corporation (NYSE/CVX), which is one of the large, integrated oil stocks that are trading at their all-time record highs on the stock market. But the stock isn’t expensive, with a current price-to-earnings (P/E) ratio of 8.7. The company has about $11.00 a share in cash and a price-to-sales ratio of around one. Its long-term stock chart is below:

CVX Chevron corp stock market chart

Chart courtesy of www.StockCharts.com

Chevron is a member of the Dow Jones Industrials and has an outstanding track record of increasing its quarterly dividends … Read More

Large-Caps Shine as Dow Jones Industrial Average Toys with All-Time High

By for Profit Confidential

Industrial Average Toys with All-Time HighAny way you slice it, the Dow Jones Industrial Average had a great January—one of the best in years. Yet the stock market still isn’t trading all that well. In fact, I don’t really like the trading action at all. The market has kind of been ignoring news, both good and bad, and moving listlessly, without trend. If the uncertainty in the world, the U.S. economy, and Washington is reflected in the stock market, then I’d say it is clearly showing it. The Dow Jones Transportation Average experienced a very meaningful breakout, and the Russell 2000 index is at an all-time high; so higher share prices are probable for the near term. The big question is: will a rising market be sustainable?

Without question, I think equity investors need to be highly conservative going forward. Sure, there are lots of companies that are doing great on the stock market (many of which have been mentioned in our past articles), but no matter how you look at it, real economic growth is minimal. Furthermore, the stock market is basically trading right at its all-time high (except the NASDAQ, but technology stocks were way overdone anyway). The Dow Jones has led the other indices so far this year, and this blue-chip move is very positive. But realistically, I wouldn’t really be buying in this market.

The stock market and the Dow Jones have room to go higher in the near term, largely because of the Dow’s reasonable valuation. With artificially low interest rates still intact and the bull market in bonds coming to an end, it makes sense that fund flows for … Read More

U.S. Oil Gushing, Oil Stocks Getting Ready to Move

By for Profit Confidential

Oil Stocks Getting Ready to MoveThe stock market’s recent breakout has legs, and there’s more optimism for the economy and corporate earnings this year. The stock market had a very strong start to the year, with the Dow Jones Industrials leading the way. Transportation stocks have turned strong, and the NASDAQ Composite is moving solidly. Even the price of oil is slowly ticking higher—$100.00 oil is a near-term reality.

There is a renaissance taking place in the domestic U.S. oil and gas business, and there is a ton of money sloshing around in the system. Countless companies are drilling in Montana, North Dakota, and California, along with the traditional regions. There is a glut of natural gas on the market, and low prices are supplanting coal for electricity production. It won’t be long before the U.S. is actually energy independent, especially if natural gas is used in more applications (as T. Boone Pickens advocates). Plus, there’s a lot of oil and gas drilling going on outside of the U.S. market, and the big oil and gas services companies just reported great financial results.

On the stock market, resource investing is always cyclical. Even the fastest growth story (say, an oil producer with new discoveries and a verifiable production forecast) won’t move upward on the stock market without a commensurate move in oil prices. An oil producer not only has to find the commodity and get it to market; it also has to worry about the prices for that commodity, which are set by a marketplace beyond its control. It’s a different business from speculating among technology stocks, for example.

That being said, however, … Read More

Intel’s Share Price Says It All

By for Profit Confidential

Intel’s Share Price Says It AllThe Dow Jones Industrials gave up most of their gains this year in the recent stock market selloff; given current fundamentals, this market is oversold. Strife in the Middle East definitely affected investor sentiment last week, but the market is now betting that U.S. policymakers will address the fiscal cliff issue before the end of the year. Across the board, expectations among equity investors have come downward; this gives stocks the potential to outperform in the fourth-quarter earnings season.

During the third-quarter earnings season, we saw large-cap, international businesses impacted by economic weakness in the eurozone and China. Chinese economic data has improved in recent weeks, although like everything nowadays, you have to consider the numbers with a grain of salt. In order for this stock market to advance, it requires improvement on the part of the Chinese economy; it goes without saying that the eurozone will be in no-growth mode well into 2013.

The latest earnings season saw large-cap companies report very conservative outlooks for the rest of this year. Corporations also showed difficulty in growing revenues, while earnings themselves held constant. (See “Where’s The Good News? Companies Just Meeting Expectations.”) Stock market valuations, however, are very reasonable at this time, and this provides a floor to the recent selloff. Still, without earnings growth, the stock market won’t really be able to advance in a meaningful trend.

One company that’s really been hit hard over the last six months on the stock market is Intel Corporation (NASDAQ/INTC). After reporting that its earnings were affected by weakness in Europe and, to a lesser extent, strength in the tablet … Read More

S&P 500 up Against a Wall Following Slight Breakdown

By for Profit Confidential

Wall Following Slight BreakdownThe S&P 500 is up against a bit of a wall and has to convincingly break 1,465 again, which it achieved in mid-September, in order to accelerate. A lot of corporate earnings have been decent, but quite a few are reporting light visibility for the fourth quarter, and this is no surprise. The stock market peaked mid-September when the mini-rally, driven by a third round of quantitative easing (QE3), consolidated; it has now recovered. We’ve seen large, international companies report earnings or visibility below consensus due to very slow business conditions in the eurozone. Despite the S&P 500’s fair valuation, I think it’s going to be quite difficult for the main stock market averages to accelerate much further.

While Johnson & Johnson’s (NYSE/JNJ) earnings were good and the company’s share price helped the Dow Jones Industrials, earnings results for International Business Machines Corporation (NYSE/IBM) had the opposite effect. This former stock market leader broke down significantly, as you can see in the stock chart for International Business Machines (IBM) below:

 International Business Machines Chart

Chart courtesy of www.StockCharts.com

Expectations were already lowered for third-quarter earnings season. My reading of current corporate results is that blue chip companies are now running out of cost-cutting options to keep their earnings afloat. The likelihood of corporations being able to accelerate their earnings going into 2013 is very low, considering business conditions in the eurozone and declining economic growth in China, which is now the world’s second-largest economy.

The “AGA” stocks, which include Apple Inc. (NASDAQ/AAPL), Google Inc. (NASDAQ/GOOG), and Amazon.com, Inc. (NASDAQ/AMZN), have all retreated from their recent 52-week highs. Amazon.com recently hit $264.00 a share; now … Read More

No Wonder This Stock Market Index Outperformed

By for Profit Confidential

Wonder This Stock Market Index OutperformedAutomatic Data Processing, Inc. (NASDAQ/ADP) is one of those blue chips that have a good thing going with their private sector U.S. jobs reports. The stock market moves on the news, and so does Automatic Data Processing (ADP). According to ADP’s National Employment Report, the nonfarm private sector added 162,000 jobs from August to September on a seasonally adjusted basis. Manufacturing added 4,000 new jobs, while construction added 10,000, the strongest showing since March (which had a boost in construction jobs due to mild winter weather). The financial services sector added 7,000 jobs in September, representing the 14th consecutive monthly gain. The vast majority of new employment growth was from small and medium-sized businesses.

ADP is another one of those blue chips that is trading right at its 52-week high on the stock market and boasts a current dividend yield of just under three percent. The stock is about nine points away from its all-time high set in September of 2000 and has done well since the financial crisis of 2008/2009 on consistently lower trading volume. ADP’s stock chart is featured below:

Automatic Data Processing Chart

Chart courtesy of www.StockCharts.com

ADP belongs to the NASDAQ-100 Index, which is full of many stock market blue chips, both domestic and international, which are non-financial companies trading on the NASDAQ. Weighted by market capitalization, this index has significantly outperformed all other blue chip averages, including the Dow Jones Industrials, S&P 500, and even the NASDAQ Composite over the last several years.

It’s no wonder this stock market index has outperformed; it’s full of all kinds of growth companies and blue chips that have appreciated tremendously. Below is … Read More

Dow Jones Industrials Shine as Market Awaits FOMC

By for Profit Confidential

Dow Jones Industrials Shine as Market Awaits FOMCEven though the Dow Jones Industrials just hit their best level since 2007, the Dow Jones Transportation Index began to appreciate with the other major indices only in the last week—and this is with buoyant oil prices. It all leads me to believe that the stock market is technically overbought and almost a little ahead of economic fundamentals. (See “Stock Market Investor Sentiment Drops Again…Why?”)

However, I can’t argue with the momentum in the Dow Jones Industrials. Institutional investors continue to snap up dividend paying blue chips with fervor. There are two things the stock market needs for this mini bull market to continue until the end of the year: one, large-cap technology benchmark stocks must not break down; and two, the Dow Jones Transportation Index has to make up some lost ground. The risk of a stock market correction rises significantly if any of these two factors don’t occur.

With the Federal Open Market Committee (FOMC) meeting upon us, anything could happen with the stock market. We’ve seen the Dow Jones Industrials, the NASDAQ Composite, and the S&P 500 Index move strongly higher in anticipation of new stimulus from the FOMC; and most often, the stock market sells on the news. But things are a little wacky this year, and even though I think the stock market is in the process of topping out, a third round of quantitative easing (QE3) could send shares soaring anyway. It’s all because the stock market isn’t expensively priced and investors have no other place to put their money to beat the rate of inflation. Dividends are the only game in … Read More

Stock Market on the Verge of a New Trend

By for Profit Confidential

Stock Market on the Verge of a New TrendThe stock market is on the third leg of a repeating pattern that began about three years ago. The spectacular stock market decline that began in 2008 hit a bottom in March 2009, and then promptly recovered. July 2009 saw a significant recovery in share prices, followed by a rising trend that lasted until April 2010. The pattern then repeated itself the next year and looks to be in the process of repeating a third time.

This stock market action is evident in all the major indices, including the S&P 500 Index, the NASDAQ Composite, and the Dow Jones Industrials. In the 2009 and 2010 price trend, the Dow Jones Transportation Index led the Dow Jones Industrials. Its performance over the Dow Jones Industrials was more pronounced then. But not anymore; the Dow Jones Transportation Index is losing its leadership trend and this, combined with generally low trading volume, leads me to suspect that the stock market is in the process of topping out.

When will the top happen? That’s total guesswork and unanswerable. But there’s a lot of change coming in the world, both politically and financially. Sovereign debt in most of the world’s mature economies (including the U.S.) will have to be addressed in 2013. With higher interest rates, capital markets have already begun to force these economies to address their debt. And the coming austerity measures will put the brakes on growth, because for the most part, government spending is a big part of economic activity.

With this fundamental backdrop, it makes a difficult case for being bullish on the stock market, and perhaps this is … Read More

Dow Jones Transportation Index Still Diverging From Broader Market; What It Means

By for Profit Confidential

Dow Jones Transportation Index Still DivergingTrading volume on the stock market is lethargic, even for the traditionally slow summertime period. All eyes will be on Ben Bernanke this Friday, and the main stock market indices won’t move much until then. (See “Broader Market to Consolidate—No More Upside Without the Fed.”)

The significant divergence that has built up between the S&P 500 Index and the Dow Jones Transportation Index remains, and to me, it represents non-confirmation of the stock market’s most recent rally. Naturally, the divergence is most pronounced between the NASDAQ and the Dow Jones Transportation Index, followed by the S&P 500 Index and the Dow Jones Industrials. It became apparent mid-July, when oil prices recovered from their recent correction. But I think the divergence is due to more than just higher oil prices; I think it’s emblematic of a stock market that’s losing its momentum.

Already this year, the Dow Jones Industrials, the S&P 500 Index, and the NASDAQ Composite are up substantially, and this doesn’t include dividends. Average trading volume for the Dow Jones Industrial Average has been declining over the last several years; the performance of this index has repeated itself three times since its low in March of 2009. I get a real sense among stock market investors that things are coming to a head on the economy, Wall Street, and the political landscape. It’s a very tough environment in which to make predictions about the stock market. There are just too many unknowns out there, and that’s why so many dividend paying stocks, like those in the Dow Jones Industrials, have done well this year. All the … Read More

Dow Jones Industrials Looking Good, But Transportation Leadership Has Vanished

By for Profit Confidential

Dow Jones Industrials Looking GoodStock market breadth isn’t that strong, and what’s worrisome from my perspective is the non-confirmation from the Dow Jones Transportation Index. One stock market leader that I always follow is Union Pacific Corporation (NYSE/UNP), which is a railroad stock that just hit an all-time record high on the stock market of $126.91 per share. This is one component of the Dow Jones Transportation Index that’s doing great, but a lot of companies within the index haven’t participated in the recent rally, and it’s a real divergence.

Of course, oil prices reversed their earlier trend and recovered significantly from below $85.00 a barrel. Certainly, this would be a drag on the index. But the Dow Jones Transportation Index has mostly led the Dow Jones Industrials and the S&P 500 Index since the stock market low in March of 2009, so the divergence is a red flag as far as I’m concerned.

A lot of institutional investors are not behind the recent stock market breakout, citing less than inspiring economic fundamentals and a mediocre technical picture. But for all the analysts now calling for investors to sell their equities, the stock market remains fairly priced, given the earnings outlook. Fundamentally, there’s nothing wrong with the Dow Jones and the other benchmark indices at their current levels.

Stocks that have been breaking down in the Dow Jones Transportation Index include J.B. Hunt Transport Services, Inc. (NASDAQ/JBHT), United Parcel Service, Inc. (NYSE/UPS), and Landstar System, Inc. (NASDAQ/LSTR) to name a few. (See “Why Getting the Business Cycle Right Is the Only Thing That Pays.”) It very well could be the oil … Read More

Why You Shouldn’t Be Fooled by the Market

By for Profit Confidential

Why You Shouldn’t Be Fooled by the MarketFollowing a weak second quarter, the Dow Jones Industrial and S&P 500 indices are now in positive territory for the first time since the end of the first quarter on the backs of a positive July and August.

So far, August has proven strong for technology, growth, and small-cap stocks, with the NASDAQ and Russell 2000 up 4.2% and 3.4%, respectively, as of the close of Thursday. The S&P 500 is holding at 1,400, a level that I believe will be tough to hold. Every time I look at the long-term technical picture of the S&P 500, I’m concerned about the vulnerability. Since 2000, there have been two major tops at above 1,400, and the current bull market rally from March 2009 appears to be heading for a third top.

What I continue to see is an expectation-driven buying based on a best case scenario that includes a third round of quantitative easing (QE3) from the Federal Reserve, the saving of the eurozone, and strengthening in the U.S. economy. And then you have the uncertainty of the upcoming presidential election.

Yet the reality is that Europe remains in a financial mess, with six eurozone countries in a recession and straddled with major debt and growth issues. Britain is also in a recession. Germany, the largest and strongest economy in the eurozone, is showing positive signs, but the problem will be the country’s focus and distraction in helping to save the eurozone. German Chancellor Merkel appears to be backing the desire of European Central Bank (ECB) to keep the eurozone together, but so far, we have yet to see any concrete … Read More

Dow Jones Transportation Index Signals Trouble Ahead

By for Profit Confidential

Dow Jones Transportation IndexIt is summertime, and you expect the trading action in the stock market to be subdued, but there’s a big divergence taking place, and it isn’t good. The Dow Jones Transportation Index is not confirming the primary trend of the Dow Jones Industrials or the S&P 500 Index. The divergence started in mid-July and follows a stock market with lackluster trading volume and poor breadth.

The Dow Jones Transportation Index reflects current fundamentals, more so than the other stock market averages, which have been going up on the hope for new action from the Federal Reserve. This is why I think the stock market is in the process of topping out. Unless we get a big boost inU.S. economic news or new monetary stimulus from the Fed, I don’t see how the stock market can advance further.

Since the beginning of June, the Dow Jones Industrials, the NASDAQ Composite, and the S&P 500 Index have all done well, albeit on low trading volume. But the divergence with the Dow Jones Transportation Index really bothers me, because many of the large-cap companies that make up the Dow Jones Transportation Index have been excellent stock market leaders for some time now. (See “The Top Stocks Making Money in This Market Right Now.”) If the divergence continues, this will be a bad technical signal.

With the Dow Jones Industrials over 13,000 and the S&P 500 Index at 1,400, I’d have to say that the stock market is fairly but fully valued. Corporate earnings have been exceptionally good, considering all the turmoil in the global economy, and it is difficult to see … Read More

Corporate Profits Meeting Expectations— Stock Market Action Positive

By for Profit Confidential

Corporate Profits Meeting ExpectationsThe stock market is ticking higher in the face of continued weak economic news, and it’s mostly due to the good corporate profits we’re getting. For the most part, we’re so far seeing good corporate profits, because expectations were already reduced. Some companies are slightly reducing their outlooks for the rest of this year, but the declining visibility is modest. Corporations are being extremely conservative with their forecasts and rightly so. It makes it easier not to disappoint.

Corporate profits are mostly expected to be flat compared to last year. This makes dividend income all the more important. If you look at a number of blue chip, dividend paying stocks in this stock market, you’ll notice that many of them are actually trading right at their 52-week highs. While expectations for corporate profits continue to be very modest, institutional investors keep buying the dividends. It’s the only way to beat the inflation rate and the probability that the stock market will return little, if any, capital gains going forward.

I expect the U.S. economy will toy with a technical recession next year. I also expect that returns from the main stock market averages will be low, but that corporate profits will hold up well. One or two more years of difficulty will set the stage for the next business cycle to begin.

Intel Corporation (NASDAQ/INTC) slightly beat the Street for the second quarter, but revised its third-quarter outlook for corporate profits downward. The company warned that business conditions in the U.S. and particularly Europe are getting worse. This is no surprise, and due to its fair valuation, this is likely … Read More

Don’t Expect Much from Second-quarter Earnings

By for Profit Confidential

Second Quarter EarningsAlcoa, Inc. (NYSE/AA) will be the first Dow Jones Industrials stock to report in the second-quarter earnings season, as it kicks off with its results on July 9. The company is one of the world’s top aluminum makers and a good indicator for the global economy, as the metal is used in many industrial applications, including aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, and consumer electronics. In the first quarter, Alcoa had Wall Street rejoicing after surprising on the upside and raising its global revenue guidance to seven percent for 2012. That was then. So far, based on the stagnant stock price and decline from the $10.00 level, the results may not be that good for the second-quarter earnings season, leaving traders nervous.

While there is hope and optimism for the second-quarter earnings season, I expect disappointment, but I could be proven wrong as companies report.

Based on the current estimates, earnings growth for the S&P 500 is estimated to be a decent 6.5% in the second quarter, down from a much more optimistic 9.2% as at April 1, according to Thomson Reuters. In the first-quarter earnings season, 67% of the S&P 500 companies beat estimates, which was a decline from the fourth-quarter earnings season.

The three top-performing earnings growth areas in the first-quarter earnings season were Industrials (+17.6%), Technology (+14.7%), and Financials (+13.6%). I still believe technology will remain one of the top areas to make money going forward, but boring dividend paying stocks also look attractive at this time, as I discussed in “Why the Pros Are Dumping Tech Stocks in Read More

Lack of Monetary Stimulus Disappointing? There’ll Be More…When the Eurozone Crisis Worsens

By for Profit Confidential

Eurozone Crisis WorsensWe have a week remaining in June, and so far, the month has turned in better stock market results after a disastrous May. The key stock indices are over three percent this month but remain negative since the end of the blistering first quarter. The NASDAQ, S&P 500, and Russell 2000 joined the Dow Jones Industrials in rallying back above their respective 50-day moving averages (MA).

The near-term technical picture is neutral to moderately bullish given the break of the 50-day MA on above-average relative strength, but there could be some near-term selling pressure, given the overbought technical condition and the failure to hold gains, based on my market view.

As has been the case in the recent months, my market view is that any upside gains may not be sustainable. Trading continues to be news-driven, and there are plenty of unknowns in Europe, China, and the U.S, according to my market view.

Greece managed to elect a coalition government to accept the austerity measures, but the country is clearly seeking some leeway on the measures. I don’t think Germany is amused.

Spain has surging bond yields. The country’s 10-year bond yield is over seven percent. In my market view, this is a red flag and a dire situation if the Spanish banking system does not get help. Over $130 billion is required as an infusion into the system, but then this is only a bandage solution, according to my market view, as I believe there are major structural issues in not only Spain but Europe as well. Italian yields are also at over six percent as the country … Read More

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