Posts Tagged ‘economic news’
Can you believe the mainstream headlines these days? I’m reading about the Dow Jones Industrial Average going to 19,000… I’m reading that stocks are rising because the amount of stocks for investors to buy has diminished…
It’s all rubbish!
The chart below of the Dow Jones Industrial Average breaking above 16,000 makes it look like people just woke up the morning of November 18 and said, “I need to rush out and buy stocks today!”
In my opinion, we are looking at the biggest bear market trap we’ve ever seen. The year 2008 is a distant memory. The notion of fear of “missing out” is back.
Investors are pouring billions into stocks…
Chart courtesy of www.StockCharts.com
According to the Investment Company Institute, long-term U.S. equity mutual funds had a net inflow of $5.4 billion for the week ended November 6. In the prior week, which ended on October 30, investors bought $4.2 billion worth of long-term U.S. equity mutual funds. (Source: Investment Company Institute, November 13, 2013.)
As investors are pouring back into stocks, the fundamentals that drive the key stock indices are dissipating. Each day, we hear weak economic news, which suggests key stock indices are moving beyond reality. And the disparity between the performance of key stock indices and the most basic fundamentals continues to grow.
Corporate earnings of companies in key stock indices are very weak. The corporate earnings “surprise” rate (this is the rate that shows how much higher or lower corporate earnings were registered) came in at 1.8% in the third quarter—far below the four-year average of 6.5%.
S&P 500 companies posted an increase in … Read More
Everything in capital markets is basically on hold until there is certainty regarding monetary policy and the prospects of a reduction in quantitative easing (QE).
The stock market reaction to the Federal Reserve’s last monetary policy statement wasn’t good, and there was seemingly a misinterpretation by institutional investors as to what the central bank’s actual intentions were for reducing QE. But stocks recovered, and the equity market remains resilient.
Over the last several months, equities actually sold off on good news. This is the market’s counterintuitive reasoning: better economic news increases the likelihood that monetary policy will be tightened, so investors sell off.
But the economic news I’m reading lately isn’t that robust. In fact many key statistics are coming in well below Wall Street consensus.
But capital markets aren’t as interested; it’s all about monetary policy and then the upcoming earnings season—certainty from the Fed first, then certainty from corporations.
I repeat my view that there isn’t a lot of new action to take, particularly in equities. The stock market is right at its high; it hasn’t really had a meaningful correction in ages and is very much due for a break.
In terms of portfolio strategy, I’m still a big fan of dividend-paying blue chips, peppered with a few aggressive positions. The healthiest part of the stock market remains well-capitalized large corporations that have more cash than they know what to do with. The prospects for increasing dividends in 2014 are robust. (See “Why I Like This Blue Chip So Much [55th Dividend Increase Just Announced].”)
In terms of monetary policy, we know that … Read More
Geopolitical events are overtaking the stock market’s near-term trading action, which was all about speculation over the Federal Reserve and what Chairman Ben Bernanke will do regarding quantitative easing.
Based on what transpires in Syria, the equity market is ripe for more declines; realistically, the stock market has been extremely lofty this year, considering the economic news and the prospects of reduced monetary stimulus.
Confirming the overly positive disposition of the stock market has been the performance of the NASDAQ Composite Index, which previously lagged behind the Dow Jones Industrial Average until it recently confirmed the market’s uptrend.
Over the last 12 months, the Russell 2000 index has been the strongest of the main stock market indices. This is a classic secular bull market indicator, but everything’s been turning downward this week.
Obviously, geopolitical events skew the certainty the capital markets crave. Second-quarter earnings season was underwhelming, with the exception of balance sheets, which continue to be top-notch for most Dow Jones components.
Looking at the equity market constructively, many of its leading blue chips were very strong until the beginning of August. Then speculation about the potential reduction in quantitative easing and monetary stimulus, in general, took the froth out of some of these leading positions, including Johnson & Johnson (JNJ) and PepsiCo, Inc. (PEP).
I repeat my view that there is very little action to take in this market, particularly as it pertains to long-term blue-chip investors. The stock market has come off a very large uptrend in a short period of time, and it’s been due for a full-blown, material correction for a number of months … Read More
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 … Read More
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