Posts Tagged ‘GDP’
How to Create a “Do-It-Yourself” Fund for Diversification
By George Leong, B.Comm. for Profit Confidential
The stock market has only one direction in mind and that’s up. I sense there’s froth building up. This current market action reminds me a bit of what happened in 1999, but the situation is different in that interest rates are at record lows, the Federal Reserve is providing liquidity, and the valuation of stocks is much more reasonable versus that of 1999.
My concern is how far the stock market can rise before we see a correction of any significant magnitude. Yet even with selling, it would be a buying opportunity, not a sign to exit.
The one key thing you need to make sure of is that your portfolio is diversified to withstand any major selling in a particular sector and market cap. Case in point: if you were heavily weighted in the precious metals, such as gold and silver, your portfolio would have been devastated by now.
This doesn’t mean you shouldn’t have any metals in your portfolio, but you need to have ample diversification, which is the key to success in the stock market.
If your assets are well diversified, it would be fine to play a possible upside bounce in gold. (Read “Is Gold’s Near-Beath Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be.”)
The reality is that it doesn’t matter if you are investing in real estate, gold, stocks, art, or classic cars; the prudent way to protect your assets is to make sure you are diversified in the stock market.
The concept of spreading the investment risk is portfolio management—a process that encompasses the creation, monitoring, and adjustment of … Read More
One Company, Two Vital Themes for Investors to Consider
By Mitchell Clark, B.Comm. for Profit Confidential
McCormick & Company, Incorporated (NYSE/MKC) offers two crucial stock market attributes that are important right now—stability and consistency.
This is why the company perfectly illustrates the dilemma investors are facing in this stock market. Is the company’s modest, but consistent growth in revenues and earnings worth the big run-up?
McCormick is the famous spice and seasoning manufacturer that’s been around since 1889. It’s a very solid business, but meaningful earnings growth for the company is elusive.
On the stock market, the company’s shares appreciated about 20 points over the last 12 months. The position just bounced off its all-time stock market high and has been running strong since its breakout at the end of 2011.
In the company’s first-quarter earnings report for fiscal year 2013, total sales grew three percent to $934 million. Earnings inched slightly higher to $76.0 million from $74.5 million. Management reaffirmed this year’s sales growth of between three and five percent with the expectation that demand from quick-service restaurants in the U.S. and China will improve.
The company’s 20-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
For such a mature business, McCormick has been a very solid stock market holding. The company’s earnings growth is modest, however, and its stock market strength is due to an expansion of valuation for consistency and stability.
Institutional investors have been buying the safest, most consistent names, including many blue chips; however, there can’t be a bull market unless stock market participation expands into more groups.
McCormick is a low-beta stock that has proven that it’s worth accumulating when it’s down.
The stock is pricey, compared to its … Read More
Already Fragile Economy Hit with Falling Retail Sales, Rising Business Inventories
By Michael Lombardi, MBA for Profit Confidential
Gross domestic product (GDP) in the U.S. economy mainly consists of consumer spending. Hence, the more consumers spend and buy, the better our economic conditions become. In 2012, consumer spending in the U.S. economy accounted for more than $11.1 trillion. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 12, 2013.)
Unfortunately, as we finish the first quarter of 2013, economic indicators are suggesting U.S. consumer spending is under severe pressure.
Retail sales in the U.S. economy just took a wrong turn and dropped 0.4% in March from February’s sales. Consumer spending at electronics and appliance stores, health and personal care stores, and general merchandise stores posted a negative growth compared to the same period in 2012. (Source: U.S. Census Bureau, April 12, 2013.)
Similarly, a key indicator of future consumer spending, the Thomson Reuters/University of Michigan’s preliminary consumer sentiment index declined to the lowest point in nine months in April. The preliminary consumer sentiment index registered at 72.3 in April, down from 78.6 in March. (Source: Reuters, April 12, 2013.) Remember: consumers turning pessimistic means a pullback in consumer spending.
At the other end of the equation, we see businesses in the U.S. economy increasing their inventories. According to the U.S. Census Bureau, manufacturing and trade inventories in February of this year edged up almost five percent from a year ago. (Source: U.S. Census Bureau, April 12, 2013.)
Businesses often build up inventories in anticipation of demand, but looking at consumer sentiment and retail sales, I highly doubt that’s the case. It’s actually the opposite; business inventories are increasing because of a lack of demand…. Read More
If Consumer Confidence Is an Indicator, Market Sell-Off Not Far Away
By Michael Lombardi, MBA for Profit Confidential
Once again, and I may be the only one saying this, as key stock indices like the S&P 500 and the Dow Jones Industrial Average reach new heights, I see more downside risk developing for the stock market. Economic fundamentals and the stock market are moving in opposite directions. Unfortunately, reality will hit key stock indices sooner than most think.
Take a look at the chart below. The red line represents the performance of the S&P 500 and the green line represents the change in the University of Michigan Consumer Sentiment Index—a gauge of consumer confidence.
Chart courtesy of www.StockCharts.com
The long-term chart of the S&P 500 and consumer confidence reveals something that mainstream economists never really talk about. If you observe closely, you will notice that whenever consumer confidence becomes stagnant, the S&P 500 rises; and whenever consumer confidence falls, a drop in the S&P 500 is not far behind. From 2002 to 2007, consumer confidence was flat. As a result, the S&P 500 rose and reached its all-time high, but as consumer confidence fell, a massive, broad stock market sell-off followed.
Notice in the chart above that, since 2009, consumer confidence has been stagnant.
Now the preliminary University of Michigan Consumer Sentiment Index shows a reading of 71.8 for March—the lowest consumer confidence level since December of 2011. In February, it stood at 77.6—a decline of almost 7.5% over a one-month period. (Source: Reuters, March 15, 2013.)
As I have written in these pages before, consumer confidence gives us an idea about consumer spending. When consumers feel less comfortable, they pull back on their spending. As a … Read More
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