Posts Tagged ‘inflation rate’
Why You Shouldn’t Be Fooled by the Market
By George Leong, B.Comm. for Profit Confidential
Following 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
Corporate Profits Meeting Expectations— Stock Market Action Positive
By Mitchell Clark, B.Comm. for Profit Confidential
The 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 … Read More
Dividends Income: From Bubbles to Crashes, It Always Wins in the End
By Mitchell Clark, B.Comm. for Profit Confidential
In recent history, without dividends, stock market investors would generally be losing money. And this doesn’t include losses relative to the inflation rate. It’s been such a difficult stock market for the last decade, and the extreme volatility serves to illustrate just how risky equity securities can be.
In the 80s and the 90s, the best bet in town was the technology sector. The bull market was so strong that you didn’t need to bother with individual stock picks; you could have just invested in the NASDAQ Composite and done well. Dividend paying stocks were less valuable during those years because the bull market was so strong that the probability of capital gains far outweighed the certainty of dividends income.
It took about five years for the stock market to fix itself after the technology bubble burst. Then we experienced another mini-bull market, tied to low interest rates and big money being made in real estate. Always during a bull market, dividends income is less attractive. As we know, the bubble burst in real estate, and it almost brought down the global financial system.
We’re in a period now where the stock market is trying to fix itself once again after two over-leveraged bull markets collapsed. Since 2009, the best bet in the stock market has been (and continues to be) blue chip, dividend paying stocks. Just pull up a stock chart on International Business Machines Corporation (NYSE/IBM). In the age of artificially low interest rates, high sovereign debt, austerity measures, and slow economic growth, dividends income is now the most attractive asset out there. In my … Read More
Stock Market Action Has Turned Positive and So Have the Prospects for Gold
By Mitchell Clark, B.Comm. for Profit Confidential
The stock market is behaving extremely well considering the huge amount of investment risk in the global marketplace. There is, however, no other place for investors to put their money and be able to generate income (dividends) that beats the inflation rate. All assets are risky: real estate, gold, the stock market and even cash. Investor sentiment is all over the map these days and it’s the new reality in a slow growth environment.
I wrote previously about the Federal Reserve’s potential for new policy action, and while it’s total guesswork, I repeat my view that some new monetary policy action would not be a surprise. (See The Stock Market and Investor Sentiment Tank—QE3 Anyone?) It is an election year and the economic news of late hasn’t been inspiring. I think the stock market is now betting on this, and this speculation is contributing to stronger spot prices for gold.
The price of gold is looking really good in my view, and I think it won’t be long before we break $1,700 an ounce. I’ve been looking at a lot of gold stocks lately, and the stock market has come back to this speculative sector. Trading action in many small- and mid-tier gold stocks has been robust over the last couple of weeks.
With the same fervor that gold stocks have had going up, oil stocks have hit hard with the spot price below $85.00 a barrel. That’s the thing you always have to deal with when you’re speculating in resource stocks; you have the operational business risk and the commodity price risk. Even if business … Read More
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