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

Posts Tagged ‘jobs growth’

My Top Investment Strategy for a Stalling Stock Market

By for Profit Confidential

How to Guarantee a Selling Price for Your StockThe current stock market sentiment is bullish and based on the charts, there are indications that the market wants to go higher, especially technology and small-cap stocks.

The S&P 500 is eyeing another record-high and it may just reach it by the time you read this.

While stock market investor sentiment continues to display bullish new highs and new lows, there’s also a sense that the road to higher gains will not be an easy path.

The economic renewal is maintaining a muted pace, in part due to the harsh winter conditions, but what if the economy was actually showing signs of slowing?

Jobs growth in February improved over January, but the jobs market still has not reached a level of self-sufficiency without continued help from the Federal Reserve via low interest rates.

What I expect, after looking at the stock market indices, is that we will likely see new records broken on the horizon. (Read “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”) However, the advance will be more hesitant than in 2013 and the past years, since the current bull market is into its fifth year and is very much absent of a major stock market correction, based on my technical analysis.

Given this, I’m somewhat nervous, but there are alternative investment strategies you can consider at this time.

If you feel the stock market may pause and trade in a sideways range through the spring and summer months, you may look at writing covered call options on some or all of your existing long positions that have associated options…. Read More

Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months

By for Profit Confidential

S&P 500 at 2,000 and Buying Opportunity on the WayIt’s amazing how the stock market can easily reverse course from bad to good and vice versa. When the threat of Russia invading Crimea picked up, the stock market retrenched; but it didn’t last long, as the subsequent withdrawal of Russian troops led to a stock market in the following days that drove the S&P 500 to yet another record-high and the NASDAQ to its highest point in 14 years. Now whispers of 5,000 are being heard. (Read “Where to Find the Best Buying Opportunity in This Stock Market Going Forward.”)

As I said in a previous column, the retrenchment in the stock market presented a buying opportunity; although, it’s too bad the selling didn’t last longer.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) continues to hover in the mid-teens, where it was throughout the majority of 2013 when the stock market boomed. The current relatively low reading in the VIX suggests the stock market will likely head higher, which means investors should stay put and add on weakness.

A look at the S&P 500 shows a likely break at 1,900 this week if the bulls can hold on, and it will just be a matter of time before we see the index take a run at 2,000, which I surmise could happen sometime in the second half of the year; however, it could occur in the next couple months, if the bulls decide to drive the buying and if the economic renewal continues worldwide. A move to 2,000 would represent only a 6.38% advance from the prevailing level at around 1,880 as of last Friday. … Read More

The Opportunity Coming to the Luxury Retail Stocks

By for Profit Confidential

The Pros and Cons I See in the Retail Sector Right NowWe all know how bad this winter has been so far. The harsh weather across the majority of the country has impacted jobs growth, commerce, housing, and consumer spending.

Of course, with the spring season on the horizon, we’ll soon see if the weak economic metrics mentioned were really an aberration due to the weather—or a sign of further slowing to come.

From what I can tell right now, we are definitely seeing some growth issues in the retail sector that have been attributed to the winter weather. The Home Depot, Inc. (NYSE/HD) reported a somewhat flat quarter, as did Lowes Companies, Inc. (NYSE/LOW). However, I understand why they’ve reported flat numbers—it’s winter; who wants to renovate or build when it’s so cold outside?

Bellwether Wal-Mart Stores, Inc. (NYSE/WMT) is also struggling to attract consumers to its doors. The global retailer delivered flat sales and earnings growth in its fiscal 2014; revenues grew a mere 1.6%, while earnings growth was not much better at an even two percent. Clearly, we are seeing some hesitancy in consumer spending and the retail sector.

The winter-related turmoil is not confined to just one area, though; it has impacted many retailers. However, the luxury side appears to be faring well, with excellent growth still at Michael Kors Holdings Limited (NYSE/KORS). This luxury retailer is providing staggering growth despite the sluggish retail sector. (Read “Stock Falling, but Rich Still Spending; My Top Luxury Stock Play.”) Clearly, the more affluent part of the masses continues to do very well, especially with the continued advance in the stock market, which has produced many new millionaires…. Read More

Investment Opportunities Left in Housing After Weak January Sales?

By for Profit Confidential

Housing Market Area with the Best Investment OpportunitiesThe harsh winter conditions have negatively impacted the housing market, but the underlying long-term fundamentals appear to be in place and have not worsened.

If the economic renewal continues, my sense is that the housing market will strengthen as we move along this year, which means continued opportunities in the housing market—but where?

While we were straddled with soft housing starts (-16%) and building permits (-5.4%) in January, homebuilders continue to report good growth and order backlogs. With the continued historically low interest rates, the housing market has been able to grow.

Other than the homebuilders, I like the area of home construction and renovation supplies. While January existing-home sales were down slightly from December, homeowners seem to be spending more on renovating the homes they already bought.

In my opinion, the “Best of Breed” in the building suppliers space is The Home Depot, Inc. (NYSE/HD), which beat earnings-per-share (EPS) estimates in its fourth-quarter earnings season but fell slightly short on revenues. On the plus-side, The Home Depot saw a 4.4% rise on companywide same-store sales in the fourth quarter, including a 4.9% year-over-year rise in the U.S. housing market. Those are pretty good metrics, despite some stalling in the housing market. And while I continue to rate The Home Depot as the top in its class, its market cap of more than $110 billion is huge.

What I suggest you do in the housing market regarding the construction and renovation suppliers is to take a look at small-cap Builders FirstSource, Inc. (NASDAQ/BLDR), which operates out of Dallas, Texas and has a much more manageable market cap of $838 … Read More

Why the Winter Storm Is Skewing More Than Jobs Growth

By for Profit Confidential

Winter Storm Skewing More Than Jobs GrowthOld Man Winter appears to be killing the retail sector and the economic renewal. Extreme cold and nasty weather has engulfed about 70% of the country, reaching as far south as Georgia, North Carolina, and Texas, which don’t traditionally experience winter weather.

All that nasty weather means less driving to the malls and shops, which, judging by the numbers, appears to have been the case over the last two months. And if consumers don’t spend, the retail sector hurts and this translates into softer gross domestic product (GDP) growth.

Retail sales contracted by 0.4% in January, which represented the second straight month of declines following a revised contraction of 0.1% in December, according to the U.S. Department of Commerce. The poor showings were attributed to the weather.

With consumers staying at home, we are hearing whispers that fourth-quarter GDP growth could be revised downward from its initial 3.2%.

And while it’s too early to call for the economy to weaken, continued bad weather could mean just that. Now there are, of course, other reasons for the lackluster retail sector metrics.

There’s still a sense that the jobs market continues to be fragile following the creation of a mere 74,000 jobs in December that was blamed on the weather. Yet January was only marginally better with the creation of 113,000 jobs, which was well below the 185,000 estimate.

The jobs numbers are horrible, and unless they start to improve, I expect consumers to continue to feel hesitant about spending in the retail sector.

As I wrote in a previous commentary, investing in the retail sector will be much more difficult this … Read More

Why I’m So Cautious About 2014

By for Profit Confidential

170114_PC_lombardiDon’t for a second believe consumer spending in the U.S. economy is improving!

J. C. Penney Company, Inc. (NYSE/JCP) has announced it will be closing 33 stores in the U.S. economy. By doing this, the retailer will save about $65.0 million a year starting in 2014. 2,000 employees will be let go. (Source: J. C. Penney Company, Inc., January 15, 2014.)

Macy’s, Inc. (NYSE/M) is also closing stores.

Best Buy Co., Inc. (NYSE/ BBY) reported that for the nine-week period ended January 4, its comparable sales declined 0.8% from the same period a year ago. The CEO of the company, Hubert Joly, said, “…our holiday revenues were negatively impacted by a number of factors, including: (1) the aggressive promotional activity in the retail industry during the holiday period; (2) supply constraints for key products; (3) significant store traffic declines between “Power Week” and Christmas; and (4) a disappointing mobile phone market.” (Source: “Best Buy Announces Holiday Revenue Results,” Best Buy Co., Inc., January 16, 2014.)

Target Corporation (NYSE/TGT) is another retailer that’s been hurt by dismal consumer spending in the U.S. economy. The company expects a decline of 2.5% in its fourth-quarter comparable sales. Target has also lowered its corporate earnings guidance for the fourth quarter; it now expects to report earnings of between $1.20 and $1.30 per share. Previously, it stated its corporate earnings in the fourth quarter would be between $1.50 and $1.60 a share. The company also plans to close eight stores in the U.S. economy. (Source: Target Corporation, January 10, 2014.)

Each day, it is becoming more evident that consumer spending, which makes up about two-thirds … Read More

Stock Market’s Dependence on Easy Money Weakening?

By for Profit Confidential

Why a Storm May Be Brewing in the Stock MarketThere’s a significant cold spell out there in the Mid-East and Northeastern parts of the country. At the same time, the stock market has cooled down a little, beginning the year on a cautious note.

I recently discussed my views for the stock market going forward and while it’s early on, the ability to move higher will largely depend on the economic renewal and its impact on what the Federal Reserve does. New Fed Chair Janet Yellen will be the focal point as Ben Bernanke departs.

Yellen will receive her first piece of key economic data this Friday when the non-farm jobs report for December is due. A decline in the unemployment rate to below seven percent and the creation of 200,000-plus jobs will clearly drive the Fed to seriously continue to taper. What happens to the stock market this year will be dictated by the rate of jobs growth and the number of unemployed.

We also need to see corporate America deliver stronger revenue growth to drive earnings. In the past few years, aggressive cost cuts have driven earnings, which is not sustainable.

If the tapering continues, bond yields will continue to rise to levels that will be difficult for stock market investors to ignore. Look for an initial break at the three-percent level for the 10-year bond to gauge its impact on the stock market.

Should yields rise, I would look at the higher dividend paying stocks, especially those in the small-cap sector that offer great opportunities for dividends and capital appreciation.

The reality is that, given that the stock market was able to rise as much as … Read More

My Favorite Restaurant Stocks This Holiday Season

By for Profit Confidential

Restaurant Sector Bullish in 2014The holidays are just around the corner, and for the restaurant sector, that means big business, as people shop, dine, and head to the theaters.

From fast food outlets like McDonalds Corporation (NYSE/MCD) to steakhouses like Ruths Hospitality Group, Inc. (NASDAQ/RUTH), the holidays are a key time for the restaurant industry and a buying opportunity for investors in this sector.

The upward move in the sector has been strong, as shown on the chart of the Dow Jones U.S. Restaurants & Bars Index below. Note the upward trend marked by several breakouts. We are currently seeing some hesitancy, but I would look at weakness as a buying opportunity.

Dow Jones US Restaurants and Bars Index Chart

Chart courtesy of www.StockCharts.com

And as we move into the New Year, the key will be the jobs market and the economic renewal. Continued jobs growth will offer consumers added confidence to want to spend on non-essential goods and services, such as restaurant dining.

At the top of the food chain, in my view, continues to be McDonald’s, which remains a strong buying opportunity. (Read “McDonald’s Proving Position as ‘Best of Breed’ in the Fast Food Sector.”)This is the company every fast food operator wants to emulate.

However, the stock that I feel has the right blend of ingredients to succeed and is a possible buying opportunity is Chipotle Mexican Grill, Inc. (NYSE/CMG). While the price point is slightly higher than McDonald’s, the availability of ultra-fresh ingredients at Chipotle are a selling point for consumers, making the company a threat to steal market share away from others and a possible buying opportunity in the fast food sector.

Chipotle Mexican Grill Inc. Chart

Chart courtesy of Read More

Just Follow the Easy Money and Forget Everything Else?

By for Profit Confidential

Easy Money and Forget EverythingThis has clearly been the year of the bull, as the bears enter their fifth year of hibernation during what has been a spectacular bull market run. For those who have constantly called for the stock market to burn up, it hasn’t happened.

The stock market clearly has its eyes on higher ground as we move into the final few weeks of the year. The advance has been much stronger than what I had initially expected back in January.

At that time, I thought the stock market would move higher, driven by the technology and financial stocks. My assessment was correct, but the size of the upside moves have been much bigger than I had imagined. The biggest surprise has been the ability of the stock market to hold and avoid any major correction. Bulls have fended off the majority of the bear uprising this year, with the biggest stock market correction being about six percent in the S&P 500.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Now, as the S&P 500 and DOW move back toward their record highs, my view is that the stock market will likely move higher, driven by jobs creation and decent confidence levels.

Of course, with the jobs creation will come tapering by the Federal Reserve; but as long as the economy strengthens and jobs are created, investors should be happy.

Investors are also continuing to hold onto their bullish sentiment. In the weekly AAII Investor Sentiment Survey for the week ended December 4, 42.6% of individual investors surveyed were bullish on the stock market for the next six months, down 4.7% from the previous week. (Source: … Read More

Nomura Calls for 50% Correction in Global Stock Markets

By for Profit Confidential

Nomura Calls for 50% Correction in Global Stock MarketsI’m getting increasingly nervous about the current stock market and its vulnerability to the downside. We have a fragile economic renewal, weak corporate revenue growth, muted jobs growth, a housing market that’s stalling, an upcoming leadership transition at the Federal Reserve, and the government still needs to hammer out a budget and debt ceiling deal by February. So yes, I’m nervous.

Nomura strategist Bob Janjuah believes global stock markets could fall by 25%–50% in the final three quarters of 2014. (Source: Clinch, M., “Stand by…a hefty drop’s on the way: Nomura’s Janjuah,” CNBC, November 6, 2013.)

While I’m not that bearish, I do believe the chart of the Dow Jones Industrial Average is vulnerable to a six-percent near-term adjustment. (Read “Vulnerable Key Stock Index May Be Signaling Upcoming Buying Opportunity.”) The S&P 500 even looks worse and could see a decline to 800 if the past 15-year pattern pans out. That would be a decline of over 50%, which is what Janjuah is saying.

The chart below shows the current multiyear top and potential decline to the lower support at 800 as reflected by the bottom horizontal line. Also note the declining volume during this most recent multiyear rally, which is considered a negative divergence, based on my technical analysis. I’m not saying the worst is yet to come, but you never know.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

As an investor, you want to make sure you are well aware of the stock market vulnerability.

Given the gains over the past four years, you should look at taking some money off the table. Also look at some of your … Read More

Did You See This Morning’s Jobs Report; the Worst So Far of the Year?

By for Profit Confidential

Mornings Jobs ReportInstead of the employment picture getting better in this country, it’s getting worse!

In today’s jobs report, we’re told 169,000 jobs were added in the U.S. jobs market in August. (Source: Bureau of Labor Statistics, September 6, 2013.) Aside from the fact we need a minimum of 200,000 jobs a month to see a substantial change in the U.S. jobs market, the details in this morning’s report are particularly weak and concerning.

Actually, let’s start with the previous month’s downward revision in employment. The revised numbers that came out this morning show the U.S. economy added only 104,000 new jobs in July, not the 162,000 we were originally told were created in that month.

Moving to August, this morning’s jobs market report shows the only growth in jobs is in the low-wage-paying sectors. Add up all the new retail, health care, business services, and hospitality jobs, and 71% of all jobs created in August were in the low-paying sectors!

The underemployment rate, which includes those people who have given up looking for work or who have part-time jobs because they can’t get full-time jobs, still sits near 14%! (The politicians will never talk about the underemployment rate—what economists like me consider the real employment rate—because this number shows the jobs market is not improving.)

So what type of growth did we see in August in jobs in the manufacturing, construction, and other sectors that pay a higher salary? Sadly, jobs growth in those sectors was dismal. The manufacturing sector of the U.S. economy only created 19,000 jobs in August—after a decline of 10,000 in July! Sectors like construction, mining and … Read More

What Those Collapsing Homebuilder Stocks Are Trying to Tell Us

By for Profit Confidential

 housing marketFinally, some good news for the U.S. economy?

The National Association of Realtors (NAR) just reported July existing-home sales increased in the U.S. housing market to an annual rate of 5.39 million homes—up 17.2% from July of 2012. (Source: National Association of Realtors, August 21, 2013.)

And those companies that are closely related to the housing market like The Home Depot, Inc. (NYSE/HD) and Lowe’s Companies Inc. (NYSE/LOW) reported better-than-expected second-quarter earnings. All these companies cited the housing “recovery” as the reason their earnings did better.

So does this mean it’s a good time to buy homebuilder stocks, or to jump into companies related to the housing market? My answer is a resounding, “NO.”

In fact, the housing market is flashing four warning signs that the so-called “recovery” is losing steam.

First-time home buyers are not entering the housing market. Last month, first-time home buyers accounted for only 29% of all existing-home sales in the housing market, down 15% from July 2012. In a normal market, you’d want t first-time home buyers to account for 40% of all sales.

Mortgage rates are rising quickly. The rate on the standard 30-year fixed mortgage hit 4.6% this morning—up sharply from about 3.5% at the beginning of 2013

For months (in these pages), I’ve been saying interest rates would start to creep up. Even the NAR acknowledges the problem with higher interest rates. Its chief economist, Lawrence Yun, said this week, “Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines…the initial rise in interest rates provided strong incentive for closing deals. However, further rate increases … Read More

Why This Sector Will Always Offer a Buying Opportunity

By for Profit Confidential

Offer a Buying OpportunityThe S&P 500 may be nearing a new record high, but trust me when I say there’s some nervousness growing in the market. I really don’t blame you if you want to take some profits.

In fact, I insist.

When I look for sectors that I feel are less sensitive to what the global economy does, I always come back to the food sector as a buying opportunity.

Simply put, people have to eat. They really don’t care about how the economies are faring, whether there is jobs growth, or if the world central banks are pumping trillions into the global economic system. People have to eat, and that’s where I see a buying opportunity.

With this thought in mind, I continue to like the agriculture sector as a longer-term buying opportunity; farm fields will need to be plowed to produce the massive crop yields that will be needed to feed a growing world population.

A company that I feel could lend itself to some good above-average longer-term gains and is a possible buying opportunity is West Fargo, North Dakota-based Titan Machinery Inc. (NASDAQ/TITN). With a market-cap of $433 million and well down from its 52-week high of $32.00, there’s good potential here. North Dakota, of course, is known for its burgeoning shale oil production, which could offer another buying opportunity. (Read “Why This Cold Prairie State Is an Investment Hotspot.”)

Titan not only distributes and sells new and used agricultural equipment to markets and farmers in America and Europe, but the company also sells construction equipment, which given the major infrastructure buildup worldwide, could really drive the … Read More

My Top Picks for Restaurant Stocks

By for Profit Confidential

Top Picks for Restaurant StocksI love watching Chef Gordon Ramsay blowing a gasket in one of his many cooking shows, including Master Chef and Hell’s Kitchen.

While the outbreaks are often quite hilarious, the popularity of cooking shows has grown over the past years since we first saw Iron Chef come on air over a decade ago.

The restaurant sector is big business, and it’s set to pick up again following the recession that has generated a buying opportunity.

The chart of the Dow Jones US Restaurants & Bars Index below shows the run-up in the sector since early 2011. The chart is highlighted by several breakouts (blue horizontal lines), based on my technical analysis, and a potential buying opportunity.

Dow Jones US Restaurants Chart

Chart courtesy of www.StockCharts.com

And as the economy continues to forge ahead, the housing market drives up property wealth, and jobs growth picks up, I expect the restaurant sector to pick up steam and create a buying opportunity.

A couple of my favorite non-fast-food restaurant stocks that are a potential buying opportunity are Chipotle Mexican Grill, Inc. (NYSE/CMG) and Texas Roadhouse, Inc. (NASDAQ/TXRH).

I enjoy the Mexican-style foods at Chipotle, which for many restaurant goers is a much better alternative than eating the cheap burritos and tacos at Taco Bell.

For Chipotle, there was an excellent buying opportunity in October 2012 when the stock fell to a 52-week low of $233.82; it has since rallied 75%. (Read “Big Mac, Burritos, Fried Chicken: My Favorite Fast Food Stocks.”) At its current price, Chipotle is fairly valued, but it’s worth more of a look on weakness, as was the case in 2012…. Read More

Why Trillion-Dollar Annual Deficits May Only Go Away Temporarily

By for Profit Confidential

Annual DeficitsPoliticians and the mainstream will certainly love this…

Last week, Moody’s Investors Service changed its outlook on the U.S. national debt from negative to stable. (Source: Reuters, July 18, 2013.)

Despite the credit reporting agency’s “upgrade” on U.S. national debt, my opinion remains the same: the U.S. national debt has taken on a life of its own, growing like a bad cancer with no cure in sight.

Consider this:

In June of this year, the U.S. government registered a surplus of $117 billion after a budget deficit of $139 billion in May. On the surface that sounds great. But look a little closer, and we see that interest paid on the U.S. national debt for the month of June was $93.03 billion.

In the fiscal year so far (October 2012 to June 2013), the U.S. government has paid $345.26 billion as interest. For the full fiscal year (ending October 31, 2013), interest rate expense on the U.S. national debt is expected to reach $420.61 billion. (Source: Department of the Treasury, Financial Management Service, July 11, 2013.)

That’s almost half a trillion per year on interest payments only! And we must remember the Federal Reserve is keeping interest rates artificially low. If interest rates doubled (which is not a long-shot concept, considering that even if rates did double from here, they would still be below the 30-year average), the government interest rate payments could read $1.0 trillion a year!

Looking at the U.S. national debt as a percentage of our gross domestic product (GDP), it stood at 105.07% at the end of the first quarter of this year. (Source: Federal Reserve … Read More

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