Posts Tagged ‘large-cap companies’
If the S&P 500 Index is trading close to the 1,400 level, then I view the equity market as being in good shape. We’re getting a bit of a consolidation now and this is completely normal after the flurry of corporate earnings from large-cap companies. Many smaller companies are only now beginning to report their earnings reports, but this is an equity market that’s focused on large-caps. They have been and I believe will continue to be the outperformers this year. (See Benchmark Stocks Reporting Great Earnings—But the Stock Market Bet on this Already.)
Institutional investors are waiting for a new catalyst to invest in this stock market; without one, the equity market will drift. There is a normal lull in share prices after an earnings season and it’s because the corporate news is over and share prices rose in anticipation of the numbers. Why buy a stock after it reports numbers the Street was looking for? I still believe that investors don’t have to be in any rush to consider new positions in the current environment. If we got a major correction in the equity market, then I’d say add to existing positions. Overall, though, I expect the stock market to become very vulnerable around the time of the U.S. election and going into next year. I could be wrong on this, but I don’t see economic growth accelerating much more than its current rate.
The U.S. economy and the stock market can move forward just fine in a slower growth environment. We just don’t want to see contraction in gross domestic product (GDP) and that’s why the … Read More
I have a strong sense that the stock market trading action we’ve experienced over the last several months will continue over the next quarter or so. One day, the stock market will be up on some positive economic news; the next day, the economic news will point the other way. The stock market is at its current level largely due to two equal factors—the Federal Reserve and reasonable valuations. At the beginning of the year, the U.S. central bank said just what institutional investors wanted to hear—it will support the economy further if necessary. This lit the fire of equity market buyers and, because current corporate earnings support current valuations, the market has held up well.
The trading action since the March 2009 low set during the financial crisis has been remarkably repeating itself quite succinctly. When economic news showed improvement, the stock market accelerated briskly and after a while the trend experienced a meaningful correction. After several months of correction, another decent piece of economic news sparked another upward leg. Just pull up a four-year stock chart on the S&P 500 Index and you can see the consistency in the trading action.
Extending this consistency to the near future, it would seem that we’re on the final leg of a stock market that’s ready to top out and experience another correction. According to the chart, the length of the upward price trends since March 2009 is getting shorter and this leads me to believe that the stock market is setting itself up for a big top, not just another correction. This, of course, is a gut-feel type of analysis. … Read More
My gut tells me that the stock market will soon come to a head in terms of its direction. The stock market is looking for a new catalyst and, whatever that is; share prices will advance or retreat. We’re at the beginning of the lull between earnings seasons (although many small-cap stocks are just starting to report) and economic news will take over from corporate news. I think a key stock market indicator to focus on remains the Dow Jones Transportation Average. This index keeps narrowing its trading range and just looks like it’s ready for a new direction, whatever that might be. Transportation stocks have held up incredibly well considering the price of diesel and gasoline and their earnings as a group continue to outperform.
Many view the Dow Jones Transportation Average as an “out of date” kind of index, but I view it as critical. For the most part, virtually everything in our lives comes to us by truck, rail, airplane or boat. (See My Favorite Benchmark Stocks That Lead the Stock Market.) It represents, in my view, the real pulse of the U.S. economy and, while vulnerable to the spot price of oil, strength in this index is strength in a consumer-driven economy.
Since the beginning of 2000, the Dow Jones Transportation Average has outperformed the NASDAQ, Dow Jones Industrials, and the S&P 500 Index. When technology shares imploded on the stock market beginning in 2000, the Dow Jones Transportation Average began to outperform. It did very well between 2004 and 2009, retreated with everything else during the financial crisis, then roared back to a new … Read More
The first thing that consumers do when a recession or financial crisis hits is cut discretionary spending. That’s why a benchmark stock like Harley-Davidson, Inc. (NYSE/HOG) feels the pain immediately. HOG’s stock market value plunged in the last half of 2008, as the recession took hold. Then the financial crisis hit and it took three years for the shares to recover. HOG used to be a stock market darling.
As a kind of benchmark stock for discretionary (luxury) spending, the company’s first-quarter earnings report was excellent. It reported a 20% increase in total retail sales of new Harley-Davidson motorcycles worldwide. In the U.S. market, retail sales grew an impressive 25.5% and more than a third of motorcycle sales were to riders who were new to the brand. First-quarter revenues grew 20% to $1.27 billion and net income grew 45% to $172 million.
On the stock market, HOG is trading at a new 52-week high, but is only now back to the price it was trading at in August 2000—that’s almost 12 years ago! As a benchmark stock in the consumer goods sector, the company’s earnings and visibility are positive indicators. International sales are a growing portion of revenues, but that’s the case with most large-cap companies nowadays.
Another benchmark stock that is worth following is Caterpillar Inc. (NYSE/CAT), which reported another record quarter for earnings and raised its guidance for the rest of this year. The company’s total revenues grew 23% in the first quarter to $15.98 billion and earnings grew 29% to $1.59 billion.
The stock market’s recent pullback isn’t the kind of correction the market needs. Recent trading action is more about a lack of buyers than outright selling. The S&P 500 Index ran up quickly to 1,420 and was definitely in need of a break. With stock market buyers having already placed their bets before this earnings season begins, the recent pullback was only natural.
The Federal Reserve was right to say that further monetary stimulus would not be necessary if current momentum in the U.S. economy continues. I feel that the Federal Reserve already has too much stimulus in the system and that interest rates are artificially too low.
This earnings season, I think we’re going to get another mixed bag of results, with some industries doing much better than others. The key will be all about expectations. Since the fourth quarter of 2011, current expectations this earnings season are quite lofty.
I repeat my view that the stock market is likely to top out this year, so I’m not a big advocate of taking on major new positions. This earnings season is likely to be decent and so might the second quarter. But the U.S. economy is coming due for another slowdown or recession and I think that there isn’t enough momentum currently for the U.S. economy to accelerate going into 2013. With the BRIC countries slowing, it’s going to be equally difficult for corporate earnings to accelerate. U.S. have padded their earnings over the last several years from strong international operations, particularly in Asia. This is changing now and so must investor expectations.
If the stock market is … Read More
I think this year’s bull market is still alive, but it will take good corporate earnings and visibility to carry it forward. We’ve had a really good run up until now and the current price consolidation is not unexpected. I want to reiterate that the stock market is still very fraught with risks that are based on fragility in the U.S. economy and outside factors like the sovereign debt crisis in Europe and geopolitical concerns in the Middle East. I suppose these risks have been with us for years, but I know that investor sentiment is delicate enough to turn this stock market on a dime.
I still believe that a conservative investment stance is warranted and I would not be a big buyer of new positions in this stock market. In my view, the stock market is in the process of topping itself out after a long period of recovery from several big shocks. This doesn’t mean that the stock market won’t be higher at the end of this decade than it is now, but I do see a lot of problems over the next couple of years. Monetary stability, positive investor sentiment and reasonable equity valuations are responsible for carrying the stock market so far this year. What’s required going forward is confirmation in the economic news.
As part of a conservative investment stance, I’m a big believer in large-cap companies that pay dividends. Anybody reading this column over time knows this. The fact of the matter is that large-caps have performed exceptionally well since the financial crisis low in March 2009 and they’ve proven to be … Read More
It’s my contention that the stock market is engaging in a slow process of topping out. The stock market usually likes to lead the economy and, while corporate earnings have been surprisingly strong ever since the financial crisis, this has mainly been due to growth in emerging economies. Now these economies are slowing after many years of solid expansion.
The BRIC countries along with all of Asia have been the saving grace forU.S.large-cap companies. With little growth to be had in the domestic economy, their corporate earnings have been padded by international operations. And this is the worry I have: corporate earnings growth. With emerging economies now slowing (especially in China) and virtually zero growth in Europe,U.S.corporate earnings are going to have a tough time achieving double-digit growth over the next several years. My expectation is a material slowdown in corporate earnings starting perhaps this year or in 2013, which will definitely affect the prospects for the stock market.
It is certainly possible that the U.S.economy could accelerate on its own this year. The Federal Reserve (for better or for worse) has pretty much done everything a central bank can do to try and re-inflate the economy and the stock market. (See What Could Ensure a Good Stock Market Performance This Year.) The unprecedented low-interest-rate environment is extremely helpful for corporations, with debt financing very affordable. It’s also helpful for homeowners and mortgage seekers. With encouraging signs on the employment front, the housing market should also show some improvement in the near future. But the big question is: will it be enough to satisfy the stock market? We’ll find … Read More
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