Posts Tagged ‘Sovereign Debt’
It is earnings season and corporate numbers are plentiful. Blue chips are mostly reporting decent financial metrics, but I want to address the other side of the equation.
Investment risk in many capital market assets is still very high. And the reason why it’s very high is the fiscal and monetary experiments taking place around the world.
PepsiCo, Inc. (PEP) announced another good quarter that beat expectations, and while the outlook for the beverage and snack market is decent, this is only part of the picture facing equity market investors.
It is still important for investors to be extremely cautious (and conservative) in this environment. The sovereign debt crisis has not abated in the eurozone. U.S. monetary stimulus through artificially low interest rates and quantitative easing is not re-inflating assets to the degree wished for by the Federal Reserve. The U.S. fiscal situation remains a mess at all levels of government.
I’m the biggest believer in enterprise and taking a constructive view of equity market trading action. But there is this whole other universe out there of unquantifiable risk precipitated by undercapitalized banks, no fiscal flexibility, and exponential money supply stimulus that, so far, hasn’t created real, unassisted economic growth.
I’m not a “doom-and-gloomer,” but investment risk is equally, if not more important than potential returns with paper assets. And the world (including regulators) still can’t quantify the risk exposure within the global derivatives market.
This is still very much a perilous environment, as private economic deleveraging butts heads with public economic re-leveraging. Risk hasn’t gone away; it’s only being masked by the equity market. (See “The Only Way … Read More
I’ve been trying to figure out how this incredible stock market action started at the beginning of the year. Things were trending fairly normally, and then institutional investors just started buying—blue chips first, a little break in February, then blue chips again, with a broadening out into the NASDAQ.
But there wasn’t any big catalyst that suddenly galvanized a change in investor sentiment. There wasn’t anything new from the Federal Reserve, and fourth-quarter earnings season hadn’t started yet.
But the Dow Jones Transportation Average and blue chips just took off.
It’s as if big investors just threw up their hands and said, “Forget policymakers; we’re going ahead anyway.”
The Dow Jones Transportation Average continues to be one of the key indices for the stock market. This is nothing new. The stock market run-up was led by this index and followed by blue chips.
Chart courtesy of www.StockCharts.com
The action in this index now is similar to the break it took in the last half of March. The index didn’t re-accelerate until the beginning of May.
Both transportation stocks and blue chips are definitely due for an extended break after this big run-up. It could very well last until second-quarter earnings season begins, or right into the fourth quarter.
But while the stock market needs to experience a retrenchment, there is still buying on the part of institutional investors. On a number of occasions, when the stock market opened down recently (either technically or on bad news), the main indices fought their way higher, often closing … Read More
It is a phrase that’s pertinent to the stock market.
Without question, I remain completely taken aback by what has transpired with the stock market since the beginning of the year.
Looking at the numbers, not being invested in many corporations has been costly.
Excluding the reasons why, the simple fact is that the Dow Jones Industrial Average is up 16% since the beginning of the year (not including dividends).
The S&P 500 is up 15.7%. The NASDAQ Composite is up 14.8% and the Russell 2000, an index of small-caps, is up 16.6% (not including dividends).
I think this stock market can smell the end of quantitative easing.
More meaningful, however, is the Federal Reserve’s policy regarding interest rates, which are going to continue to be low for the near future, as it has been made very clear.
This is a huge, perhaps neglected, certainty for the stock market and corporations.
Making the case for being a buyer in this market is extremely difficult. Institutional investors have already placed their bets and a lot of corporations—good companies with real staying power and solid prospects for earnings growth going forward—are fully priced.
Johnson & Johnson (NYSE/JNJ) is a benchmark stock. Like many large corporations, Johnson & Johnson does everything it can to squeeze every penny out of its bottom line. The company lays off employees, closes plants, and does everything to minimize taxes. Johnson & Johnson’s 10-year stock chart is featured below:
Chart courtesy … Read More
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