Big Company Reports Big Earnings — Stock Market Reaction: Sell

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

Wall Street is doing what it does best: worrying about the future. So far, the companies generating solid financial growth are getting the cold shoulder. No amount of good news is moving these stocks and this is a very negative development for the market.

The stock market definitely looks tired, worn out, and just plain miserable. There should be considerable support for the Dow at 10,000 and, realistically, a correction is what the market’s been needing for quite some time. Pull up a one-year price chart on the DJIA and you’ll see just how far the market’s moved, especially since last July.

Large-cap companies like DuPont, IBM, Texas Instruments, Wipro, Bank of New York Mellon, State Street, eBay, Wells Fargo, American Express, General Electric, Johnson Controls, and McDonald’s all beat the Street in their latest quarter — some markedly. Yet, the market yawned, and now January is looking like it’s going to set a decidedly poor tone for the rest of the year.

Corporate earnings are likely to keep getting better throughout the year, so what’s the stock market waiting for? It isn’t corporate earnings, so it must be the fundamentals of the global economy. Never before has China’s monetary policy affected domestic trading action in U.S. stocks. Now it does.

So, the current environment makes for a difficult time to be considering new positions. While the indicators I follow led me to believe that the Dow would tick higher to the 11,000 this quarter, this seems less likely now. While the Dow got close by achieving 10,729, it may take the rest of the year to climb to 11,000. Corporate earnings just don’t seem to be doing it for the market right now. It looks like investors want to see the housing market recover further before they are willing to invest in stocks.

Not only are stocks retrenching, but so are oil and gold, which is the surest sign that investors are worried about global economic growth. If the stock market maintains this lackluster trading going forward, the only way investors are going to be able to generate any positive returns is by owning solid, dividend-paying securities. For long-term
investors, I’d put gold stocks on my watch list now, especially if you don’t have an existing position. The near-term trend for the spot price of gold is lower and I wouldn’t be surprised at all if gold moves below $1,000 an ounce. In this market, all you can do is go with the flow.