A sector that has truly benefited from the low-interest-rate environment over the last several years has been the automobile sector, which could now be an investment opportunity.
Armed with financing rates as low as zero or free money, car buyers have been rushing to the dealers looking for a new set of wheels.
Rising per-capita income levels around the world, especially in the emerging markets in China, Asia, and Latin America, have all combined to drive up demand.
Investment guru Warren Buffett just announced last week that his fund Berkshire Hathaway, Inc. (NYSE/BRK-A) would add a majority stake in Van Tuyl Group, which is the fifth largest auto dealership group in the country. Clearly, Buffett is positive on the auto sector as an investment opportunity.
The price chart of the S&P 500 Automobiles & Components Industry Group Index shows the recovery in the sector from mid-2012 to its peak in mid-2014, prior to the recent bout of selling that drove the index below its 50-day moving average (MA). Despite this, I continue to like the sector as a possible longer-term investment opportunity and would advise buying on weakness.
Chart courtesy of www.StockCharts.com
In addition to the obvious low financing rates, the U.S. auto sector is on much better footing now as an investment opportunity than it was prior to the recession in 2008. After undergoing major structural changes over the past few years since the bankruptcy of General Motors Company (NYSE/GM) in June 2009, the sector has become more efficient and cost-conscious. It’s also more in tune with the needs of its customers, whether it’s through the development of more … Read More
Not too long ago, the European Central Bank (ECB), to fight the economic slowdown in the eurozone, lowered its benchmark interest rates. The hope with this move was the same as it was in the U.S., England, Japan, or other countries that are facing economic scrutiny: lowering interest rates will eventually increase lending and eventually bring in economic growth. In addition to this, the ECB also announced that it will be taking part in an asset purchase program—something similar to what was implemented by the Federal Reserve.
When I look at all this, it creates a very interesting situation. The ECB is lowering its interest rates as the Federal Reserve and others, like the Bank of England, are building grounds to raise their benchmark interest rates.
For example, the Bank of England is hinting at raising interest rates by spring of 2015. The governor of the central bank, Mark Carney, recently said that if interest rates were to rise in the spring as the markets expect, this move would allow the bank to meet its mandate regarding inflation and jobs creation, according to its forecasts. Simply put, the bank is prepared to raise interest rates early next year. (Source: Hannon, P., “Bank of England Gov. Mark Carney Signals Spring Rate Rise,” The Wall Street Journal web site, September 9, 2014.)
And the Federal Reserve may do the very same.
With this in mind, I question where the next big trade is going to be.
Remember what happened during the financial crisis, when the Federal Reserve and other central banks lowered their interest rates? In search of yields, the easy money … Read More
Many of you may think AT&T Inc. (NYSE/T) and Verizon Communications Inc. (NYSE/VZ) are some of the best ways in the stock market to play the mobile sector, but there are other choices; it’s just that you need to leave our friendly borders.
The biggest growth area for mobile is found in the emerging markets. I’m talking about such countries as Brazil, India and, the biggest one of them all, China.
China has the most dominant mobile market in the world. There are over one billion subscribers and counting as the rural population comes on board. Think about it this way: there are more people on the country’s mobile network than in the U.S. and the European Union combined! What a massive market. And I think our readers should get a taste of it.
Now, you may think there are dozens of mobile providers—so how will you choose? But the truth is that the Chinese government decides on how many major operators are allowed. The country currently has three major mobile providers with access to the massive market potential.
Apple Inc. (NASDAQ/AAPL) has significant potential in the country, especially with its recent alliance with China Mobile Limited (NYSE/CHL). China Mobile is the biggest mobile phone operator in China, with about 785 million subscribers as of April 30. That’s a lot of business.
With a market cap of around $199 billion, the company is massive. By comparison, AT&T is the largest mobile provider in the U.S. with a market cap of $181 billion, and Verizon has a market cap of $204 billion.
Chart courtesy of www.StockCharts.com
China Mobile has been ranked … Read More
Apple Inc. (NASDAQ/AAPL) gave investors some optimism after introducing its so-called “Android” killer—its “iOS8” operating system—at the Worldwide Developers Conference.
The upcoming update to Apple’s operating system incorporates some great changes, including advanced healthcare, music, and home monitoring applications.
Yet while there’s definitely some excitement from Apple users towards the new operating system, the reality is that it will likely still not be enough to knock Android off its perch as the top mobile operating system in the world, powering about 85% of all phones worldwide, based on my stock analysis.
Apple is clearly working on improving its platform and is expected to introduce a bigger screen on its “iPhones,” but my stock analysis indicates that the problem is that the cost of the phones remains prohibitive to buyers, especially in the emerging markets in Asia and Latin America.
As my stock analysis suggests, the company is still so set on protecting its margins that its iPhones remain relatively expensive versus Android and other phones. Just go to your local mobile dealer, and you will see that while the iPhone has come down in price, the associated contract continues to be quite expensive versus that of other smartphones.
I experienced this firsthand after I just switched from the iPhone to the Samsung “Galaxy.” I bought the “S4,” which is a slightly older model versus the new “S5,” but it’s an excellent phone. It uses the Android operating system, which I actually like more than “iOS7.” The only problem is that my “iPad” refuses to acknowledge my S4 as a hotspot via the Bluetooth connection, which is not surprising, given how … Read More
The airline sector is flying higher, as the global economy strengthens and income levels in the emerging markets steadily improve, based on my stock analysis.
Yet unlike what you or your parents might have done when booking a vacation decades ago, we are now seeing a massive migration of travellers looking to the online space to book their next flight.
While there are numerous operators in the Internet travel space, the “Best of Breed” and the company that started it all is The Priceline Group Inc. (NASDAQ/PCLN). I distinctly recall reviewing this company in late 1999 and recommending it at under $20.00. Since then, the stock has been one of my top performers, as it currently trades at more than $1,200 per share and has a market cap of roughly $67.0 billion.
The price of the stock puts it out of the reach of many investors, but the company deserves its place at the top of the online travel segment, based on my stock analysis. Priceline has superior growth metrics and a comparative valuation to its peer group, which makes it the market leader and a top investment opportunity.
Chart courtesy of www.StockCharts.com
Now, if you cannot afford the high stock price of Priceline, then there are several companies that I view as the next best opportunities in this market space.
The second leading online travel company, based on my stock analysis, is Expedia, Inc. (NASDAQ/EXPE). This stock is still large, but it has a market cap that’s approximately seven-times smaller than Priceline. The valuation of Expedia is also more attractive at 16.47 times (X) its 2015 earnings per share … Read More
The current drama surrounding Malaysia Airlines Flight 370 has been riveting and indicative of how the superlative growth in travel in the airline sector has encompassed Asia along with the world.
For years now, since the recession hit in 2008, I have been increasingly bullish on the airline sector across the globe, but especially in the emerging markets like China, India, Eastern Europe, and Asia. Helping to drive up the demand for travel in the airline sector has been the upward push in wealth creation in many of these regions, which has given more people the ability to afford air travel.
The industry stats don’t lie. The airline sector is on target for its second straight year of higher profits, according to research by the International Air Transport Association (IATA).
According to the research, North America continues to be the biggest airline sector market with profits estimated at around $8.6 billion in 2014. Asia-Pacific airlines are entrenched in second place with an estimated $3.7 billion in profits, more than the $3.1 billion predicted for Europe. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)
Take a look at the Dow Jones U.S. Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 and the bullish golden cross on the chart, based on my technical analysis.
Chart courtesy of www.StockCharts.com
To play the airline sector in the United States, I like discount carrier JetBlue Airways Corporation (NASDAQ/JBLU). The company was formed in 1998 and currently serves markets in the … Read More
Investors are asking one question these days: should you be buying emerging market stocks or will they decline further?
In the long run, I am bullish on the emerging markets. The reason for this is very simple: the emerging market economies have a significant amount of room to grow. For example, in some emerging countries, a massive portion of the population still lives without electricity; there are not enough homes; roads aren’t there to sustain the population; industries aren’t developed; and the list goes on…
Understanding what’s happening in emerging market stocks now is very important for those who are looking to invest. When the Federal Reserve started to implement its easy monetary policies, investors rushed to the emerging markets; they could get better returns there. Now that the Federal Reserve is threatening the prospects of easy money, investors are worried and selling.
Since we started to hear speculations that the Federal Reserve would taper its quantitative easing, investors have been rushing out of the emerging markets. No matter where you look in the emerging markets, you will see key stock indices facing a sell-off.
Look at the chart of Turkey’s stock market below. It’s down more than 30% since June of 2013.
Chart courtesy of www.StockCharts.com
Turkey’s stock market is just one example; other emerging markets stocks are sliding lower as well. For example, China’s stock market is down more than 12% since June of last year. The Brazilian stock market is down about 20% for the same period.
According to my analysis, it shouldn’t be a surprise to see the stocks in emerging markets slide even lower. You … Read More
For an economy that relies on consumer spending to fuel the vast majority of its economic growth, ongoing weak retail sector sales and increased jobless claims cannot be part of the equation. But they are. And have been.
In January, U.S. retail sector sales fell by 0.4%—the most since June 2012. Economists had predicted that January’s retail sector sales would be unchanged in January after falling by a revised 0.1% in December. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau, web site, February 13, 2014.)
January retail sector sales, excluding automobiles, gasoline stations, and restaurants, showed the worst year-over-year growth since 2009. And with the harsh winter weather, January’s sales reflect the sometimes unpredictable, cyclical nature of our spending, from discretionary (e.g., cars) to non-discretionary (e.g., heating).
At the same time, more Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250. Many economists continue to blame the cold weather for both weak retail sector sales and increased jobless claims. (Source: “Unemployment Insurance Weekly Claims Report,” United States Department of Labor web site, February 13, 2014.)
Fortunately, there is a silver lining to all of this. They suggest we’ll start to see an acceleration in hiring and retail sector sales in the spring and summer seasons—meaning they have written off the entire first quarter of the year, a quarter most economists initially predicted would be bullish. Myself and the financial editors here at Daily Gains Letter, on the other hand, have been warning … Read More
There are a significant number of concerns regarding the emerging markets at this time. Investors are asking if emerging market stocks are a good buy right now; are the troubles over or are there still more to come?
As it stands, it seems further troubles are brewing in the emerging markets, as the Federal Reserve tapers its quantitative easing program. We have seen currencies in countries like Turkey, South Africa, Russia, and Argentina decline significantly.
You see, when the Federal Reserve first started to lower its interest rates and initiated quantitative easing; it gave birth to a trade. The idea behind this trade was simple: you borrowed money from a low-interest-rate country—the U.S.—then invested that money in a high-interest-rate-paying country—the emerging markets, like Turkey—and banked the difference. The Federal Reserve tapering its quantitative easing is drying up the liquidity—the money that went to high-interest-paying countries has to come back now. This is what’s creating troubles.
Before I go into further detail, I want to restate my opinion on the emerging markets and their stocks: in the long run, they can be very profitable. My main reason for this belief is that emerging markets need infrastructure, meaning construction companies and utilities companies will be profitable. These markets also have massive populations and the middle-class is on the rise, meaning consumer discretionary stocks and companies in the service sector will see growth as a result.
Where are the opportunities in the emerging markets now?
One rule of thumb is that when there’s a broad market sell-off, even companies with great fundamentals and solid track records get punished. Investors sell these stocks in … Read More
There’s uncertainty on the stock market. Troubles are coming from the emerging markets, and they are causing investors to panic and sell their stocks. We see they are scared. But as this is happening, there’s a trade in the making, and those investors who have raised some cash (as I’ve been suggesting my readers do) and are looking to park their money somewhere safer than stocks can profit from this opportunity.
The trade I’m talking about is the trade that’s happening in U.S. bonds and gold bullion—some call this phenomenon a “flight to safety.” I call it a potential opportunity.
We know bonds and gold bullion are one of those asset classes where investors rush to when the risks on the stock market increase. This is something we are seeing now, and it could continue for some time.
In the following chart, I have plotted the prices of U.S. bonds (red line), gold bullion (black line), and the S&P 500 (green line). Take a look at the circled area, which shows the movement out of stocks.
Chart courtesy of www.StockCharts.com
Since the beginning of the year, U.S. bonds and gold bullion prices have increased in value, while the stocks have fallen. We have seen this relationship before as well. A prime example of this is the stock market sell-off in 2009; we saw investors rush to gold bullion and bonds then in hopes of finding safety.
It’s not too late for investors to consider taking advantage of this shift by looking at exchange-traded funds (ETFs), like iShares 20+ Year Treasury Bond (NYSEArca/TLT). Through this ETF, investors can invest in long-term … Read More
The long-expected hit to the emerging markets is finally upon us. The fact that the emerging markets are taking a beating isn’t a total surprise; on the other hand, everyone running for the exits is.
But as physics proves, for every action there’s an equal and opposite reaction—nothing can escape physics; not even Wall Street or the emerging markets.
First, income-starved investors poured money into the emerging markets to take advantage of higher interest rates. Then, after the Federal Reserve said it would begin tapering its bond purchasing program, the money began to pour out of the emerging markets in earnest.
In a nearsighted effort to combat the slide in emerging markets’ currencies, central banks have been raising their interest rates. The Turkish central bank has taken drastic measures to entice investors to return—on January 29 the Turkish government lifted its overnight lending rate from 7.75% to an eye-watering 12% and its overnight borrowing rate from 3.5% to eight percent. The South African central bank raised its interest rate for the first time in almost six years. And the Russian ruble could be next.
This suggests that the underlying danger in the emerging markets isn’t their currencies per se, but the way the central banks are reacting to the slouching currencies. Instead of lowering rates to boost their economies, the central banks have been raising interest rates to prop up currencies.
This could be especially dangerous when you consider that emerging markets make up half of the world’s gross domestic product (GDP). If emerging markets try to follow the U.S. and raise interest rates, it could cripple their own economies … Read More
Since the beginning of the year, key stock indices have fallen, and this is making investors nervous. They are asking what will happen next. The first month of the year is usually good for the stock market, but that wasn’t the case this year. The S&P 500 fell more than three percent and other key stock indices showed the same, if not worse, returns.
Will there be a sell-off in February as well?
Looking at historical returns, February is usually calmer on the stock market than January. For example, observing monthly returns from 1970 to 2013, the average return on the S&P 500 in January has been 1.23%; the average return on the S&P 500 in February in the same period has been 0.19%.
Will the S&P 500 rise in February after declining in January?
Between 1970 and 2013, the S&P 500 has declined in January 17 times. Eleven of those 17 times, the returns on the S&P 500 in February were also negative. The average return in those periods—when the S&P 500 declined in February after a decline in January—was 3.26%. If we take out the outlier—February of 2009 when the S&P 500 declined by more than 10%—this average becomes -2.52%. A simple probability calculation would show there’s almost a 65% chance the S&P 500 can go down in February. (Source: “$SPX Past Data,” StockCharts.com, last accessed February 5, 2014.)
Dear reader, remember that this information is from the past; market returns today can be completely different. You shouldn’t rely on historical facts alone when creating an investment strategy. You have to keep in mind that the stock market … Read More
“What should you do when the house isn’t in order?”
A good friend of mine asked this question back in 2011. At that time, key stock indices were plunging lower due to issues regarding the U.S. debt ceiling. There was uncertainty, and many wondered what would happen next. I remember this question now because the key stock indices nowadays are falling due to troubles in the emerging markets and there seems to be panic—similar to what we were experiencing when I first heard this question.
When key stock indices are declining, instead of panicking and selling every holding in their portfolio, investors have to be strategic and instead think with an open mind and a long-term perspective.
The first step investors should take is to see where the troubles are coming from and if they are exposed to it at all. For example, these days, we see problems in the emerging markets are causing panic. If investors have a massive percentage of their portfolio invested in the emerging markets, then they should simply reduce their exposure. If they continue to hold their positions, and the markets continue to decline further, their losses will get bigger and it will be much harder to recover. If investors witnessed a drawdown of 25% in their portfolio, it will have to go up by more than 33% for them to just break even. Plus, reducing exposure not only protects investors from potential loss, but it also increases their cash position.
The second step investors should take is to exercise extra caution when key stock indices are falling. Investors should carefully screen the news and … Read More
There are many indicators that can give us an idea about where key stock indices may be headed. It may seem obvious, but always remember that nothing is certain until it happens. As I say quite often in these pages, trying to predict the exact top and bottom on key stock indices can significantly damage your portfolio in the case that the markets move in the opposite direction.
When I am trying to figure out what the next move will be by the key stock indices, I look at investor sentiment; I look at where investors are placing their money and what kind of assets they are buying. For example, when investors think the risks on key stock indices are increasing, they go towards safer stocks—big-cap companies may be one example. On the other hand, if investors think the key stock indices are moving to the up side, they move into stocks that provide better-than-market returns.
One indicator of investor sentiment that I look at is the relationship between the Utilities Select Sector SPDR (NYSEArca/XLU) exchange-traded fund (ETF) and the Morgan Stanley Cyclical Index. The XLU tracks utilities companies that are considered safer by investors because their products or services are needed regardless of economic conditions, like electricity providers, for example. On the flipside, the Morgan Stanley Cyclical Index tracks cyclical stocks, which are the stocks that move with the markets and are considered riskier assets, like furniture retailers, for example—they are dependent on how the economy is doing overall.
With this in mind, please take a look at the chart below. It shows the movement in the XLU and … Read More
After years of easy money and a failure to secure a well-executed exit plan, it looks as though the emerging markets are getting a taste of the Federal Reserve’s economic tapering. Over the last five years, the emerging markets have benefited from low interest rates and listless growth in developed countries.
But, with the U.S., Japan, and Europe—the three biggest economies globally—all expanding for the first time in four years, the tables are turning and the sheen is beginning to wear on the emerging markets.
In an effort to help kick start the U.S. economy after the financial crisis in 2008, the Federal Reserve enacted it’s overly generous bond buying program (quantitative easing). All told, the Federal Reserve dumped more than $3.0 trillion (and counting) into the markets and has kept interest rates artificially low.
The ultra-low interest rates might have been great for home buyers, but income-starved investors had to look elsewhere to pad their retirement portfolio. Many retail and institutional investors went to the emerging markets, where the interest rates were higher and there was a real opportunity for growth.
In December, the Federal Reserve said it was going to begin tapering its $85.0-billion-per-month quantitative easing strategy to $75.0 billion a month in January. Just yesterday, the Fed announced it will be reducing that number to $65.0 billion a month in February. While the amount is negligible, it signals the eventual end of artificially low interest rates. The cheap money that propped up asset prices in emerging markets, like India, China, and Indonesia, is beginning to crumble.
The Argentinean peso, Indian rupee, South African rand, and Turkish lira … Read More
Are emerging markets worth looking at in 2014? Not too long ago, emerging market equities witnessed a pullback—when the taper talk came on the horizon. As a result, investors are asking if this has now created some value in these markets.
Before going into any details, investors have to keep one very important aspect of investing in mind: cheap doesn’t mean good value. Investors shouldn’t be interpreting falling prices as “value coming back to the market.” In some cases, this may be true, but in other cases, if the prices are falling, there’s a reason.
You see, emerging markets are going through some troubles, and as a consequence, their equity prices are a little vulnerable.
For example, India, the third-largest economy in Asia, reported a decline of 9.6% in 2013 auto sales. This was the first decline in auto sales since 2002. This well-known emerging market is struggling with high inflation and low economic growth—or a period commonly referred to as “stagflation.” In the fiscal year 2013, India’s economic growth was the lowest in almost 10 years, and inflation is running at 10%. (Source: Choudhury, S., “Indian Car Sales Slump for First Time in a Decade,” Wall Street Journal, January 9, 2014.)
China, another major emerging market, has been seeing its fair share of trouble as well. This year the country is expected to post growth that’s nothing like its historical average. In December, the HSBC China Manufacturing Purchasing Managers’ Index (PMI)—a gauge of manufacturing activity in the country—declined to a three-month low. (Source: “HSBC Purchasing Managers’ Index Press Release,” Markit Economics web site, January 2, 2014.)
Brazil, a common … Read More
The U.S. stock market rally has been on a solid run this year, thanks in large part to the Federal Reserve’s $85.0-billion-per-month quantitative easing policy—well, that and some solid economic indicators. But the question remains: will the momentum continue into 2014?
It all depends on whether or not the U.S. stock market rally follows the laws of physics. For example, when it comes to momentum, an object will continue unless force is applied against it, either a huge amount of force all at once or an applied force over a given period of time. On the other hand, the more momentum something has, the harder it is to stop.
The fuel that has helped propel the U.S. stock market rally over the last number of years could be flickering out. Thanks to better-than-expected employment and retail numbers and strong preliminary gross domestic product (GDP) numbers, many think the Federal Reserve will start to taper its quantitative easing strategy sooner than later.
The end of easy money, some think, could put a cramp in the stock market’s four-year-plus rally—or at least make it run a little more slowly in 2014 than it did in 2013. Whereas the S&P 500 is up roughly 25% year-to-date, analysts think it will grow by as little as six percent and as much as 11% in 2014. This means that the S&P 500 will experience another year of record-highs in 2014, but not quite as bullish as 2013. (Source: “Here’s What 14 Top Wall Street Strategists Are Saying About The Stock Market In 2014,” Business Insider web site, December 13, 2013.)
Those looking to outpace the … Read More
The discussions about emerging markets being the “next big thing” are becoming prominent as we are marching ahead. Not too long ago, the emerging markets received a lot of notice; now, they’re the center of attention. With this shift comes one question: is it a good time to buy emerging market stocks?
Investors who are investing for the long term have to keep the following three facts in mind before adding emerging market securities to their portfolios.
If It Has Gone Down, That Doesn’t Mean There’s Value
This isn’t specific to any one emerging market economy, but investors have to keep in mind that if something has declined, it doesn’t mean it has become undervalued. There are different measures investors need to look at before they can find fair value, and companies in emerging markets shouldn’t be judged differently.
We saw something similar happen back in 2008 with the key stock indices here in the U.S. economy. In October of that year, indices like the S&P 500 declined significantly. Following that, we had much speculation about if the bottom was in place, and I remember some saying there’s good value around those levels.
Turns out that the key stock indices increased a bit from there, but in 2009, they declined even further, shedding all the gains—only then did the market bottom. Emerging market economies could end up in a very similar situation.
Emerging Markets Rely on Developed Economies
This fact is very critical. Emerging market economies rely on what happens in the developed nations, mainly because they export their goods to them. If the developed nations start to suffer, you … Read More
While the S&P 500 continues to perform well, the markets have been skittish since May 22, when the Federal Reserve hinted it might consider tapering its $85.0-billion-per-month bond-buying program. If Ben Bernanke begins to curtail Wall Street’s monthly allowance, there are fears the markets will not be able to stand on their own economic merit.
Granted, many don’t think the Fed will begin tapering in 2013; this may account for the S&P 500’s solid, yet volatile run. The same can’t be said for emerging markets.
Investors have pulled over $22.0 billion from emerging-market bond funds since the end of April. This has lifted emerging-market bond yields by 1.4 percentage points, almost the most in five years.
Borrowing costs have been on the rise from record lows as speculation swirls around when the Federal Reserve will begin to cut back its quantitative easing measures—this also means the end of artificially low interest rates. This matters to emerging markets, because it signals the end of cheap money that’s been propping up asset prices in countries like India, China, and Indonesia.
Those investors who diversified their retirement fund with emerging-market exchange-traded funds (ETFs) have been in for a rough ride. The MSCI Emerging Markets Index (NYSE/EEM) is down eight percent year-to-date.
One of the few places where the Federal Reserve’s sphere of quantitative easing influence is muted is in the world of frontier markets. Frontier markets refer to countries such as Argentina, Kenya, Qatar, and Vietnam—those markets that are in the early stages of development. Frontier markets are an attractive opportunity for investors, because they represent a long-term economic growth possibility. And there … Read More
Emerging markets seem to be gaining popularity these days when it comes to the “next big thing” for investors. The reason for this is very simple: emerging market equities have come down in value significantly from their recent highs, leaving investors asking if its time to jump in and buy to profit.
Take a look at the equity market in India, for example—the country is considered one of the biggest emerging markets. The India Bombay Stock Exchange 30 Sensex Index is down more than 10% from its peak in late July.
India isn’t alone; stocks and key stock indices in other emerging market economies are in very similar conditions, if not performing worse. China’s stock market is lagging, Indonesia’s has recently plummeted, and the Brazilian equity market continues to show dismal returns.Please look at the chart below to get a more precise idea:
Chart courtesy of www.StockCharts.com
Before adding companies involved in emerging markets or buying an exchange-traded fund (ETF) that gives them exposure to those economies, every investor should ask themselves: does the stock market declining in value really mean there’s value—or, in other words, an opportunity for profit?
The answer: not necessarily.
Investors should consider that emerging market economies are sometimes relied on by developed nations to buy their products, because they can make them at cheaper rates. So if the developed markets start to see some sort of economic slowdown, the emerging market economies could see ripple effects. This may just be one of the phenomena driving the stock markets in those countries lower.
The developed nations in the global economy aren’t showing robust growth. For example, … Read More
I’m not sure if it’s indicative of something darker or symptomatic of what we think is important, but on a day when tensions in Syria are at a boiling point and the U.S. releases solid second-quarter gross domestic product (GDP) growth numbers, the most popular search on Google is Michael Jackson’s 55th birthday.
On Thursday, August 29, the Bureau of Economic Analysis announced it revised its second reading on U.S. GDP growth analysis up to 2.5% from an initial forecast of 1.7%. Exports in the second quarter grew faster than previously expected, increasing 8.6%, versus a 1.3% decrease in the first quarter. (Source: “National Income and Product Accounts,” Bureau of Economic Analysis web site, August 29, 2013.)
The data show that exports in the second quarter climbed at their fastest pace in more than two years. Going forward, economists expect growth in the second half of the year to be somewhat more robust.
On one hand, some maintain the strong GDP growth numbers suggest the U.S. is more prosperous and productive than previously thought. Maybe, but it’s going to be pretty tough for Americans to continue to drive 70% of all GDP growth when unemployment and personal consumer debt levels remain high, a record number of Americans are on food stamps, wages are stagnant, and more and more Americans are landing part-time jobs instead of full-time jobs.
On the other hand, I contend the strong GDP growth numbers mean we aren’t quite as healthy as we think. In fact, because of our weak economic footing, our rising GDP growth numbers are a result of U.S. firms selling their products to … Read More
The global economy is showing traits that shouldn’t go unnoticed by investors. Instead, investors should keep a close eye on their portfolio and make sure they are managing their risk properly by not being overexposed to a certain region, having their assets allocated in different asset classes, and having stop orders in place for their doubtful positions.
Investors need to know that companies trading on the key stock indices have exposure to the global economy; this means their stock prices can suffer.
The global economy looks to be heading towards a period of stagnant growth or an outright economic slowdown. The reason behind this notion is very simple: countries across the board in the global economy are witnessing anemic growth, and the demand is declining.
For example, consider India, one of the well-known emerging markets in the global economy. The central bank of India expects the country to grow by 5.5% in the fiscal year ending March 2014. This was lower than the central bank’s earlier forecast of 5.7%. (Source: Goyal, K., “India Central Bank Holds Rates in Push to Stem Rupee Plunge,” Bloomberg, July 30, 2013.)
In June, industrial output in the third-biggest hub in the global economy, Japan, fell 3.3% from a month earlier. This was the first time in five months that industrial output in the country fell; it had increased 1.9% in May. (Source: “RPT-Japan June industrial output falls 3.3 pct mth/mth,” Reuters, July 29, 2013.)
In addition to this, in the same month, the country’s retail sales also didn’t register as expected. Retail sales in the Japanese economy increased only 1.6%, compared to the 1.9% … Read More
While the majority of Americans might not have passports, that doesn’t mean we should avoid investing in foreign countries—especially in this market. Since rebounding in 2009, the S&P 500 has climbed around 145%, peaking on May 22 at 1,687.18. And that’s when it all started to go wrong.
On May 22, the Federal Reserve hinted that since the U.S. economy seemed to be on the right track, it might begin to ease its $85.0 billion-per-month quantitative easing policy. Just the idea of losing out on free money sent the markets into a frenzy—over the following two weeks, the S&P 500 lost more than four percent of its value.
While the S&P 500 regained some ground, it continued to be volatile leading up to the Federal Reserve’s June 19 meeting. During that meeting, the Federal Reserve announced that while it would continue with its quantitative easing policy, it would still ease the $85.0 billion-per-month program by the end of the year, and could end it altogether in 2014. Over the following two days, the S&P 500 slipped almost four percent.
While many investors are worried the U.S. economy will not be able to sustain itself without the Federal Reserve’s bond-buying program, there are other markets that investors can turn to if they’re looking for protection and wealth creation.
But bigger is not always better in this economic climate. On June 19, the Hong Kong and Shanghai Banking Corporation (HSBC) said its preliminary monthly Purchasing Managers’ Index (PMI) for China fell to a nine-month low in June of 48.3; a reading under 50 indicates a contraction.
Since May 22, the iShares MSCI … Read More
If you’re looking for an anxiety-free way to invest in your retirement portfolio, you’ll be looking for a long, long time. Maybe even an eternity. There may be a statistical element of certainty with rock-paper-scissors, but that’s not true for Wall Street.
And there are a lot of reasons to be skeptical about the U.S. economy and the near- and long-term outlooks of the American economy. Sure, the Dow Jones Industrial Average and the S&P 500 are notching up their record highs—but that has more to do with the Federal Reserve than it does the economy.
For the average American, the U.S. economy is nothing to feel cheery about. The unemployment rate is stubbornly high, as is household debt. Consumer confidence is down, and housing, the so-called “bright spot” in the market, is arguably fragile at best. While housing is showing buoyancy, prices are still down 41% from their 2007 peak.
Investors seeking to manage risk and diversify their retirement portfolio may want to look beyond the constraints of our geographic borders.
For savvy investors, it’s about profits, not politics or popular opinion. And for those not quite content with the economic disconnect in America, it might be time to consider adding a global position to your retirement and investment portfolio.
Over the last decade, roughly 14,000 companies have gone public, more than 90% of them outside the U.S. And some will realize U.S. market-beating returns, because they are better positioned to take advantage of global opportunities. (Source: Espinoza, J., “A Smarter Way to Invest Globally?,” Wall Street Journal June 4, 2012, last accessed April 5, 2013.)
At the same … Read More
When the stock market experiences its next major pullback, it should be an attractive entry point to consider select large-caps that pay dividends. On the cusp of another earnings season, most large U.S. corporations are in excellent financial health.
There are a number of investment themes playing out in the current business cycle. When gold prices were lofty, stocks like Caterpillar Inc. (NYSE/CAT) and Joy Global Inc. (NYSE/JOY) were really doing well.
Stock markets in China, the world’s second-largest economy, have been drifting for several years, but emerging markets, like the Philippines and Malaysia, are growing like mad. And Japan’s stock market recently turned significantly higher. Many Japanese companies are expecting strong revenue gains this year on the back of a weaker yen.
The ebb and flow of the global business cycle is always changing; and with inflation creeping into the U.S. economy, the next big play will be in real assets, as the commodity price cycle makes its final migration into the agriculture sector.
Deere & Company (NYSE/DE) has the biggest market share of any large equipment manufacturer related to agriculture in the U.S. Currently, the stock is not expensively priced, with a price-to-earnings (P/E) ratio around 11.5. Deere’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
On the stock market, Deere has proven to be cyclical and a very good long-term wealth creator for shareholders. Since 1963, the company has split its stock two-for-one on four occasions, the last one being in November 2007. Deere also split its stock three-for-one in November 2005, and the company has been increasing its annual dividends consistently for the last 10 … Read More