key stock indices
Is This the Discount Sale Investors Have Been Waiting For?
By George Leong for Daily Gains Letter | Oct 15, 2014
October has provided the usual bouts of anxiety that have characterized the month in past years. I warned that we could see volatility and so far, this has been the case.
From small-cap stocks to world-class blue-chip companies, we are seeing some selling capitulation emerge in the stock market.
All of the major key stock indices are below their respective 50-day and 200-day moving averages (MAs). As I said in a recent commentary, the chart risk is high.
Bearish investor sentiment continues to grip the stock market. We saw 354 new lows on the NYSE on Friday, followed by 308 new lows on Monday.
The DOW has reported four triple-digit-loss days over the past five sessions and in that period, it has declined nearly 600 points. The blue chip index is down 1.54% this year.
Technology has led the losers so far in October with the NASDAQ down 6.24% and off 6.08% from its peak.
The S&P 500 breached its 200-day MA for the first time since 2012. The index has corrected 5.89% from its record, so we could realistically see more selling in the weeks ahead; be careful. A decline to 1,792 would represent a 10% correction, based on my technical analysis.
Chart courtesy of www.StockCharts.com
A death cross remains intact on the Russell 2000’s chart, with the index down 13.56% from its peak as of Monday’s close.
Now, we could see further weakness should the earnings season disappoint. And Germany and Europe are already seeing contraction in their economies.
You should begin to look at investment opportunities to buy into weakness. Over the past two years, the S&P … Read More
How to Navigate Through This Chaotic Market
By George Leong for Daily Gains Letter | Oct 10, 2014
If you are a bit anxious toward the stock market, I don’t blame you. In fact, I have been through this type of scenario on numerous occasions, including the meltdowns in 1987, 2000, and 2008. The key is to not panic and immediately run for the exits; emotion in trading never works. This is also not the time to get too comfortable in the stock market.
It’s clear the stock market risk has intensified across the board after the sell-off on Tuesday that saw the DOW close lower for the ninth time over the last 12 sessions and fall below its 50-day moving average (MA). The index is now only another triple-digit loss away from negative territory for the year.
All of the four key stock indices are currently below their 50-day MAs and edging lower towards their 200-day MAs, which will be a critical point for support, based on my technical analysis.
Small-cap stocks continue to pose the highest risk with the Russell 2000 engulfed in a death cross. The index is down 11.73% from its high and showing a bias to the downside.
Chart courtesy of www.StockCharts.com
Now the selling in the stock market may not be over yet as the S&P 500, DOW, and NASDAQ are only down less than three percent from their highs.
I still sense downside risk and feel a six-percent adjustment in the stock market is not out of the question. The S&P 500 could correct to below 1,900 if the selling continues.
Chart courtesy of www.StockCharts.com
The key now is to move to the defensive and make sure you have a sound … Read More
Stock Market: Institutions Moving in Opposite Direction of Investors
By George Leong for Daily Gains Letter | Jul 30, 2014
As we move towards the end of July, trading in the stock market continues to be murky and filled with obstacles and uncertainties. The S&P 500 is holding on to a small gain this year, but there’s still a sense of nervousness among investors in the stock market.
While the small-cap stocks segment of the stock market continues to be apprehensive, and with a slightly bearish bias with the Russell 2000 being negative on the year so far, I’m also seeing some warning signs emerging from the broader stock market and blue chip stocks.
The S&P 500 continues to fall short on numerous occasions as it approaches 2,000. The Dow Jones Industrial Average has failed to hold above 17,000 on four occasions. The failure in both of these situations is a red flag, in my view, which could be foreshadowing a potential stock market adjustment. Look, we may only see a correction of five percent or so, but it’s coming.
This is a time to be prudent and take some money off the table, just as institutional investors have been. In an article I read on Yahoo!, institutions divested $7.97 billion in exchange-traded funds (ETFs) in the last week, while retail investors rushed in, buying up about $379 million of equity mutual funds. (Source: Lewitinn, L., “Why is the big money dumping stocks?” Yahoo! Finance web site, July 27, 2014.) This move indicates that the professional money is taking some cash off the table, given the five-year bull market run and current hesitancy in the stock market.
In fact, over the past year, retail investors have been rushing into the … Read More
The Red Flag I’m Seeing in Stocks Right Now
By George Leong for Daily Gains Letter | Jul 16, 2014
In my previous article, I talked about the vulnerability of stocks at this time, a disappointing economy, and what will likely be disappointing earnings.
On the weekend, I was thinking back to 2000, when the stock market came crashing down after a sizzling but unwarranted run-up in technology stocks and initial public offerings (IPOs). It wasn’t pretty, and while I don’t believe the stock market is priming for another major sell-off right now, I’m still nervous.
The DOW recovered to 17,000 on Monday, but if it fails to hold again, I would be wary. The failure of the S&P 500 to test 2,000 despite coming so close is also a red flag, based on my technical analysis.
Yet unlike 14 years ago, the current bull stock market, which is in its fifth year and looking weary, has largely been driven by the easy money the Federal Reserve has been pumping into the economy. The reality is that this third round of quantitative easing (QE3) will likely be dissolved by October and interest rates will be heading higher by mid-2015. As I said the other day, this will have a negative impact on the stock market.
In addition, the rising flow of capital into the stock market by retail investors is also a red flag that has generally been followed by selling in the past.
What you have are investors who have sat on the sidelines, waiting for a major stock market correction that really hasn’t materialized in five years. This group sees people making money in the stock market and decides they need to jump in with little regard as … Read More
Investors Causing Massive Shifts in Growth Stocks
By Moe Zulfiqar for Daily Gains Letter | May 14, 2014
You can’t deny it: there are outright signs of stress on the key stock indices. We see investors are worried, and they just don’t like risk. We see huge selling in the growth stocks, with names like Amazon.com, Inc. (NASDAQ/AMZN) and Twitter, Inc. (NYSE/TWTR); they are witnessing a huge sell-off and are now in bear market territory. The biotechnology sector is getting slammed—investors are hitting the bid and running for the exit.
With all this happening, one question comes to mind: what happens next? Growth stocks can act as a leading indicator of what’s next for the markets. Are key stock indices setting up for a huge market sell-off ahead?
Sadly, as this happens, we are hearing a significant increase in the noise. The bulls say this pullback should be used to get into the sold-off companies again. The bears argue that key stock indices are going to shed more gains. Beware; your portfolio might get hurt.
When it comes to investing for the long run, it is critical that investors try to minimize the noise and look at the long term.
With this said, over the past few years, the key stock indices have increased significantly. 2013 was another stellar year. Key stock indices like the S&P 500 increased more than 30%. Companies that are getting sold off—for example, Amazon.com—increased roughly 50%. The NASDAQ biotechnology sector that’s plunging lower now had increased by more than 85% in 2013.
Going forward, it doesn’t look like the year 2014 will be anything like 2013. I expect the key stock indices to move sideways—trading in a range. These ranges may break to … Read More
How to Protect Your Portfolio and Profit as Interest Rates Rise
By Guest Columnist, Asad Butt, BA for Daily Gains Letter | Apr 9, 2014
According to data released by the U.S. Bureau of Labor Statistics (BLS) last Friday, the unemployment rate stood at 6.7% in March, which is similar to the unemployment rate in February. A total of 192,000 jobs were added, of which food and drinking places added more than 30,000 and “temporary” help services in the professional and business industry added more than 29,000 jobs. The labor market fell slightly short of expectations as analysts had forecasted the unemployment rate to be 6.6% for March. (Source: “The Employment Situation — March 2014,” Bureau of Labor Statistics web site, April 4, 2014.)
The Fed announced it would start to scale back its monetary stimulus last December, after jobs numbers started to show signs of a recovering economy. The unemployment rate initially dropped, only to settle at levels that have remained unchanged for the greater part of the winter season. Simultaneously, initial jobless claims increased by 5.16% during the week ended March 28, 2014, raising eyebrows toward the ability of the Fed’s policies to carry the string of economic recovery further. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 7, 2014.)
While most economic challenges faced by the Fed for the last four months have been blamed on cold weather, a rigid unemployment rate and increasing jobless claims point towards a weaker-than-expected recovery. Amidst this, the Fed chair, Janet Yellen, while speaking at a press conference on March 19, confirmed that the Fed plans to go ahead with the tapering program in its bid to elevate interest rates up from their near-zero levels. (Source: Risen, T., “Janet Yellen Continues Tapering … Read More
Three Ways to Combat a “Recovery” That Even the Fed Says
By John Whitefoot for Daily Gains Letter | Apr 2, 2014
Federal Reserve Chair Janet Yellen confirmed what we’ve been espousing in these pages for the last couple of years—that the so-called recovery feels an awful lot like a recession for most Americans.
Addressing a crowd in Chicago, the head of the Federal Reserve said the U.S. jobs market is still underperforming and will continue to need the help of an artificially low interest rate environment “for some time.”
Investors were, as you can imagine, afraid the Federal Reserve was going to raise short-term rates. A rate hike would elevate borrowing costs and pull the rug out from under stock prices.
But instead, the Federal Reserve said it was committed to keeping interest rates low in an effort to stimulate borrowing, spending, and economic growth. The artificially low interest rate environment is a welcome sign for Wall Street—which essentially ended the first quarter of the year where it began.
By committing to keeping interest rates low, the Federal Reserve is ensuring a steady flow of money into the stock market…which cannot help but raise the already-bloated indices higher. The S&P 500 continues to trade near record-highs, as does the Dow Jones Industrial Average. Even the NASDAQ’s all-time high is, all things considered, within striking distance.
With the current bull market now in its fifth year—all is well in the U.S.A.! That is, if you’re one of the fortunate few to even realize we’re in a bull market. There are far too many weak underlying indicators to suggest we’re on a stable—let alone sustainable—economic footing.
For instance, the U.S. unemployment rate has improved from 10% in 2009 to 6.7% today. On the … Read More
Do Fundamentals and Technical Analysis Still Matter?
By Moe Zulfiqar for Daily Gains Letter | Apr 2, 2014
Over the weekend, I met with a friend of mine. He’s been a stock market investor for some time now, and over the last few years—especially since 2012 and 2013—he has done phenomenally well when it comes to his portfolio performance.
While talking to him about markets, he said something very interesting. His exact words were, “If you are investing in the stock market using fundamental or technical analysis these days, you are most likely going to lose money—or your returns will be dismal. The basic principles of investing hardly apply these days.”
“Hold on; what?” I said.
He explained: “Between 2009 and 2011, you could have found some opportunities in the stock market, and there was still value available. After the summer of 2012, it all changed. The stock market is now dictated by financial engineering.”
He went on to say, “Don’t just take what I say; see for yourself as well. Look at the stock performance of the companies that are buying back their shares. Look at the companies that are increasing their dividends. You will see their stock value has risen significantly despite very minute changes in their fundamentals in the last couple of years. If their chart was forming a bearish pattern and you traded accordingly, you probably incurred a loss.”
He is right!
Since the summer of 2012, the stock market has risen significantly. If you look at key stock indices like the S&P 500, its return since June 2012 to the end of 2013 was almost 36%. This means that if you invested $1,000 in the stock market on June 1, 2012 and closed … Read More
Depressed Copper Prices Presenting Perfect Buy-Low, Sell-High Opportunity?
By Moe Zulfiqar for Daily Gains Letter | Mar 26, 2014
By now, you have probably noticed one phenomenon: the speculations regarding China’s growth are increasing each day. Turning on the TV or flipping through the pages of the newspaper, you’ll likely hear and read all about how the second-biggest economic hub in the global economy will tumble.
No doubt, the arguments backing this argument are very credible. The Chinese economy is seeing an economic slowdown and troubles in that country continue to gain strength. For example, the Chinese manufacturing sector is stalling. In March, the HSBC Flash China Manufacturing Purchasing Mangers’ Index (PMI) declined to its lowest level in eight months. The output index declined to an 18-month low. (Source: “HSBC Purchasing Managers’ Index Press Release; Output contract at quickest pace in 18 months during March,” Markit, March 24, 2014.)
We have seen a few companies in the Chinese economy default on their bonds, and there are fears that more will soon fall. The widespread speculation is that the government might not come to the aid of those companies that are in trouble.
With this, investors are panicking. One of the hardest-hit asset classes due to this panic is copper. Please take a look at the chart of copper prices below.
Chart courtesy of www.StockCharts.com
Since the beginning of the year, copper prices are down more than 13% and investors believe demand for the red metal will continue to decrease due to the decline in manufacturing. During the past decade, China was building massive infrastructure and a significant amount of copper was needed as a result. This is not the case anymore.
Copper prices have broken below a key level—$3.00—and … Read More
Three Tips for Investing in the Emerging Markets
By Moe Zulfiqar for Daily Gains Letter | Mar 20, 2014
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
The Chart That Will Make You Bullish on Gold
By Moe Zulfiqar for Daily Gains Letter | Mar 19, 2014
Since the beginning of the year, gold bullion has gained a significant amount of attention. The precious metal has increased about 14% in value and has become one of the best-performing asset classes. Key stock indices, on the other hand, are down.
With this rise in gold bullion prices, we see an increasing amount of pessimism. In 2013, we heard the metal was a slam-dunk sale. Now, the warnings are a little tamer, but we are told $1,200-an-ounce gold bullion is very possible. The mining companies that have increased in value will see a pullback.
Before going into further detail, please look at the chart of daily gold bullion prices below.
Chart courtesy of www.StockCharts.com
As I have written about in these pages before, I am bullish on gold mainly because of one fundamental reason: the demand for the yellow metal is much higher and constraints to its supply are increasing.
But this isn’t all. When I look at the charts, my bullish convictions for higher gold bullion prices become stronger.
Ask any technical analyst; they will tell you to treat the trend as your friend, follow it until it breaks. Since late 2012, gold bullion prices were trending in a downtrend (black line on the chart above). This changed. In June of 2013, we saw the precious metal’s prices decline below $1,200, and then in December, they tested those levels again. As this happened, there was one phenomenon no one talked about: there was no follow-through—meaning gold bullion prices never declined below their lows. Instead, there was a formation of the chart pattern called the “double bottom.” In February … Read More
How to Profit from China’s Economic Slowdown
By Moe Zulfiqar for Daily Gains Letter | Mar 13, 2014
There’s a significant amount of pessimism towards the Chinese economy these days, and the reasons behind this are very understandable. The economic data suggests the country is headed toward an economic slowdown.
In 2013, China’s gross domestic product (GDP) grew by 7.7%—barely better than the previous year and the estimates that were calling for the lowest growth rate since 1999. (Source: Yao, K. and Wang, A., “China’s 2013 economic growth dodges 14-year low but further slowing seen,” Reuters, January 20, 2014.) Keep in mind that despite beating the estimates, this GDP growth rate is much lower than the country’s historical average.
This isn’t all. A credit crunch is also in the making. We are now hearing how companies in China will have troubles paying their interest on the bonds they have issued. So far, we have seen one default on payment by Shanghai Chaori Solar Energy Science & Technology Co. This solar company, based in China, defaulted on a $14.7-million interest payment on bonds it issued two years ago. (Source: Wei, L., McMahon, D. and Ma, W., “Chinese Firm’s Bond Default May Not Be the Last,” The Wall Street Journal, March 9, 2014.)
Before this default, there was a slight hope that the government would come in and bail out the troubled companies—something that happened in the U.S. economy during the financial crisis in 2008. Now, with this default, there are speculations that we will see more of the same.
Furthermore, there are concerns that property values in the Chinese economy are going to see a correction. Over the past few years, there has been the mass development of ghost … Read More
When Cash Is King for Stock Market Investors
By Moe Zulfiqar for Daily Gains Letter | Mar 11, 2014
The optimism on the key stock indices is increasing as the fundamentals that suggest the rally will go on continue to deteriorate. Investors beware; this disparity doesn’t end well. The possible upside gains look to be very small, and the downside risks are increasing.
To me, it feels like we are back in 2007 all over again—when key stock indices were making fresh highs and fundamentals across the board were tormented. Stock advisors were telling their clients to buy more. Irrationality was exuberant. I remember one celebrity stock advisor saying something along the lines of, “I know it doesn’t make sense buying overvalued stocks, but don’t worry; they are going to go higher.”
We see something similar now.
Investors are buying stocks. According to the data from Investment Company Institute, in January, investors purchased $23.9 billion worth of long-term stock mutual funds. This was the highest amount since January of 2013. (Source: “Historical Flow Data,” Investment Company Institute web site, last accessed March 7, 2014.)
As key stock indices are hitting their all-time highs, investor sentiment is turning bullish. According to the American Association of Individual Investors’ (AAII) Investor Sentiment Survey—which measures investors’ sentiment, be it bullish, bearish, or neutral—in the latest survey, which was on March 5, more than 40% of investors were bullish on the key stock indices. Bears were only 26.6%. (Source: “AAII Investor Sentiment Survey,” American Association of Individual Investors web site, last accessed March 7, 2014.)
This isn’t the only reason why 2014 looks like 2007.
Consider this: more and more companies are being listed on the key stock indices. According to Dealogic—a platform for … Read More
Are ETFs Really the Best Investment for You?
By Moe Zulfiqar for Daily Gains Letter | Mar 7, 2014
One of the investment strategies discussed in the mainstream these days is to add exchange-traded funds (ETFs) to your portfolio. It is said that when you do just that, your portfolio has lower risks and you are well diversified.
For investors who are not as advanced, when it comes to investing; this investment strategy makes sense. For those who are advanced, they shouldn’t fall for this investment strategy; they may be better off going the other way—buying individual stocks instead.
Let me explain…
Between March of 2009—when the bull market run started—until February of this year, if you bought the most famous ETF for your portfolio—that is SPDR S&P 500 (NYSEArca/SPY), which tracks the S&P 500—your returns would be more than 185%. Plus, there would be dividends. Including dividends, your returns would be just over 200%.
But, saying the very least, you could have done better.
If instead of buying the SPY at the time when markets were presenting investors with an opportunity of a lifetime you bought a company from the S&P 500 like General Electric Company (NYSE/GE), your profits would be upwards of 300%. This is including the dividends you would have received.
With all this said, let me make one thing very clear; I am not opposed to adding ETFs to a portfolio. Rather, I believe investors can get better portfolio returns if they are confident enough in making their investment decisions and buying individual companies instead of sticking to indexed investing.
In 2009, stock markets were very uncertain. With companies like GE, there were fears that it may go bankrupt. Buying at that time wouldn’t have … Read More
Can This Precious Metal Save Your Portfolio from the Rising Tensions in Crimea?
By Moe Zulfiqar for Daily Gains Letter | Mar 5, 2014
These days, we have been hearing a significant amount of news out of Ukraine. “Pro-Russian troops” are now in control of the security and administrative systems in the Crimea region, which is the mainly Russian-speaking area of the country. World leaders are saying that this is nothing but an act of aggression by Russia, saying that at the very least, the situation is worsening each day and it’s very unpredictable what could happen next.
As a result of the uncertainty, key stock indices here in the U.S. are sliding lower—mind you, the Ukraine is neither a major trading partner with the U.S. nor is it a country in which a lot of American-based companies operate. Considering this, one must wonder why key stock indices are seeing selling then at all.
Here’s what investors really need to know…
It all comes down to this: the Ukraine/Russia issue is a problem for the global economy, with which the key stock indices are highly correlated. If the global economy as a whole faces an issue, then the key stock indices slide lower. This is something investors have to keep in mind.
Ukraine is just one of the issues for the global economy that we see in the news; there are others, which investors need to know about, that may have even more gruesome consequences on the key stock indices than now.
For example, the Chinese economy isn’t getting much attention these days, but we see manufacturing activity in the country is continuously declining. This shows that the demand is slowing down and it will impact the bottom-line of companies on the key stock … Read More
Five Ways to Preserve Your Wealth as Key Stock Indices Decline
By Moe Zulfiqar for Daily Gains Letter | Feb 28, 2014
The key stock indices continue to make new highs. Each day, there’s someone on the TV saying how we are going higher. Some are estimating key stock indices will do much better this year than last. No matter where you look, the opinion seems to be the same: buy stocks and your portfolio will do great. With all this happening, investors must remember one very important lesson that the stock market has taught us over and over again: a rising tide lifts all boats, but tides come and go.
Let me explain…
As key stock indices are going higher, investors’ portfolios may look great. Their return may be exuberant, but they shouldn’t forget that markets tend to move in waves. The conditions may look rosy now, but eventually, it all turns. Key stock indices are known to have corrections—minor or steep.
When the times are good on the key stock indices, such as now, long-term investors have to keep market corrections and sell-offs in mind.
Generally, when the key stock indices turn, investors turn towards government bonds. This is mainly because they move in the opposite direction of the stock market. Investors can protect their assets when key stock indices decline by going heavyweight on exchange-traded funds (ETFs), like PIMCO Total Return ETF (NYSEArca/BOND)—this ETF, like many others, invests in bonds with different maturities. Investors may even consider ETFs like iShares TIPS Bond (NYSEArca/TIP), which invests in the inflation-protected bonds issued by the U.S. Treasury.
Another way investors can protect their portfolio in the case that key stock indices sell off is through gold bullion. The yellow shiny metal has … Read More
Where to Invest When Key Stock Indices Struggle to Climb Higher
By Moe Zulfiqar for Daily Gains Letter | Feb 25, 2014
Key stock indices were going through a rough patch from the beginning of the year until early February. Now, they seem to have some momentum to the upside. With this, investors are asking what kind of upside potential is possible. Will the key stock indices continue to increase and break above their previous highs, or are we due for another sell-off like the one we saw earlier, and only then will we see some good buying points?
Let me begin by saying what I have said many times in these pages before: 2013 was a stellar year for key stock indices, but now they need to breathe a little. The key stock indices may go above their all-time highs made at the end of last year, but the move isn’t going to be as robust. You might see a slow, dreadful move to the upside.
If this scenario does play out—key stock indices moving slowly and breaking above their all-time highs—the fundamentals are suggesting it won’t be a significant move.
Companies on the key stock indices are warning about their corporate earnings. For example, 66 companies on the S&P 500 have issued negative guidance about their corporate earnings in the first quarter of this year. (Source: “Slightly larger cuts to earnings estimates than average at mid-point of Q1 2014,” FactSet, February 14, 2014.) Corporate earnings estimates by analysts are also being slashed. Mind you, we are just in the second month of the quarter.
Major names on the key stock indices are reporting horrible sales. Consider Caterpillar Inc. (NYSE/CAT), a major industrial goods manufacturer, for example. The company reported its … Read More
As Investors Grow More Skeptical Toward Stocks, Time to Move to Safe Haven ETFs?
By Moe Zulfiqar for Daily Gains Letter | Feb 19, 2014
We see there’s a significant amount of economic news mounting against the argument that key stock indices will go higher this year. We see major companies on the key stock indices reporting corporate earnings that are dismal to say the very least. We see indicators of prosperity suggesting the opposite is likely going to be true for the U.S. economy. Lastly, we also see troubles developing very quickly in the global economy.
First on the line are the corporate earnings of companies on the key stock indices—which is hands down one of the main factors that drive these indices higher. We see companies showing signs of stress. Consider General Motors Company (NYSE/GM), for example; the company’s corporate earnings declined 22% in 2013 from the previous year. (Source: “GM reports lower-than-expected 4Q earnings,” Yahoo! Finance, February 6, 2014.)
Some might call this a story of the past; we need to look at what the future looks like instead. Sadly, going forward, companies on the key stock indices and analysts look worried as well. Consider this: so far, 57 S&P 500 companies have issued negative corporate earnings guidance, while only 14 have issued positive guidance. At the same time, analysts’ expectations are coming down as well. On December 31, the consensus estimate expected S&P 500 earnings to grow by 4.3%; now, these expectations have come down to 1.5%. (Source: “S&P 500 Earnings Insight,” FactSet, February 7, 2014.)
Looking at the broader U.S. economy, it’s not moving in favor of the key stock indices, either—the economic data isn’t looking very promising.
Industrial production in the U.S. economy declined in January from the previous … Read More
Two Reasons to Consider Gold Investments Right Now
By Moe Zulfiqar for Daily Gains Letter | Feb 12, 2014
“Why would someone be bullish on gold right now? Stocks have the momentum. Let me warn: you will be better off buying stocks than buying gold bullion.” These were the “wise” words of my good old friend Mr. Speculator, when I met him over the weekend.
Not too long ago, he was afraid about what would happen to his stock position. Now, his opinion has changed. Mr. Speculator thinks key stock indices will hit new highs and gold bullion—which provides safety against the backdrop of a weak economy—will go down further. He said, “It will be a bad year for gold investors.”
Mr. Speculator may be right about the key stock indices. The momentum on the stock market is significantly noticeable. We see buyers come in and buy after every decline. This can continue, but you have to keep in mind that the fundamentals are becoming weak. This can be troublesome and could create a massive sell-off very quickly.
On gold, however, I completely disagree.
I have been bullish on gold bullion for some time, and my main argument has to do with the demand and supply of the precious metal. I see demand for gold bullion increasing, while the supply side is being threatened due to low prices.
We are seeing China become the biggest consumer of gold bullion. It was India before, but the government and the central bank of the country are working very hard to curb the demand for the yellow shiny metal. According to the China Gold Association, in 2013, the total precious metal consumption in the country increased by 41% to 1,176.4 tonnes. This … Read More
February to Be a Repeat of January’s Market Losses?
By Moe Zulfiqar for Daily Gains Letter | Feb 7, 2014
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
Three Steps to Overcoming Losses in a Declining Market
By Moe Zulfiqar for Daily Gains Letter | Feb 6, 2014
“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
Why January Auto Sales Point to Bleak Future for U.S. Economy
By John Whitefoot for Daily Gains Letter | Feb 5, 2014
Despite assurances from analysts, economists, and central bankers, the U.S. economy isn’t faring so well—and the markets are finally beginning to see what we’ve been warning about in these pages all last year.
For sustainable growth, the U.S. economy needs to be reporting consistently strong fiscals. But it isn’t. For starters, the key stock indices, a reflection of the U.S. economy, have extended their sharp January losses. The S&P 500 is down 5.6% year-to-date, the Dow Jones Industrial Average has lost more than seven percent of its value so far this year, the NYSE is down roughly six percent, and the NASDAQ is in the red by four percent.
Every quarter since the beginning of 2013, an increasingly larger number of S&P 500-listed companies have revised their quarterly earnings lower. During the first quarter of 2013, the number stood at 78%. This time around, 81% of S&P 500 companies have revised their first-quarter earnings lower.
Why the big losses? That depends on whom you talk to. The Bank of America, without even a hint of a smirk, blames the much colder-than-expected weather for the weak U.S. economy, meaning the U.S. economy and global markets are performing poorly because of a snow storm…
I suggest the U.S. economy is doing poorly and the U.S. markets are tanking for entirely different reasons. For starters, the U.S. economy needs steady jobs and earnings growth. Instead, the U.S. economy is facing high unemployment and stagnant wages. For the week ended January 25, jobless claims jumped more than forecast to a seasonally adjusted 348,000.
And a record number of Americans rely on food stamps. Interestingly, … Read More
The Super Bowl Indicator; Did the Right Team Win?
By Moe Zulfiqar for Daily Gains Letter | Feb 5, 2014
This past Sunday, the Seattle Seahawks won their first Super Bowl with a final score of 43 to 8 against the Denver Broncos. My favorite team, the Dallas Cowboys, wasn’t playing, but I still watched the game, because the ads and half-time show are always fun—plus, it can predict where the stock market is going to go for the year.
Yes, you read that correctly; the Super Bowl is supposedly an indicator of the stock market. The indicator is very simple: whenever a team from the NFC division wins, the stock market increases. If the team from the AFC division wins, then key stock indices decline.
With the NFC-division Seahawks winning the Super Bowl, will the stock market increase in 2014?
Before going into further detail, you have to keep one important factor in mind: the Super Bowl indicator has failed at times.
One example of this indicator failing was in 2008. If you recall, the New York Giants—the team from the NFC—won the Super Bowl game after beating the New England Patriots, but the stock market that year had a complete fallout. Key stock indices like the S&P 500 collapsed more than 35% in 2008.
The indicator failed last year, as well, when the team from the AFC—the Baltimore Ravens—won, but the stock market had a stellar performance. The S&P 500 was up almost 30% for the year.
Having said that, here’s my take on following indicators like this one: the indicator could always fail again this year.
As we have just entered into the second month of trading, we see investors are nervous. In January, key stock indices … Read More
Three Stocks to Profit While Market Struggles with Positive Return
By John Whitefoot for Daily Gains Letter | Feb 4, 2014
If January is any indication of the stock market action in 2014, we’re in for a long year. After a scorching year, the key stock indices are ending the first month of 2014 in the red. As we say goodbye to January, it’s worth noting that the S&P 500, after notching up five-percent in the first month of 2013, gave up three percent of its value during the first month of 2014.
The other indices aren’t faring any better. The NYSE posted a 3.8% gain in January 2013, but lost 3.2% of its value in January 2014. The Dow Jones Industrial Average gained six percent in January 2013, but at the close of January 2014, it’s down almost five percent.
But, if you listen to the overly optimistic statisticians, a bad January does not necessarily portend a bad year. Since 1962, in January, the S&P 500 has fallen by more than four percent nine times. But, when that occurs, the S&P 500 is actually up between February and the end of the year—though barely. During those nine years with losing Januarys, the average February–year-end returns tallied 1.08%. (Source: Ratner, J., “A weak January for stocks isn’t as bad as you think,” Financial Post, January 31, 2014.)
Though, there are some statistical anomalies in there that might just be helping the so-called as-goes-January seasonal anomaly, in two of the nine years (1968 and 2009), the S&P 500 reported double-digit gains over the final 11 months of the year. In 1968, the S&P 500 was up 12.1%; in 2009, it was up 35.3%.
In the same time, the S&P 500 saw a … Read More
The One Chart Stock Market Bulls Can’t Ignore
By Moe Zulfiqar for Daily Gains Letter | Feb 3, 2014
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
What I Told The Speculator About the Stock Market Now
By Moe Zulfiqar for Daily Gains Letter | Jan 30, 2014
Just a few days ago, I received another call from my good old friend Mr. Speculator. He was worried. He has been long on the stock market since the beginning of the year, but sadly, stocks have come down a bit. He asked, “Do you think there’s more downside on the stock market? Or is this the correction everyone was talking about?” Mr. Speculator bought exchange-traded funds (ETFs) that provide him leverage; he added, “My losses are adding up. Should I sell or wait?”
Mr. Speculator isn’t the only one who is asking this question since the key stock indices started to come down. I hear this question being asked all around. January is supposedly a good month for stocks, but so far, this is simply not the case. The S&P 500 is down roughly three percent. Investors are asking whether or not the returns on stocks are going to be horrible this year.
Looking at the charts and assessing the sentiment, it appears reality is slowly coming back to the stock market. Take a look at the following chart of the S&P 500.
Chart courtesy of www.StockCharts.com
Looking from a technical analysis point of view and taking the S&P 500 as an indicator of the entire stock market, there are a few developments that investors need to know.
First of all, since the beginning of the year, the volume on the S&P 500 has been increasing. This is interesting to note, because it suggests investors are selling into weakness. In addition to this, we see that the S&P 500 has broken below the 1,800 level and has moved below … Read More
Have These Stocks Already Been Through a Correction?
By John Whitefoot for Daily Gains Letter | Jan 28, 2014
It’s incredible, really, that some investors are surprised that the Dow Jones Industrial Average, NYSE, and S&P 500 are in the red for the year, spooked apparently by weak corporate earnings.
How can this be a surprise? Is it fair to say that 2013 was an irrational momentum play? Has that logic finally caught up to investors? Once again, I enter as evidence 2013’s fourth-quarter earnings—which should not have caught anyone off guard.
The ball got rolling in late 2012, when 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance for the first quarter of 2013. The negative earnings momentum continued into the second quarter, when 81% of companies on the S&P 500 lowered their earnings guidance.
Against the backdrop of rising key stock indices, a record 83% of all S&P 500 companies waved the white flag, revising their third-quarter earnings guidance.
Still, the S&P 500 climbed higher. And in a desperate bid to help investors avoid the economic iceberg and take profits, a record 88% of reporting S&P 500 companies issued negative fourth-quarter earnings guidance. (Source: “Record high number and percentage of S&P 500 companies issuing negative EPS guidance for Q4,” FactSet, January 2, 2014.)
And here we are in the midst of fourth-quarter earnings season and investors are sending the key stock indices into the red, disappointed, it would seem, with what they were warned was coming.
As we enter the last week of January, the S&P 500 is down 2.5% so far this year. At this same time last year, the S&P 500 was up roughly 2.2%. The Dow Jones Industrial Average is down 3.5% in … Read More
These Value Stocks Could Outperform the Market in 2014
By John Whitefoot for Daily Gains Letter | Jan 23, 2014
Yesterday, I wrote about how a raft of weak first-quarter results could trip up the S&P 500 and put a dent in its unblemished bull run. My theory: the S&P 500’s stellar performance in 2013 was a result of financial engineering (share buybacks and cost-cutting) and the Federal Reserve’s monetary policy, not strong revenue and earnings growth.
As a result, the S&P 500 and other key stock indices are overbought and overpriced, meaning stocks will have a tough time justifying their lofty valuations if first-quarter results fail to wow investors. And odds are good that they will disappoint. A record 94% of S&P 500 reporting companies revised their fourth-quarter guidance lower.
That is, unless investors fail to realize earnings projections were lowered and reward stocks for beating barely there expectations—it’s not impossible. For evidence, I point to the action in the S&P 500 in 2013.
With stocks on the S&P 500 being overpriced, it’s getting more and more difficult to find equities that will actually perform well based on legitimate metrics, like revenues, earnings, and cash. For the most part, it seems investors punish those stocks that don’t perform as well as expected by simply not lifting their share prices higher. As a result, it’s become increasingly difficult to build a balanced portfolio with both growth and value stocks—especially when you consider the fact that analysts expect the S&P 500 to grow just six percent in 2014. Analysts might be more optimistic about the S&P 500 long-term, but that’s of little solace for investors hoping to actually make money this year.
Investors on the lookout for value stocks may need … Read More
Weak Q1 Earnings to Finally Trip Up the Illogical S&P 500
By John Whitefoot for Daily Gains Letter | Jan 22, 2014
Stock markets are only as healthy as their stocks—well, at least they technically should be. But despite its stellar year in 2013, the S&P 500’s component stocks weren’t supporting the growth with strong revenue and earnings growth.
I might sound like a broken record, but the fact of the matter is that the S&P 500 was fuelled by the Federal Reserve and its $85.0-billion-a-month quantitative easing efforts and artificially low interest rates, and the fact that businesses were streamlining operations and implementing aggressive share repurchase programs.
When it comes to financially engineering quarterly results, companies on the key stock indices logged a record-high for share buyback activity. In fact, in 2013, share buybacks amounted to $460 billion—the highest amount since 2007.
Companies on the S&P 500 embraced cutbacks and share repurchase programs because their earnings were nothing to talk about. Despite a year full of all-time highs, each quarter, a larger percentage of companies on the S&P 500 revised their earnings guidance lower—a seemingly obvious disconnect.
During the first quarter, 78% of S&P 500 companies revised their earnings lower; 81% did so in the second quarter; and a record 83% of firms offered lower earnings guidance in the third quarter. Not to be outdone, the fourth quarter saw 94% revise their guidance lower. (Source: “Record high number and percentage of S&P 500 companies issuing negative EPS guidance for Q4,” FactSet, January 2, 2014.)
In spite of the earnings disappointment, the S&P 500 continues to march illogically higher. The index might have gained 30% in 2013—but did it come at a cost? To keep growing, stocks actually have to start posting … Read More
What the Worst Start to the Year for the Stock Market Since 2005 Means
By Moe Zulfiqar for Daily Gains Letter | Jan 17, 2014
Out of the first seven trading days of 2014, the S&P 500 declined on five of those days, marking the worst start to the year for the stock market since 2005. This phenomenon has raised many questions. Looking at this, investors are asking how the returns on the S&P 500 will look this year. Why? Because in 2005, the S&P 500 only increased by 2.87%.
In 2005, the months of July and November were good for the S&P 500; the index increased by more than 3.5% in each of those months. On the other hand, January, March, and April were the worst-performing months that year. In these months, the S&P 500 declined by more than two percent. (Source: StockCharts.com, last accessed January 15, 2014.)
Will the S&P 500 follow the same trajectory in 2014 as it did in 2005?
As it stands, I believe the S&P 500 may perform worse than it did in 2005. As I’ve mentioned in these pages many times before, there are many factors that are leading me to believe this can happen; for example, we are seeing a surge in optimism towards stocks—stock advisors are the most bullish they’ve been since the last market sell-off. As well, the U.S. economic growth isn’t really surprising when you look much deeper into the details, and most importantly; the Federal Reserve has announced that it will start to reduce its asset purchases (quantitative easing). When combined, these phenomena could bring the S&P 500’s performance down this year.
Regardless, you have to keep one of the most important lessons of investing in mind: don’t predict tops and bottoms. The … Read More
Bears Becoming Bulls En Masse as Optimism Rises
By Moe Zulfiqar for Daily Gains Letter | Jan 15, 2014
Increasing optimism is dangerous for key stock indices. Sadly, this is exactly what we’re seeing in the markets right now. It is very evident wherever you look. Stock advisors are saying, “Just buy stocks, and you will do alright.” Investors feel good about stocks. Those who were bearish on the key stock indices since the crash in 2008 and 2009 are also turning bullish—the bears are declining in numbers each week; it’s becoming especially difficult for them to keep their pessimistic stance these days.
One of the key economic indicators that I follow when looking at the optimism in key stock indices is called the Chicago Board Options Exchange (CBOE) total options put/call ratio.
This indicator, at the very core, shows the ratio of volume of puts and call options. When there are more call options, this ratio stands below one. When there are more put options than call options, the ratio stays above one. Currently, this ratio stands at 0.6—a level last seen in 2011. Since at least 2007, this ratio of call options to put options has reached this level only a handful of times, as you can see in the chart below.
Chart courtesy of www.StockCharts.com
When call options increase, it means investors are bullish towards the key stock indices. When the put options increase, it means investors believe the key stock indices will experience pressures ahead. The current put/call ratio suggests investors are not worried.
Another indicator I look at to assess the optimism on key stock indices is margin debt—the amount of stock purchased on borrowed money. When margin debt is high, this shows that … Read More
Want to Give Up on Picking Stocks and Just Play the Market? Here’s How
By Moe Zulfiqar for Daily Gains Letter | Jan 13, 2014
The year 2013 was a stellar year for stocks. The key stock indices have seen record increases: the S&P 500, which showed its best performance since 1997, increased by almost 30%; the Dow Jones Industrial Average saw a similar increase; and the NASDAQ Composite Index performed even better, ending the year with a return of more than 35%.
Looking at these numbers, one must really ask how their portfolio has done. If your portfolio had similar returns—well done! If it lagged, here’s something to note: hedge funds returned only 7.4% for the year. They lagged by almost 23% compared to the broader market return—the most since 2005. (Source: Bit, K., “Hedge Funds Trail Stocks for Fifth Year With 7.4% Return,” Bloomberg, January 8, 2014.)
Two key stocks that beat the returns of key stock indices and the returns given by the hedge funds many times over this past year were Gray Television, Inc. (NYSE/GTN) and Tesla Motors, Inc. (NASDAQ/TSLA).
Gray Television, Inc.
In 2013, this stock opened at $2.28. On the last trading day of the year, it closed at $14.88. If you held Gray Television stock in your portfolio for the entire year, your profits per share would have been $12.60, or just over 552%. (Source: StockCharts.com, last accessed January 9, 2014.) This return is similar to beating the hedge funds return by almost 75 times and beating the returns posted by the S&P 500 by 18 times. Below is the chart that shows this stock’s precise move.
Chart courtesy of www.StockCharts.com
Tesla Motors, Inc.
Tesla Motors opened at $35.00 in 2013. On the last trading day of the … Read More
Time to Go Against the Key Stock Indices?
By Moe Zulfiqar for Daily Gains Letter | Jan 6, 2014
Trading for 2014 has begun. In 2013, we saw massive moves on the key stock indices—something we have only seen a few times. For example, the S&P 500 moved up by almost 30%, and the NASDAQ Composite increased by more than 35%. Those who were long saw their portfolio grow, and those who went against the key stock indices probably had to question their strategy and re-allocate the capital.
You can see for yourself in the chart below: key stock indices such as the S&P 500 maintained an upward trajectory throughout the year—and without any major hiccups.
Chart courtesy of www.StockCharts.com
The average return on the S&P 500 between 1970 and 2012 was 8.2%; on the Dow Jones Industrial Average, it was 7.9%; and on the NASDAQ Composite, it was just slightly more than 13%. (Source: “Historical Price Data,” StockCharts.com, last accessed January 2, 2013.)
Sadly, these numbers only indicate past performance. With the beginning of the new year, investors have one main question in mind: where are the key stock indices going to go in 2014? Will we see a decline or are we in for another stellar year?
The year 2014, I believe, is going to be an interesting year for stock investors. The rally in the key stock indices that started in 2009 continues to march forward. As this is happening, the fundamentals that act as fuel for the stock market rally are becoming anemic. This should be noted, because without fundamentals becoming stronger, key stock indices can only go so far.
For instance, on the surface, the U.S. gross domestic product (GDP) looks better than before, … Read More
In Review: 2013 and the Game Plan for Investors in 2014
By Moe Zulfiqar for Daily Gains Letter | Dec 23, 2013
We are reaching the end of the year, and it has really been one stellar year for the key stock indices. The S&P 500 is up roughly 25%. Other key stock indices, like the Dow Jones Industrial Average and the NASDAQ Composite index, have shown very similar returns.
Just look at the chart of the S&P 500 below:
Chart courtesy of www.StockCharts.com
The chart shows nothing but a solid uptrend—the S&P 500 continues to make higher lows and higher highs. It seems the momentum is towards buying.
But looking at how 2013 progressed, as the key stock indices continued to march higher, a few disturbing phenomena took place.
First, sales of companies on key stock indices aren’t really meeting expectations. For example, in the third quarter, only 52% of the S&P 500 companies were able to beat their revenue expectation, while 73% of them were able to beat their corporate earnings estimates. (Source: “Earnings Insight,” FactSet, December 6, 2013.)
Second, companies on key stock indices have logged a record high for share buyback activity. In fact, in 2013 so far, share buybacks have amounted to $460 billion—this is the highest amount since 2007. (Source: Jaisinghani, S. and Raghavan, M., “3M sets year’s biggest U.S. buyback plan, raises dividend,” Reuters, December 17, 2013.) At the very core, share buybacks are a kind of “financial engineering.” Through buybacks, companies on the key stock indices can make their corporate earnings per share look better without having to increase their overall earnings.
Last but not least, 2013 wasn’t all that great when it comes to economic growth in the U.S. economy. The unemployment rate … Read More
The Mirage Called a “U.S. Economic Recovery”
By Moe Zulfiqar for Daily Gains Letter | Dec 17, 2013
“Just give up being so negative; there’s economic growth in the U.S. economy.”
These were the exact words of my good old friend, Mr. Speculator. Over the weekend, when I received a call from him, he added, “You see the average American is better off than before. There are jobs; and no matter where you look, you won’t find much negativity. Look at the stock markets; they probably will show a 30% increase for 2013.”
Sadly, Mr. Speculator has become a victim of the false assumptions that seem to prevail in the markets these days. He’s basing his conclusion on just a few indicators that he looked at from just the surface, not looking much into the details. For example, the stock market doesn’t really portray the real image of the U.S. economy, but it’s used as one of the indicators.
Here’s what is really happening in the U.S. economy that keeps me skeptical.
First of all, jobs growth in the U.S. economy has been center stage for some time. I agree that the unemployment rate has gone down, but I ask where the jobs were created. In November, for example, we saw the unemployment rate in the U.S. economy reach seven percent, and it sent a wave of optimism across the mainstream. Sadly, a major portion of the jobs created for that month were in the low-wage-paying industries. Mind you; this has been the trend for some time now. (Source: “Employment Situation Summary,” Bureau of Labor Statistics web site, December 6, 2013.) In periods of real economic growth, you want equal jobs creation, which we are clearly missing in … Read More
Current Stock Market Euphoria a Carbon Copy of 2007?
By Moe Zulfiqar for Daily Gains Letter | Dec 13, 2013
Increasing optimism towards the key stock indices worries me. In the beginning of 2013, you would hear the bears’ opinions all over the financial news channels. Now, it seems they have all disappeared—or have turned outright bullish. No matter where I look, it’s pretty much the same opinion across the board in the mainstream: key stock indices are going higher, they say.
When I see all this, a quote from Sir John Templeton comes to my mind. He said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” (Source: SirJohnTempleton.org, last accessed December 11, 2013.)
You see, I remember exactly what happened in 2007. The opinions toward key stock indices back then were similar to what they are now. I remember watching financial news channels that were overrun with optimistic views on the key stock indices. We were assured nothing was wrong and all was well. Those who spoke against the rising stock markets, the news anchors laughed at them and questioned if they were still in touch with reality. Following this, we saw one of the worst sell-offs on key stock indices in history.
As it stands, the optimism towards the key stock indices today is increasing, while the fundamentals that drive the markets higher are weakening.
For example, corporate earnings outlooks—the main driving force behind the stock market—are looking grim. One can get a general idea of corporate earnings by looking at the guidance provided by companies on the key stock indices. Companies know their business and can see when conditions change well before anyone else.
For the fourth quarter, companies … Read More
Why I Won’t Be Surprised If the Global Economy Caves
By Moe Zulfiqar for Daily Gains Letter | Dec 9, 2013
The global economy looks to be in trouble, as there may be an economic contraction on the horizon. If all the pieces of the puzzle fall into place, companies on key stock indices might face issues in delivering corporate earnings.
Major economic hubs in the global economy are witnessing an economic slowdown. Those economies aren’t marching ahead, and their growth rates seem to be stagnant. If this continues, then it wouldn’t be a surprise to eventually see the global economy cave in, resulting in a global economic slowdown.
The eurozone, one of the biggest economic hubs in the global economy, remains under severe scrutiny. In the third quarter, the gross domestic product (GDP) growth rate for the common currency region declined to 0.1%, while in the second quarter, the GDP growth rate was 0.3%. (Source: “Second estimate for the third quarter of 2013,” Eurostat web site, December 4, 2013.)
The troubled countries in the eurozone, including Greece, Spain, and Portugal, are stuck in depression-like conditions, but major countries in the region also face economic pressures. For example, Germany’s third-quarter GDP growth rate came in at 0.3% compared to the second quarter, which saw 0.7% GDP growth from the previous quarter. (Source: Ibid.)
Australia, another major economic hub in the global economy, is facing headwinds as well. In the third quarter, the Australian economy grew by only 0.6% from the previous quarter. The annual GDP growth rate of Australia registered at 2.3%. In the second quarter, the Australian economy grew 0.7% and the annual growth rate was 2.4%. (Source: Kewk, G., “Australia’s economic growth falling short,” The Sydney Morning Herald web … Read More
What a Phone Call from My Aunt Told Me About the Stock Market
By Moe Zulfiqar for Daily Gains Letter | Dec 5, 2013
A few days back, I got a call from my aunt, whom I haven’t spoken to in a while. It was shocking to me—no, not her calling, but rather what she asked me. Before I go into any detail, here’s some background information: as an investor, my aunt has a little experience with the stock market, but gave up because it didn’t suit her low risk tolerance.
“I have been saving money for some time now; it’s been sitting in my bank account and earning next to nothing,” she said to me. She heard on the news that the stock market in the U.S. is going higher and that the S&P 500 has reached its all-time high—she wanted to know what I thought she should buy. “I think it’s about time I take some risk,” she added.
My aunt hasn’t bought stocks in a while; in fact, she has missed out on all the gains made since the stock markets bottomed in 2009.
What does this tell me?
I find this a little scary, as should anyone who has been following the stock markets for a while. What my aunt said makes me skeptical; it shows that the notion of missing out is emerging. In the past, we have seen the stock markets reach their all-time highs, which gave investors the feeling they were missing out on gains. They bought, the key stock indices increased a little, and then the sell-off occurred; they got caught in it and lost a significant amount of their portfolio. Historically speaking, there are many examples of this.
As this is happening, I see the … Read More
How Long Will the “Miracle on Wall Street” Continue?
By Moe Zulfiqar for Daily Gains Letter | Dec 2, 2013
As the key stock indices are going higher, there’s a growing concern among investors that we are reaching a top. There’s a significant amount of noise that says the key stock indices are running on nothing but free money and the fundamentals that drive them higher are dead. We’re hearing that it’s all going to fall soon.
To some degree, I agree that easy money has a hand in the rise of key stock indices, and that current corporate earnings aren’t all that impressive. However, while observing the markets over time, I have learned that tops and bottoms are not easy to predict; in fact, it’s impossible. That’s because it isn’t clear when they happen and they can only be identified once they have been made.
Going back to 2009—when the key stock indices weren’t in such good graces—there was a significant amount of noise saying they were going much lower. At that time, the bottom was placed in, but it didn’t become clear until later. In 2007, the key stock indices made a top, but it wasn’t apparent until they started to slide lower.
Investors who think the key stock indices are about to form a top, or have already formed one, have to be really careful in their predictions. If they believe their convictions are going to be correct, then they should go in with stops, in case the trade works against them.
Going forward in December, here’s what else investors need to know.
December is generally a quiet month on the key stock indices. For example, the average return on the S&P 500 in December from 1970 … Read More
How Investors Are Profiting as the Eurozone Crisis Makes a Comeback
By Moe Zulfiqar for Daily Gains Letter | Nov 21, 2013
Major economic hubs in the global economy are in outright trouble, and each passing day there’s more economic data suggesting the slowdown is holding its own. Investors need to be wary about what’s happening, because it can affect their portfolio significantly.
The eurozone crisis, which sent ripple effects into the global economy, is rising again. In the early days of the eurozone crisis, we heard how the economies of such nations like Greece, Spain, and Portugal were suffering. Now, the bigger nations in the euro region are showing signs of stress. Consider France, the second-biggest economy in the eurozone, for example. This major economic hub in the global economy witnessed contraction in the third quarter. On top of this, France’s unemployment rate continues to increase.
Germany, the biggest economy in the eurozone and the fourth-biggest economic hub in the global economy, slowed in the third quarter. The gross domestic product (GDP) of the country increased just 0.3% in the third quarter. In the second quarter, Germany’s GDP increased by 0.7%. (Source: “Gross domestic product up 0.3% in 3rd quarter of 2013,” Destatis, November 14, 2013.)
Similarly, Japan, the third-biggest nation in the global economy, continues to struggle, despite the extraordinary measures the central bank and Japanese government have taken to boost the economy. In the third quarter, the growth rate of the Japanese economy slowed down. The GDP grew 0.5% from the previous quarter. The annual GDP growth rate of the Japanese economy was 1.9% in the third quarter. (Source: “Gross Domestic Product: Third Quarter 2013,” Cabinet Office, Government of Japan web site, November 14, 2013.)
Adding more to the … Read More
Wal-Mart Asking Employees to Donate Food to Fellow Employees in Need?
By John Whitefoot for Daily Gains Letter | Nov 21, 2013
The recent rise on the key stock indices might just be masking a fundamentally flawed economic recovery. Since the beginning of the year, the S&P 500 has gained 25%, the Dow Jones Industrial Average is up 21%, and the NASDAQ is 27% higher. At the same time, unemployment remains high, wages are stagnant, and our day-to-day life costs more.
With the S&P 500 on pace for the best yearly gain in a decade, well-heeled shareholders are rejoicing—at the other end of the scale, many employees aren’t.
You know it’s a touchy economic climate when Wal-Mart Stores, Inc. (NYSE/WMT), the world’s biggest retailer, which reported third-quarter profits of $3.7 billion, is asking employees to donate food to fellow associates in need, so they can enjoy Thanksgiving this year.
A weak economy and stiff competition is taking a toll on Wal-Mart. While Wal-Mart reported third-quarter earnings that beat Wall Street estimates by a mere penny, revenues of $114.9 billion were shy of the $116.8-billion mark Wall Street was hoping for. Not surprisingly, perhaps, Wal-Mart said holiday sales would be flat. (Source: “Walmart reports Q3 EPS of $1.14, updates full year guidance; Aggressive holiday plans to drive sales,” Wal-Mart Stores, Inc. web site, last accessed November 14, 2013.)
In light of Wal-Mart’s recent employee Thanksgiving food drive, it’s interesting to note that third-quarter sales from Neighborhood Market, Wal-Mart’s chain of grocery stores, rose a solid 3.4%.
Where other grocery store chains have reported underwhelming third-quarter results, Wal-Mart’s grocery chain actually bucked the trend. Fourth-quarter results may be muted. Thanks to a U.S. economy that continues to look fragile, grocery store stocks are competing … Read More
Why I’m Still Skeptical on Key Stock Indices
By Moe Zulfiqar for Daily Gains Letter | Nov 14, 2013
The companies on key stock indices are showing very troubling trends, which can cause them to slide lower and generate losses in investors’ portfolios. Don’t just look at the number on the surface.
As of November 8, 446 companies on the S&P 500 have reported their corporate earnings and 73% of them were able to show earnings above estimates. The corporate earnings growth rate was 3.4%. (Source: “Earnings Insight,” FactSet web site, November 8, 2013.)
These numbers certainly sound surprising on the surface, but just looking a little deeper into the details shows that they’re the only good thing about them. As mentioned earlier, 73% of them beat the corporate earnings estimates; sadly, only 52% of them were able to beat their estimated revenue.
This means that the companies aren’t selling as much; rather, their corporate earnings are coming from somewhere else. One place it could be is from cost-cutting; an example of this could be General Electric Company (NYSE/GE), one of the conglomerates on the key stock indices.
The company’s revenue fell 1.5% in the third quarter to $35.73 billion. The company also said that it has cut costs by $1.0 billion; the original goal was to make these cuts in one year, but it was able to do it in nine months. The CEO of the company expects more cuts coming until the end of the year. (Source: Linebaugh, K., “General Electric Slashes Costs,” The Wall Street Journal, October 18, 2013.)
Currently, the key stock indices are soaring higher each day, and they continue to break new records. Just look at the chart below of the S&P 500, … Read More
Profit from Emerging Markets with Just One Investment
By Moe Zulfiqar for Daily Gains Letter | Nov 12, 2013
Emerging market equities have taken center stage these days because, according to some, the key stock indices in the U.S. economy are reaching the overpriced mark. Investors’ returns aren’t going to be as robust going forward; there’s a significant amount of noise about them taking the shape of a bubble.
With all this happening, investors are asking which emerging market economy they should invest in. Should they buy companies operating in India? Or is China still the best emerging market economy in which to invest?
The answer to this question is not as easy as it may seem to some. Investors have to keep in mind that each emerging market is unique—it presents different opportunities, risks, and rewards.
Take China, for example. As key stock indices in the U.S. economy have increased this year—the S&P 500 is up more than 23% so far—the stock market in the Chinese economy hasn’t performed as well; in fact, the key stock indices there have declined. Please look at the chart below: the Shanghai Stock Exchange Composite Index has declined more than 6.4% between January and October.
Chart courtesy of www.StockCharts.com
Does this mean there’s room for growth? Don’t be too quick to judge. The Chinese economy is going through a bit of an economic slowdown. This year, the country’s gross domestic product is expected to increase much less than its historical average; the growth of the Chinese economy is projected to be lower next year as well. At the same time, there’s noise stating that there may be a credit crisis in the country.
If all of the trouble growing in the Chinese … Read More
Why November May Not Be So Safe for Investors
By Moe Zulfiqar for Daily Gains Letter | Nov 5, 2013
Since the beginning of the year, key stock indices have provided investors with hefty gains; with the S&P 500 having increased more than 23% from January to October. Other key stock indices, like the Dow Jones Industrial Average and the NASDAQ composite index, have provided similar returns.
Where are they heading next?
Looking from a historical point of view, from 1970 to 2012, key stock indices aren’t as volatile for November when compared to September and October. For example, the average return on the S&P 500 for the month has been 0.95%; the highest return achieved in the time period examined was 8.9% and the lowest return was -11.38%. If we take out the highest and lowest returns, the average return on the S&P 500 for November increases to 1.06%. (Source: “Historical Price Data,” StockCharts.com, last accessed November 1, 2013.)
Looking at the data from the last 43 years, the probability of the S&P 500 providing a positive return in November is 65.11% (increased in 28 years), and the probability of the month providing a negative return is 34.88% (decreased in 15 years).
Investors have to keep in mind that the above statistics are just that: statistics. They should provide only a general idea about what to expect from a historic point of view. They need to be informed about the fundamentals of key stock indices as well. The stock markets are forward-looking animals, and past information actually may not matter.
Here’s what investors also need to know on the fundamental side.
Companies on the key stock indices have developed a dangerous trend; their corporate earnings are coming in line … Read More
Why Consumer Confidence is Falling at an Alarming Rate
By Moe Zulfiqar for Daily Gains Letter | Nov 1, 2013
Consumer spending is very critical to the U.S. economy, as it makes up a significant portion of the gross domestic product (GDP). If consumer spending declines, then U.S. GDP growth becomes very questionable; when it increases, it can provide an idea about where the U.S. economy is heading.
I look at consumer confidence as one of the indicators of consumer spending. The logic behind this is that if consumers are confident, they will most likely spend more, compared to when they are pessimistic.
Sadly, the consumer confidence in the U.S. economy seems to be deteriorating these days. This is definitely not a good sign if we want the U.S. economy to improve going forward.
Look at the Conference Board Consumer Confidence Index, for example; in October, it witnessed a slide of more than 11%, having stood at 71.2 in October from 80.2 in September. The Consumer Expectations Index declined 15.5% in the same period. (Source: “Consumer Confidence Decreases Sharply in October,” The Conference Board web site, October 29, 2013.)
Some will blame the decline in consumer confidence on the U.S. government shutdown. This may not be completely true, however, as we have been seeing continuous deterioration in consumer confidence. Please look at the chart of the University of Michigan Consumer Sentiment Index below.
Chart courtesy of www.StockCharts.com
The University of Michigan Consumer Sentiment Index stands at the lowest level of 2013 in October. It has been declining since July.
Currently, we are seeing too much attention being paid to the key stock indices making new highs each day, but not to the underlying factors that affect them.
Consumer confidence declining … Read More
Why You Should Remain Bullish on Gold
By Moe Zulfiqar for Daily Gains Letter | Oct 18, 2013
In 2008, when the key stock indices started to plummet after Lehman Brothers fell, there was uncertainty across the board. There was too much noise, and the direction of key stock indices was very unpredictable. The bottom was not placed until March of 2009.
Fast-forwarding to today, we have one market that’s seeing something similar: gold. Gold bullion isn’t liked by many these days, to say the least; it’s not uncommon to hear something along the lines of how the store of value doesn’t hold value itself anymore. The gold bears love what’s happening in the gold bullion market, and will take any chance they get to talk against it.
That said, I remain bullish on the shiny yellow metal.
My argument remains the same, and it’s very simple: the demand for gold bullion is increasing, and with prices remaining suppressed, the supply will decline. The basic rules of economics are at play here.
Where’s the demand coming from?
In April, when the price of gold bullion dropped on speculation that the easy money will be out of the system and the Federal Reserve will start to normalize its monetary policy—we’re still waiting to see it happen—there was speculation that gold bullion buyers would eventually run out. It was believed they would stop buying the precious metal once the prices remained in stress for some time.
They were wrong; we actually have been seeing buyers still in the market.
One of the buyers of gold bullion is the central banks, and I closely watch what they do. This is because they are big buyers and can affect the price of … Read More
Over 80% of Americans to Work During Retirement to Make Ends Meet
By Moe Zulfiqar for Daily Gains Letter | Oct 17, 2013
Economic growth in a country occurs when the general standard of living increases. This means that individuals are able to get jobs, have some disposable income, have savings, and go out and spend. In turn, this causes businesses to produce more, create more jobs, and so on—in other words, the wheels of economic growth continue to turn.
Sadly, the U.S. economy appears to be far from that. Many get the impression that key stock indices increasing means economic growth, but this is certainly not the case.
If the U.S. economy was experiencing economic growth, one would assume that Americans are living well and spending on goods they want. However, according to a Gallup survey conducted in August, 20% of Americans experienced times during the past year when they couldn’t afford food; in June, this number stood at 17.7%. This was the first time in the last 68 months when 20% of Americans had troubles affording food. (Source: Brown, A., “More Americans Struggle to Afford Food,” Gallup web site, September 12, 2013.)
The misery in the U.S. economy doesn’t end there. There are more trends showing economic growth just isn’t there.
According to a poll by the Associated Press-NORC Center for Public Affairs Research, 82% of Americans aged 50 and older say they will likely work during their retirement, while 47% of Americans expect to retire later than their anticipated time of retirement. (Source: Sedensky, M., “Poll: Half of older workers delay retirement plans,” Yahoo! News, October 15, 2013.)
If Americans being unable to afford food and soon-to-be retirees rethinking their options are what count as economic growth, then what would … Read More
A Global Issue That Could Damage American Stocks
By Moe Zulfiqar for Daily Gains Letter | Oct 11, 2013
The global economy looks to be in trouble, with the problems brewing quickly. Major economic hubs in the global economy are struggling for growth, but are failing—a fact that is largely ignored by the mainstream.
Long-term investors need to know that an economic slowdown in the global economy can deeply affect the key stock indices here in the U.S. economy. The reason for this is very simple: American-based companies operate throughout the global economy. As a matter of fact, in 2012, for the S&P 500 companies that provide data about sales in the global economy, 46.6% of all sales came from outside of the U.S. (Source: “S&P 500 2012: Global Sales – Year In Review,” S&P Dow Jones Indices web site, August 2013.)
Clearly, if there is an economic slowdown, the demand will decrease and the U.S.-based companies will sell less and earn less profit. As a result, their stock prices will decline.
So what is really happening?
In the beginning of the year, there was a significant amount of noise about how the global economy will experience growth. This did not happen.
The International Monetary Fund (IMF) expects the global economy to grow by 2.9% this year after seeing growth of 3.9% in 2011 and 3.2% in 2012. In 2014, the IMF expects the global economy to increase by 3.6%. (Source: Duttagupta, R. and Helbling, T., “Global Growth Patterns Shifting, Says IMF WEO,” International Monetary Fund web site, October 8, 2013.) Mind you, these estimates were much higher in July, but they have since been revised lower.
We all know how anemic the rate of growth of the U.S. … Read More
How to Prepare for the “October Effect” in Key Stock Indices
By Moe Zulfiqar for Daily Gains Letter | Oct 4, 2013
October has just begun, and it’s one of the most interesting months for key stock indices. In the past, some of the major crashes occurred during this month. For example, on October 19, 1987, key stock indices, like the Dow Jones Industrial Average and the S&P 500, witnessed one of the biggest daily declines. But that’s not all: we also saw a pullback in October of 1989, followed by another glitch in October 2002. And who could forget October 2008? As you can see, October isn’t only scary for those who go out trick-or-treating; investors are fearful as well.
Looking at historical data, here’s how the key stock indices have performed in October.
The average return in October on the S&P 500 from 1970 to 2012 has been 0.54%. The highest return on the S&P in the month was in 1974, increasing more than 16%; the lowest return was in October of 1987, when the index dropped more than 23%. If we take out the two extremes, then the average return in the month of October on the S&P 500 since 1970 is 0.73%. (Source: “Historical Price Data,” StockCharts.com, last accessed October 2, 2013.)
For the Dow Jones Industrial Average, the average return in the month of October from 1970 to 2012 is 0.4%. The highest return achieved was in 1982, when the index increased 10.65%, and the lowest was in October 1987, when the index declined more than 23%. If we take out both extremes, the average on the Dow Jones Industrial Average since 1970 is 0.72%. (Source: Ibid.)
Dear reader, what I have mentioned are a few of … Read More
Managing Your Portfolio During the Bull Run of a Lifetime
By Moe Zulfiqar for Daily Gains Letter | Oct 1, 2013
Since 2009, we have seen a significant number of improvements on the key stock indices. The returns are nothing but exuberant, and some have called this the bull run of a lifetime. The S&P 500 has increased 150%, and the Dow Jones Industrial Average and the NASDAQ Composite Index have shown similar returns as well. But best of all, some companies on those key stock indices have shown even better returns—the 150% gain appears to be very miniscule when compared to their returns.
For example, consider priceline.com Incorporated (NASDAQ/PCLN), a well-known online travel company. In March of 2009, when the key stock indices made their bottom, it traded close to $72.00. Now, the company’s stock trades above $1,000; this is an increase of more than 1,288% in a little more than four years. It is outperforming the performance of key stock indices by more than eight times.
This is just one example; there are many more companies on key stock indices that have shown great returns. Look at Sotheby’s (NYSE/BID), an auction company, which traded at close to $6.00 in 2009; the same shares now trade for more than $48.00.
What’s the point of all this?
When it comes to investing for the long term, investors need to know how their portfolio is performing compared to the overall market. The reason for this is that it gives them an idea about what they need to do to their portfolio: should they readjust? Drop the losers? Or maybe go look for the new stars?
If we assume that what we have seen since 2009 is one of the best bull runs … Read More
