The stock market is absolutely where it should be, given current earnings—and it’s across the board; from large-cap to small-cap, valuations are fair. But the real telltale sign will be first-quarter earnings season. The stock market wants to see growth, and it actually doesn’t need much of it in terms of the bottom line. This market wants to see revenue growth or stocks will go into correction.
Corporations, especially large ones, have done an exceedingly good job of maintaining their earnings through the last recession and the modest economic recovery. They’ve done this through diligently controlling costs, doing little in the way of new hiring, ensuring productivity gains per existing worker, and using technology. The health of U.S. corporations is very good; for individuals, it’s a whole other story.
Corporations have also been very conservative with their earnings outlooks, making it easier to outperform or beat the Street. With the large cash hoards that corporations have been built up by not investing in this economy, companies are keeping investors happy with increased dividends, even with the prospect of no earnings growth.
This stock market is due for a correction; but it’s still unclear whether there will be decent buying opportunities when this correction occurs. If this upcoming earnings season disappoints, then new buyers will be better off holding out for future weakness.
The S&P 500 has to show more breakout strength in order for the rest of the stock market to follow. We need technology stocks to further accelerate, along with the industrials. But in reality, what the stock market is doing now is really more of an expansion in … Read More