The last time I saw 5,000 on the NASDAQ was way back in early 2000, prior to the collapse of the technology sector and all of the froth and euphoria on Wall Street. If you were trading back then, you would have recalled the staggering froth and frenzy that drove the technology sector to heights that were simply not sustainable and excessive.
Well, it took more than a decade, but it looks like the technology sector is on a roll again. I have been bullish on technology stocks as the top growth area in my outlook for this year and so far, this is panning out.
NASDAQ Push to 5,000 Much Different Now Than 15 Years Ago
The NASDAQ traded at its highest level since 2000 last Thursday, when the index came within 160 points, or 3.3%, of taking out the 5,000 level. A break above 5,000 would be a big deal for the technology sector.
Chart courtesy of www.StockCharts.com
Of course, the ascent of Apple Inc. (NASDAQ/AAPL) to nearly $130.00 a share and a staggering market cap of $741 billion is helping the index, providing stock market leadership.
As we near 5,000, there will be talk again of an exhausted and euphoric technology sector akin to 2000, but things are different this time around. The push to 5,000 has taken much longer and has been steadier versus 15 years ago, when everyone was buying without any thought to valuation or the underlying fundamentals.
I vividly remember seeing the big moves everyday and what I thought was the senseless buying of the technology sector. I recall friends taking out loans … Read More
In the 1990s, Microsoft Corporation (NASDAQ/MSFT) was the toast of Wall Street and arguably one of the top technology growth stocks in the world, based on my stock analysis.
At that time, personal computers (PCs) and laptops were the only computing devices around, as portable mobile devices were not widely developed yet. Microsoft, of course, developed the “Windows” operating system and associated applications. There was no real competitor at that time; Apple Inc. (NASDAQ/AAPL) was really not considered a valid threat yet, according to my stock analysis. In fact, Apple was on the fringe as its stock price languished at the dollar range.
Fast-forward a couple decades and now we see Apple at the top of the mobile devices ladder, while every other company tries to latch on, based on my stock analysis.
As my stock analysis indicates, during Apple’s rise, Microsoft was essentially comatose, having focused too intently on its operating system and on the PC platform. The company, under former CEO Steve Ballmer, failed to recognize the move to the mobile space. According to my stock analysis, this left Microsoft in a lurch, becoming a fallen star on Wall Street.
Luckily, Ballmer was cut and replaced with CEO Satya Nadella, who has made Microsoft relevant again to the investment community via his vision and focus on the growing technology spaces, such as mobile devices and cloud computing.
The stock has advanced 29.11% over the past 52 weeks, easily outperforming the 11.64% move by the S&P 500.
Chart courtesy of www.StockCharts.com
In addition to the Windows operating system, my stock analysis notes Microsoft has been shifting its energy into … Read More
While the S&P 500 and Dow Jones Industrial Average race to new record-highs, there’s still a sense of caution and vulnerability on the side of investors towards the stock markets here in the U.S.
In fact, a study I read in Bloomberg estimated that around 47% of stocks listed on the NASDAQ stock market are currently in a technical bear stock market, down 20% or more from the highs. On the small-cap Russell 2000, the story is even worse with more than 40% in a bear stock market. And the study shows that the S&P 500 had a mere eight percent of stocks in a technical bear stock market.
There’s even talk of the S&P 500 reaching 2,300 by the year’s end, according to some of the optimistic bulls on Wall Street. I feel it’s pure fantasy that the index will rise by another 15% by year-end.
The reality is that the stock market is stalling. Without any fresh and inviting reasons to buy, I sense the stock market risk is quite high.
An alternative would be to invest in a foreign market, and while I like China, Israel is fast becoming the favorite for growth investors. Israel has produced some top companies in the past, especially in the technology and medical devices sectors.
Israeli stocks are the third most listed stocks on the U.S. stock markets. (China is second.) As a country, Israel may be small, but an excellent investment opportunity can usually be found there. Moreover, the risk for fraud is much lower than with U.S.-listed Chinese stocks. I can’t say that I have ever heard of fraudulent … Read More
The superhighway that Tesla Motors, Inc. (NASDAQ/TSLA) is building across the United States appears to be taking shape with consumers and investors.
The maker of the quick-charge electric-battery vehicle has recovered since taking a hit on growth and valuation concerns. The stock is still not cheap, but based on what is developing and its longer-term prospects, a stock like Tesla may be worth a closer look as an investment opportunity.
Back in April, I suggested picking up some shares of Tesla as an investment opportunity at a price tag of $193.00. The stock closed at $253.00 last Wednesday, representing a hefty quick gain of 28%.
Chart courtesy of www.StockCharts.com
Now after reporting a decent quarter, Tesla has been receiving kudos from Wall Street. Brad Erickson at Pacific Crest issued an Outperform rating and assigned a price target of $316.00. This price is high, given the stock is already trading at 80-times (X) its 2015 earnings per share (EPS) and an extremely high price-to-earnings growth (PEG) ratio of 5.34. For Internet and social media stocks, the valuation likely wouldn’t be given a second look, but for an automaker, there clearly are some heads shaking.
While I continue to like Tesla as an investment opportunity, I would be more likely to accumulate shares on price weakness than to chase the stock price higher.
In my view, Tesla needs to produce more unit sales of its vehicles in order to reduce the fixed overhead charges per vehicle made, thereby pushing up the operating margins.
We are seeing Tesla vehicle sales steadily rise, but the numbers still pale in comparison to the major automakers, … Read More
The other day I talked about my growing optimism toward Apple Inc. (NASDAQ/AAPL) under the stewardship of CEO Tim Cook.
Now, I’ve noticed that a similar situation appears to be unfolding at Microsoft Corporation (NASDAQ/MSFT), which is currently under the leadership of CEO Satya Nadella. Nadella is transforming the former Wall Street darling into an enterprise-driven company that’s focused on capitalizing on new technologies, rather than simply on operating systems, as my stock analysis indicates. Former CEO Steve Ballmer failed to grasp the shift away from PCs and into the mobile sphere; something that Nadella is fully aware of and it’s paying off for shareholders, as the stock is up nearly 50% from its 52-week low, according to my stock analysis.
Chart courtesy of www.StockCharts.com
In the past, I have criticized the inability of Microsoft to adapt to the changes that were occurring in technology, as the company instead focused on its operating systems. The company’s strategic shift to the Internet and mobile spaces makes a whole lot of sense and will make Microsoft relevant to investors again, as my stock analysis suggests.
However, my stock analysis also indicates that there are still some operating issues for Microsoft. The company is struggling with its acquisition of the cell phone business formerly owned by Nokia Corporation (NYSE/NOK). When you have to compete against the likes of the “iPhone” and Samsung Electronics Co., Ltd.’s phones running on Google Inc.’s (NASDAQ/GOOG) “Android” operating system, it will not be an easy undertaking, as my stock analysis suggests.
The same goes for the “Surface” tablet. This is a great piece of technology, but it simply … Read More
The stock market is looking higher. The DOW and the S&P 500 closed up for the fifth straight month as we enter into the second half of what has largely been a mixed and cautious year.
For growth investors, the good news is that small-cap stocks came back in June with a 5.15% advance and are easily leading the broader market. Technology also fared well with the NASDAQ up 3.9% in June. Blue chips and large-caps trailed the growth side. In the first half, the S&P 500 leads with a 6.07% gain followed by the 5.54% advance in the NASDAQ.
And while stocks are edging higher towards new records, we are also seeing positive gains in the critical jobs numbers. This is essential for the economy and consumer confidence.
We saw strong non-farm payroll jobs numbers for June last Thursday with the creation of 288,000 new jobs, which easily beat the consensus 215,000 estimate and the 244,000 jobs in May. Better yet, the unemployment rate also fell to 6.1%, the lowest level in nearly six years.
The growth in the jobs numbers will gain more traction in the stock market when the reading can surpass the 300,000 level, which could trigger heightened optimism.
What the higher jobs numbers mean is more business for the jobs placement firms, from the everyday jobs to management and executive positions.
A contrarian and speculative play on the jobs numbers recovery is Monster Worldwide, Inc. (NYSE/MWW), which currently sits around $6.85 per share with a market cap of $623 million.
Monster Worldwide runs the widely known job search web site Monster.com and was the first … Read More
We are a few weeks away from the second-quarter earnings season and again, there’s a lot of hope and optimism that corporate America will be able to deliver the goods. But we also said that for the first-quarter earnings season—and prior to that, we said the same for the fourth-quarter earnings season.
Before, what we saw instead was sluggish revenue growth along with companies having an easier time on the earnings front, as Wall Street does what it usually does—lowering earnings estimates to meet the changing situation, making it easier for companies to meet expectations. In the first-quarter earnings season, it was about the strain placed on companies by the bitter winter. That’s fair, but there really are no more excuses for this quarter.
The nation’s jobs numbers are looking better after the country managed to recover all of the 8.7 million or so jobs lost since the start of the Great Recession. If the economy can continue to generate jobs growth at more than 200,000 new jobs monthly, then we would expect consumer spending and confidence levels to improve. Yet having said this, there’s clearly still some trepidation out there, especially with the decline in wealth levels of the middle class and below.
The rich are getting richer, but even as a group, they cannot spend the economy to stronger growth without the help of the middle class. We need to see income levels expand across middle-class America in order for companies to have any hope of expanding their revenues better than what we are seeing now. This makes sense to me: spread the wealth and the economic renewal … Read More
In April, the unemployment rate dropped to 6.3%—its lowest level since 2008. While Wall Street and Capitol Hill might be giving each other high-fives, there is still plenty left to lament.
At 12.3%, the U.S. underemployment rate is still eye-wateringly high. (Source: “Alternative measures of labor underutilization,” Bureau of Labor Statistics web site, May 2, 2014.) Sure, it’s down from 13.9% in April 2013, but it’s still at an unacceptable level. And it’s not exactly an encouraging statistic for those entering, already in, or recently graduated from a post-secondary school—or those still struggling to pay off their student debt.
In this economic climate, graduates can either stay unemployed or take lower-paying jobs. Sadly, this could take a serious toll on the so-called economic recovery.
For starters, student debt is the fastest-growing category of debt. At the end of the first quarter of 2014, student debt had soared $125 billion year-over-year to $1.11 trillion. And right now, 11% of all loan debt is either in default or delinquent by 90-plus days. (Source: “Quarterly Report on Household Debt and Credit,” Federal Reserve Bank of New York web site, May 2014.)
Second, it’s going to get worse. With an average graduating debt of $33,000, the class of 2014 is the most indebted ever. They’re also finding it more and more difficult to pay off that debt. Between 2005 and 2012, the average student debt, adjusted for inflation, has climbed 35%. The median salary, on the other hand, has dropped 2.2%. This doesn’t bode well for the graduating class of 2015.
Granted, not all college degrees are created equally. Healthcare and education grads have … Read More
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
After a miserable winter of weak economic indicators (which were mostly blamed on the weather), the warmer spring weather will be a godsend for Wall Street. Unless, of course, there’s more holding the U.S. economy back than cold winds and snow.
That riddle will be answered in the coming weeks, but the long-term prognosis for the U.S. economy is a little murkier. While the S&P 500 is trading at record-highs, there is mounting evidence to suggest the U.S. economy could slow down, putting the brakes on the bull market.
Naturally, it depends on who you ask and what their time frame is. Despite mounting risks, such as ongoing troubles in Ukraine, slower growth in China, and the threat of increasing rates, some predict the S&P 500 will hit 2,075 by the end of the summer. That would represent an 11.5% gain from where it currently trades and a 12.5% gain for the first half of the year. (Source: Levisohn, B., “Don’t Call It a Comeback: Dow Jones Industrials Gain 120 Points, More to Come?” Barron’s, January 7, 2014.)
The double-digit growth is expected to come as a result of increased investor sentiment in the U.S. economy. For starters, investors have experienced a relatively easy ride over the last year. And over the last two years, any corrections on the S&P 500 have been shallow, short, and sweet. It’s the perfect recipe for ongoing enthusiasm and confidence for investors to pour more equity into the S&P 500.
It doesn’t matter if the S&P 500 is overvalued, some investors only care that it keeps going up. And should first-quarter earnings of S&P … Read More
The winter storm that recently tore across the northeastern United States will, no doubt, take the blame for the continuing weak economic news and data that have been coming out of Wall Street. Having been the economic scapegoat since December, there’s no reason to change tactics.
But the raft of ongoing disappointing economic news and data suggests there’s more to the nation’s weak economic news than cold weather. After all, it’s not as if the U.S. economy had been red-hot and then suddenly hit a brick wall in December. If there’s one thing the U.S. economy has been—it’s consistently weak.
For example, while the S&P 500 and other stock indices have been enjoying prolonged bull runs, the U.S. economy has been stalling. Since the magical bull market began in 2008, the U.S. unemployment numbers have remained stubbornly high and the underemployment numbers eye-wateringly high. At the same time, wages are stagnant and, not surprisingly, retail sales have disappointed. More and more Americans are saddled with out-of-control debt and a record 20% of American households (one in five) were on food stamps in 2013.
Speaking of 2013, while the S&P 500 notched up a 30% annual gain, each quarter, an increasingly larger percentage of companies revised their earnings guidance lower. Saving the best for last, during the fourth quarter of 2013, a record 88% of S&P 500 companies that provided preannouncements issued negative earnings guidance.
But 2014 didn’t start out that well, either. For the first quarter of 2014 so far, 80% of the S&P 500 companies that have issued guidance revised their earnings lower; this compares to the 78% of … Read More
Despite stagnant wages and increased borrowing, Americans ramped up their consumer spending in January. The United States Department of Commerce said earlier this week that consumer spending rose 0.4% in January versus a forecast of 0.2%. (Source: “Real Consumer Spending Rises in January,” Bureau of Economic Analysis web site, March 3, 2014.)
Unfortunately, January’s boost in consumer spending wasn’t as broadly based as many were hoping. Spending on durable goods, which include cars, fell 0.3%, while spending on non-durable goods, such as clothing and food, fell 0.7%.
Consumer spending on services increased 0.8%—the biggest jump in services since October 2001. The increase in services spending can be attributed to higher heating bills and more and more people signing up for Obamacare. In fact, without the 11.3% jump in utility bills, consumer spending would have essentially been flat.
For an economy that gets roughly 70% of its growth from wide-based consumer spending, these results are not spectacular.
The increase in consumer spending comes on the heels of a report from the Bureau of Economic Analysis that personal income levels climbed 0.3% month-over-month in January after remaining flat in December. (Source: “Personal Income and Outlays, January 2014,” Bureau of Economic Analysis web site, March 3, 2014.)
This is pretty much in step with consumer spending. But there is an economic disconnect happening. While consumer spending fuels economic growth in this country—if left unchecked, consumer spending can also help throw the economy off a cliff.
According to the Federal Reserve Bank of New York, at $11.52 trillion, overall consumer debt levels (including mortgages, auto loans, student loans, and credit cards) are at their … Read More
According to Wall Street, the cold winter weather is responsible for holding back an economy that’s just itching to take hold. And as we’ve recently learned, when it comes to poor earnings and revenues, nothing makes for a better excuse than the weather. After all, the cold harsh winter that has blanketed much of North America doesn’t care how much money you make.
But while the cold winter weather might not care what area code people live in, the feeling is mutual—people in the wealthy area codes don’t care about the cold weather either, especially when it comes to auto sales.
February auto sales figures came in earlier this week, and it’s as if auto sales have flat-lined. Overall, February auto sales were unchanged year-over-year at 1.19 million for an annualized auto sales rate of 15.34 million—at the low end of the estimated 16 million the industry expects to sell in 2014. (Source: “U.S. Market Light Vehicle Deliveries February 2014,” Motor Intelligence web site, March 2, 2014.)
Leading the February auto sales’ non-event are the “Big 8” (General Motors Company; Ford Motor Company; Toyota Motor Company; Chrysler Group LLC, Honda Motor Co., Ltd.; Hyundai Motor Company/Kia Motors Corp.; Nissan Motor Co., Ltd.; and Volkswagen AG), which accounted for 1.06 million units, or 89% of the month’s sales.
Nissan and Chrysler were the only two Big 8 automakers to report year-over-year growth. Nissan reported year-over-year auto sales growth of 15.8%—ahead of analysts’ predictions of 12%. And Chrysler reported another solid month with auto sales up 11%—analyst forecasts were expecting an 8.8% increase. Chrysler surprised to the upside in January with an … Read More
It doesn’t take much to get the bulls excited when it comes to the U.S. housing market. Solid new-home sales data seems to have erased everyone’s memory of the raft of negative housing market numbers that have been flowing in for months.
But first, the good news! The U.S. Department of Commerce announced Wednesday that sales of new U.S. single-family homes soared 9.6% month-over-month in January to a seasonally adjusted annual rate of 468,000, the highest level since July 2008. January’s numbers are also 2.2% ahead of January 2013 estimates of 458,000. (Source: “New Residential Sales in January 2014,” United States Census Bureau, February 26, 2014.)
While Wall Street is busy blaming the cold weather for weak earnings, the winter winds have not held back new-home sales. In fact, in sharp contrast to Wall Street’s cold weather blame game, regions hardest hit by unusually cold temperatures experienced solid growth, easing concerns of a sharp slowdown in the U.S. housing market.
Sales in the Northeast soared 73.7% to a seven-month high, sales in the south climbed 10.5% to a more than five-year high, and sales in the west climbed 11%. The only region to experience a drop in new-home sales was the Midwest, where new-home sales retraced 17%.
If new-home sales were the foundation of the U.S. housing market’s health, everything would be looking up. Unfortunately, they’re not. That’s because new-home sales represent a small segment of the U.S. housing market—just 9.2%.
New-home sales figures, because they are measured when contracts are signed, are considered to be more sensitive to weather than existing-home sales, which are tallied when contracts close. So … Read More
Every time I drive my SUV, especially when I have to fill up the tank with premium gas, I quiver and think about downsizing to a smaller gas-efficient vehicle or some sort of hybrid.
I remember back more than a decade ago when Canadian upstart Ballard Power Systems Inc. (NASDAQ/BLDP) was all the rage on Wall Street, with traders driving up the stock price to above $100.00 in early 2000 on anticipation the company could develop the first hydrogen-powered cell for vehicles. Of course, as my stock analysis indicates, that failed, as Ballard was unable to develop a battery small enough to power the everyday car. The rest is history. Ballard is still hanging around, but it’s a non-factor in the alternative power sector for vehicles, based on my stock analysis.
As many of you already know, my stock analysis favors Tesla Motors, Inc. (NASDAQ/TSLA) as the big winner in the alternative power sector for vehicles. In a few short years, Tesla has become the next big technological innovation with its fully electric-powered vehicles. The Tesla vehicles look sharp and sporty and are gaining a wide acceptance based on the sales we are seeing.
I drove by a Tesla charging station the other day, and it looks impressive and innovative. Tesla is aiming to build a “Supercharger” network to cover about 98% of the United States by 2015. The Supercharger network can charge up a Tesla car via the changing of the battery pack and is free if you buy the more powerful battery. The whole process to automatically change the battery takes less than 90 seconds, according to the … Read More
I was reading an article that suggested investors are underestimating the extent that U.S. corporate profits could grow in 2014. And that the only reason the U.S. economy reported disappointing retail sales and weak jobs numbers and manufacturing data was because of the harsh winter weather. (Source: Shmuel, J., “Are EPS estimates currently too low?” Financial Post, February 18, 2014.)
Fortunately, so the story goes, the economy is so red-hot that once the snow thaws, investors will be rewarded with solid quarter-over-quarter corporate earnings growth. This suggests the weather has not just blinded investors to the fact that the economy has recovered (which it hasn’t), but that we are also so short-sighted that we can’t see the great gains waiting for us just around the corner—because if there’s one thing investors lack, it’s a desire to make money on the stock market…
I think investors are losing faith in Wall Street’s earnings potential because the corporations that go into making up the S&P 500 continue to warn us that their earnings are not going to be as great as they had hoped. And it’s not as if this is a new phenomenon.
Throughout 2013, as the S&P 500 marched steadily higher, an increasingly larger number of companies revised their earnings guidance lower each quarter. During the first quarter of 2013, 78% of S&P 500 companies that provided preannouncements issued negative earnings guidance; the second quarter came in at 81%; a record 83% of S&P 500 companies issued negative earnings guidance in the third quarter; and another record 88% did so in the fourth quarter.
For a country that is supposedly … Read More
Federal Reserve Chair Janet Yellen has confirmed what most already knew. The recovery in the U.S. jobs market is far from complete. Yellen noted that the unemployment rate has improved since the Federal Reserve initiated its last round of quantitative easing in late 2012, falling from 8.1% to 6.6%. Curiously, in 2013, the U.S. economy grew just two percent.
That said, against the backdrop of a so-called improving U.S. economy, the numbers of the long-term unemployed and part-time workers are far too high. In fact, 3.6 million Americans, or 35.8% of the country’s unemployed, fall under the “long-term unemployed” umbrella—that is, those who have been out of work for more than 27 weeks. The underemployment rate (which includes those who have part-time jobs but want full-time jobs and those who have given up looking for work) remains stubbornly high at 12.7%.
The improving unemployment numbers come on the heels of two straight months of weak jobs numbers. In January, economists were expecting the U.S. to add 180,000 new jobs to the U.S. economy; instead, just 113,000 new jobs were added. In December, economists were projecting 200,000 new jobs would be added—instead, the number was an anemic 74,000.
For the head of the Federal Reserve, this translates into more money being dumped into the bond market ($65.0 billion per month) and a continuation of artificially low interest rates.
Once again, bad news for Main Street is good news for Wall Street. After Yellen’s speech, the S&P 500, NYSE, and NASDAQ responded by surging higher. Again, the Federal Reserve’s ongoing bond buying program and open-ended artificially low interest rate environment is great … 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
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
If you listen to the Wall Street analysts, January consumer confidence numbers weren’t really all that bad. The preliminary University of Michigan Consumer Confidence index came in at 80.4 versus a forecast of 83.4—and down from 82.5 in December. (Source: “Tale of two consumers continues as US consumer sentiment slips,” CNBC, January 17, 2014.)
Some attributed the blip to the polar vortex that swept through most of North America earlier in the month. The warmer winds of February are expected to pick up the disappointing slack in U.S. consumer confidence levels next month.
But I’m not so sure. Friday’s consumer confidence numbers missed expectations by the widest margin in eight years. It also marks the seventh miss in the last eight months. Throughout 2013, consumer confidence numbers only beat projected forecasts three times, which (surprise!) means Wall Street doesn’t really have its finger on the pulse of Main Street America.
What isn’t surprising is that upper-income households have increased consumer confidence, having benefited the most from strong gains in income levels, the stock market, and housing values. On the other hand, low- and middle-income households that are not heavily invested in the stock market are being weighed down by stagnant wages and embarrassingly high unemployment.
And, since there are more middle- and low-income earners than high-income earners in the U.S., and 70% of our gross domestic product (GDP) comes from consumer spending, it’s fair to say that both consumer confidence levels and the economic outlook for the majority of Americans is bleak.
It’s not as if the disappointing consumer confidence levels have come out of a vacuum. A raft of … Read More
The merriment, mirth, and cheer on Wall Street over the holiday season may have been a bit premature; in fact, the optimism about the U.S. economy that ushered in the New Year may have already come to a screeching halt.
In mid-December, the Federal Reserve surprised investors when it announced it was going to start tapering it’s generous $85.0-billion-per-month easy money policy in January to just $75.0 billion per month. The pullback was a surprise, because the Federal Reserve initially hinted it wouldn’t ease its monetary policy until the U.S. unemployment rate fell to 6.5% and inflation rose to 2.5%. At the time of the announcement, U.S. unemployment stood at seven percent and inflation was hovering around historic lows below one percent.
The Federal Reserve moved sooner than expected with its tapering because of a (so-called) stronger U.S. economy and jobs growth. And, going forward, it said that U.S. unemployment figures will improve faster than expected. But, a raft of new economic numbers is calling that optimistic forward guidance into question.
In December, the U.S. economy created just 74,000 jobs, the slowest pace in three years, with the majority of the jobs (55,000) coming from the retail industry. Despite the weak jobs growth, the U.S. unemployment rate managed to fall from seven percent to 6.7%—the lowest rate since October 2008. But numbers are deceiving—the big drop in the unemployment rate was primarily a result of 347,000 people dropping out of the labor force.
Throughout 2013, the U.S. economy created 2.18 million jobs; in 2012, the U.S. economy created 2.19 million jobs. Looking at this from another angle, in 2013, the … Read More
If the stock market is an indicator of U.S. economic health, then 2013 was a stellar year. The Dow Jones Industrial Average closed out 2013 with a 26% gain. The S&P 500 was up 29%, while the NASDAQ Composite was up 34%.
Despite a stellar 2013, the crystal ball for the U.S. economy and Wall Street in 2014 remains murky. That’s because investors might have to actually consider the health of the U.S. economy this year. Now granted, the U.S. economy kicked into high gear last January after the federal government avoided the dreaded fiscal cliff. Thanks to some recent economic indicators, the start of 2014 has been more subdued.
Factory activity in China hit a three-month low in December. While Germany and Italy reported healthy manufacturing numbers, British manufacturing growth eased and France hit a seven-month low of 47.0 (scores below 50 indicate contraction). Here at home, the U.S. economy got a boost after it was announced that manufacturing hit an 11-month high in December of 55.0, up from 54.4 in November. (Source: Weisenthal, J., “This Manufacturing Report From France Is Just Plain Ugly,” Business Insider, January 2, 2014.)
To show it believes the U.S. economy is improving, the Federal Reserve recently announced that it will begin to taper its quantitative easing efforts this month. Instead of pumping $85.0 billion per month into the U.S. economy, it is going to purchase just $75.0 billion in bonds.
And to quell investors’ fears, the Federal Reserve said it will continue to keep interest rates artificially low until the unemployment rate hits 6.5% or lower—a target that probably won’t be reached until … Read More
By Sasha Cekerevac for Daily Gains Letter | Dec 17, 2013
As many of you already know, the gross domestic product (GDP) estimate for the third quarter came in above estimates at 3.6%, with most of the increase coming from higher inventory levels.
But I would like to look at something slightly different than the inventory buildup. I think we are all aware of what happens when inventory builds and consumers don’t buy—corporate profits get hit. However, looking at the data a bit closer, there are more worrisome signs aside from excess inventory that are also pointing to tough times ahead for corporate profits.
The S&P 500 has had a stellar run since its bottom in 2009. Part of the reason for this is that corporate profits have expanded tremendously as firms cut costs through massive layoffs, as well as lower financing payments through the cheap money provided by depressed interest rates. But this might be coming to a close, as corporate profits for S&P 500 companies appear to be peaking.
According to the latest data from the U.S. Department of Commerce, third-quarter corporate profits on an after-tax basis were a record 11.1% as a share of GDP. (Source: “National Income and Product Account, GDP 3rd Quarter 2013,” U.S. Department of Commerce, December 5, 2013.)
What this means is that the S&P 500 companies are generating extremely high profit margins. Obviously, this alone is not bad; however, business is always cyclical. We will always move from peaks to troughs, and corporate profits and margins are no exception.
Wall Street analysts continue to tell people that the S&P 500 is a buy, because they are taking the data from the past couple … 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
If you think you can judge a book by its cover, then you must believe the U.S. economy is doing really, really well. After all, consumer confidence is up and misery is down. However, looking past the cover, the pages of underlying economic indicators suggest the average American investor should be a little concerned.
But first, the good news! The U.S. Misery Index has fallen to a four-year low. The Misery Index is calculated by adding a country’s unemployment rate to the inflation rate, the logic being that we understand what stubbornly high unemployment mixed with the soaring price of goods translates into—misery.
The higher the score, the more miserable we are. For example, in August 2008, when the U.S. stock markets started to tank, the Misery Index stood at 11.47; when President Obama came to office in January 2009, it registered at 7.83; during the debt ceiling crisis in the summer of 2011, the index topped 12.87. Over the last three consecutive months, it’s been on the decline. In July, it came in at 9.36 and in October, it was 8.3. (Source: “Misery Index by Month,” United States Misery Index web site, last accessed December 13, 2013.)
According to the widely followed Thomas Reuters/University of Michigan preliminary December consumer confidence index, consumer confidence rose to 82.5—the strongest reading since July. In November, consumer confidence was 75.1, according to the index; economists were predicting a reading of 76.0.
Why the increased optimism? American consumer confidence levels are improving thanks to the better-than-expected drop in November unemployment, improved non-farm employment numbers, and strong preliminary gross domestic product (GDP) results. Stronger-than-expected consumer … Read More
When it comes to building a balanced portfolio, investors like to find stocks that provide both value and growth. If you’re a value investor, you’re always on the lookout for companies that are cheap relative to their earnings, assets, or price-to-book value; in other words, they look for what’s undervalued.
A growth investor, on the other hand, likes to look at publicly traded companies that are in a position to rapidly increase their revenues and profits; they want stocks with excellent long-term growth potential. This could include those stocks that have provided revenue and earnings guidance that is expected to outperform the market or industry.
While sticking with one strategy over the other can work, it can also lead to lurching gains when your investment strategy hits economic headwinds. However, combining both strategies can produce more consistent returns.
But if profitable investing really was that easy, everyone would be following this investment strategy, which means no one would be making money.
The fact of the matter is that in this economic environment, it’s pretty tough to find unloved, overlooked value and growth stocks. That’s because virtually everything is going up.
The S&P 500 is up 26% year-to-date and 15% since its pre-Great Recession high. Not to be outdone, the Dow Jones Industrial Average is up more than 21% since the beginning of the year and up roughly 13% from its pre-recession high. The NASDAQ is hands down the top performer so far this year, up 30% since January 2 and more than 40% since peaking in 2007.
In a bull market where it seems like everything is going up, it’s … Read More
A raft of positive economic news came in last week, suggesting that the U.S. economy may actually be getting stronger. On Friday, the Bureau of Labor Statistics reported that the unemployment rate fell from 7.3% to seven percent in November, the non-farm employment numbers improved by 203,000, and unemployment claims fell to 298,000. In addition, preliminary gross domestic product (GDP) growth climbed from 2.8% in October to 3.6%, soaring past the three percent forecast.
Normally, this kind of news would help shore up the stock market and send it rallying higher. But that’s not what happens in a Federal Reserve-fuelled market; in fact, the Dow Jones Industrial Average, S&P 500, and NASDAQ all responded with a losing streak.
Why the fear? Two words: quantitative easing. Since implementing the first round of quantitative easing in 2009, the Federal Reserve has flooded the market with over $3.0 trillion. Quantitative easing has translated into artificially low interest rates. The low-interest-rate environment has also been the primary fuel behind the stock markets’ unprecedented rally.
The Federal Reserve has said it will begin to taper (not discontinue) its quantitative easing strategy when the markets improve, which many believe means an unemployment rate of 6.5% and inflation at 2.5%.
Not surprisingly, the sharp decrease in unemployment has made the markets jittery. Tapering quantitative easing bond purchases means interest rates will increase, which could put a wet blanket on the U.S. economy. Back in May, the Federal Reserve hinted it was thinking about tapering quantitative easing; Wall Street responded by sending the markets lower, and banks responded by sending mortgage rates higher.
So you can see why … Read More
Despite the retail sector’s every attempt to generate sales this Thanksgiving, from sharp discounts to being open earlier than ever, their efforts fell flat. It’s further evidence that the U.S. economic recovery is not as entrenched as many think it is, and once again shows the economic disconnect between Wall Street and Main Street.
In spite of high unemployment, stagnant wages, consumer confidence at a seven-month low, and a smaller number of people forecast to hit the shops over the Thanksgiving weekend, the National Retail Federation still predicted sales to grow 3.9% from last year. (Source: Banjo, S., “Holiday Sales Sag Despite Blitz of Deals,” Yahoo.com, December 2, 2013.)
Over the Black Friday weekend in 2012, U.S. shoppers spent roughly $60.0 billion in the retail sector, but this year, it was a different story altogether. While the final numbers have yet to be tallied, early indicators show that total U.S. retail sector spending over the Thanksgiving weekend fell to $57.4 billion. It’s also the first time that retail sector spending over the Thanksgiving weekend has dipped in at least four years.
Even during the worst of the recession and the beginning of the so-called economic recovery, U.S. shoppers were willing to spend, buoyed by optimism. Five years into the so-called economic recovery, and shoppers are tightening their belts, weighed down by pessimism.
But it didn’t start out that way; in fact, most U.S. retail sector stocks were initially quite enthusiastic about their prospects. Wal-Mart Stores, Inc. (NYSE/WMT) had originally planned to open its doors at 8:00 p.m. Thursday night, but instead opened its doors at 6:00 p.m. Target Corporation (NYSE/TGT) … Read More
Not all investing opportunities are created equal…
Thanks to Antiques Roadshow and American Pickers, everyone thinks investing in collectibles is a great idea. However, the truth is that few actually have anything worth more than the day they were first purchased.
That doesn’t prevent people from trying to guess what the next great cultural commodity is going to be. I remember (briefly) watching a home shopping channel years ago and listening to someone explain why “Beanie Babies” were the next big thing for those interested in investing in collectibles. He couldn’t guarantee they were a slam-dunk investment, but the prices on the secondary market had soared. Take that into consideration as you call in your order.
Interestingly, there is no Beanie Baby segment on any home shopping channel today.
Unlike stocks, there is no discernable way to say why, when, or if a collectible will ever increase in price; they also don’t provide a dividend. Investing in collectibles is as difficult as trying to time the stock market—it’s virtually impossible.
Collectibles can also be difficult to value, as it’s a subjective art. For example, on eBay (NASDAQ/EBAY), you can purchase a rare Princess Diana Beanie Baby bear for either $400,000 or get one from the same edition in similar condition for just $5,000. That’s quite a discrepancy for a really small target audience.
Here’s a hint: when it comes to investing in collectibles, look for the lowest-selling collectible you want, as that’s the bottom basement price no one is willing to pay. I’m not picking on Beanie Babies, I’m just using them as an example.
Investing in collectibles isn’t exactly … Read More
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
On the surface, the S&P 500 third-quarter earnings season is looking pretty good. The S&P 500 is up 25.4% year-to-date and is up 32% year-over-year. So far so good!
By the end of the first week of November, of the 446 companies on the S&P 500 that reported third-quarter results, 73% said they beat their earnings projections. All is well on Wall Street and Main Street! Numbers don’t lie! (Source: “Earnings Insight,” FactSet web site, November 8, 2013.)
Or do they? That number is pretty solid, at least until you factor in a record 83% of all S&P 500 companies revised their third-quarter earnings guidance lower. It’s a little easier to clear a hurdle when you significantly lower the bar. But sadly, not even that was enough for some S&P 500 companies.
What about revenues? Roughly half (52%) were able to beat revenue projections. The percentage of S&P 500 companies that beat revenue estimates is above the fourth-quarter average of 48%—but again, everything is relative. On the other hand, third-quarter sales are below the 59% average recorded over the previous four years.
What do these numbers mean? That a large percentage of S&P 500 companies are reporting better-than-expected earnings on less-than-stellar revenue. That’s a pretty tough equation to figure out, unless you toss in cost-cutting measures and share repurchase programs.
It’s going to be difficult for S&P 500 companies to continue to wow investors with artificially high earnings if sales remain stagnant. The writing is on the wall.
Of the 85 S&P 500 companies that have issued earnings-per-share (EPS) guidance for the fourth quarter, 73—an eye-watering 86%—have issued negative EPS … Read More
The 2014 Winter Olympics in Sochi, Russia may be just around the corner, but when it comes to breaking records—for better or worse—Wall Street remains the gold-medal champion.
Thanks to the Federal Reserve, interest rates are at record lows, and will stay there for the foreseeable future. The U.S. national debt is at a record $17.1 trillion, while at the other end of the scale, the S&P 500 and Dow Jones Industrial Average recently posted record highs.
This is in spite of economic indicators that suggest the markets should be moving in the opposite direction: high unemployment, high debt, weak consumer confidence, a record 47.6 million Americans—one-sixth of the population—receiving food stamps, etc.
Under this umbrella, the markets have been going higher, in spite of an increasingly large number of companies warning investors they are not going to meet projections—and, in fact, have been revising earnings-per-share (EPS) guidance lower all year.
In the third quarter, a record 83% of S&P 500 companies revised their EPS guidance lower. How about the fourth quarter? So far, 83.5% of reporting companies on the S&P 500 have issued negative EPS guidance. In October, analysts lowered earnings estimates by 1.5%, below the one-, five-, and 10-year averages for the first month of a quarter.
Again, in spite of the record number of S&P 500 companies revising their EPS guidance lower and weak October analyst expectations, the S&P 500 continues to notch up fabulous gains—roughly 25% year-to-date and 4.5% in October alone.
Interestingly, this marks the seventh time in the last nine quarters that earnings estimates fell while the value of the underlying index increased during … Read More
Are the recent U.S. job numbers a tale of two economies? The Labor Department announced last Friday that U.S. employers added 204,000 jobs in October, beating even the most optimistic estimates.
The U.S. unemployment rate, which is based on a separate survey and counted furloughed federal employees as out of work, rose from 7.2% in September to 7.3% in October.
In a world where good news is bad for investors, stocks fell after the opening bell. Why? Because investors are afraid that better job numbers will prompt the Federal Reserve to start tapering its $85.0-billion-per-month quantitative easing (QE) policy sooner than expected.
But that pessimism may be short-lived. The Federal Reserve has been pretty open about what it will take to start raising interest rates: a strong economy, namely a U.S. unemployment rate near 6.5% and inflation at 2.5%.
There’s no arguing that adding more than 200,000 jobs to the U.S. economy is good news; however, a U.S. unemployment rate of 7.3% is nothing to cheer about, regardless of whether the U.S. unemployment numbers were skewed by the U.S. government shutdown or not. The fact of the matter is that U.S. unemployment needs to drop a lot further before the Federal Reserve reins in its easy money policy and congratulates itself.
Mind you, if the Federal Reserve listens to its own economists, any attempts to taper QE could still be a few years away. While the general opinion is a 6.5% U.S. unemployment rate, at least six Federal Reserve economists think a more realistic U.S. unemployment rate goal should be as low as 5.5%.
With a current unemployment rate of … Read More
Love them or hate them, fast food restaurants are an American institution. That’s not a huge surprise when you consider the hamburger was first created here around 1900 and the first fast food restaurant, A&W, opened its doors in 1919. For almost 100 years, our taste buds have been both regaled and assaulted by any number of fast food restaurants, now affectionately called “quick service.”
From its humble beginnings, the restaurant industry has become an economic juggernaut, generating around $1.8 billion in daily sales. In 2013 alone, restaurant industry sales are expected to generate $660.5 billion; that’s equal to roughly four percent of the U.S. gross domestic product. (Source: “2013 Restaurant Industry Pocket Factbook,” Restaurant.org, last accessed November 8, 2013.)
While the U.S. restaurant and quick service industry took a hit immediately following the Great Recession, the industry has bounced back. During the second quarter, trips to quick service restaurants—which account for 78% of industry traffic—were up by one percent, while consumer spending increased by three percent. (Source: “U.S. Restaurant Traffic Increases Modestly and Average Check Growth Drives Spending Gains in Q2, Reports NPD,” NPD Group web site, September 17, 2013.)
More specifically, traffic to fast casual restaurants, which is included under the quick service banner, increased by eight percent in the second quarter. After several consecutive quarters of decline, casual dining held steady. Things were not so good for midscale/family dining restaurants, however, which experienced a two-percent decline in traffic.
Even though the U.S. retail and food services sales results for the third quarter have not been released yet, the U.S. Census Bureau announced recently that advance estimates of … Read More
Whether you’re in Pamplona, Spain or on Wall Street, when it comes to running with the bulls, the object is to stay ahead of the pack. This means not getting gouged physically or financially. However, there are an increasingly large number of investors out there right now who think they’ve got a handle on the bull market.
Why? The Federal Reserve says it won’t taper its generous $85.0-billion-per-month quantitative easing policy until the U.S. economy improves. And by that, it means—for now at least—an unemployment rate of 6.5% and an inflation rate of 2.5%.
As a result, the Federal Reserve’s easy money and artificially deflated near-record low interest rates have put the stock market front and center for income-starved investors looking for capital appreciation. As long as the Fed keeps its printing presses in overdrive, there’s no reason to think that the bull market will take a breather.
Case in point: in spite of a year marred with revised lower earnings in the first, second, and third quarters and a record 83.5% of companies issuing negative guidance for the fourth quarter, investors have been flocking with reckless abandon to the S&P 500, which continues to trade near record levels. (Source: “Earnings Insight,” FactSet web site, October 6, 2013.)
For the last week of October, 45% of investors were bullish on the market, down from 49.2% for the week ended October 24—the highest level since February 2011. Month-over-month, the number of market bulls climbed 25%. Over the same period of time, the S&P 500 climbed 4.8%. In the last week of June, just 30.28% of Americans were bullish, representing a four-month … Read More
Bad news on Main Street is good news for Wall Street. Illogical heads prevailed on Tuesday after the U.S. government announced that the unemployment rate dipped to an ever-so-modest 7.2% in September, from 7.3% in August. The U.S. added just 148,000 new jobs in September—far short of the forecasted gain of 180,000 jobs for the month. (Source: “The Employment Situation – September 2013,” Bureau of Labor Statistics web site, October 22, 2013.)
The number of long-term unemployed (those without a job for at least 27 weeks) remains stubbornly high at 4.1 million, and the underemployment rate is at an eye-watering 13.6%, up a sliver from 13.4% in August.
Weak jobs numbers means the Federal Reserve will continue its $85.0-billion-per-month quantitative easing policy into 2014. Those who do not read these pages were apparently surprised last month when the Federal Reserve did what it said it was going to do—namely, keep its stimulus package intact until the economy improves to a 6.5% unemployment rate and a 2.5% inflation rate.
It clearly hasn’t, isn’t, and won’t for the foreseeable future.
Those bad jobs numbers sent the S&P 500 into record intra-day territory. In the week since Congress ended the U.S. government shutdown, raised the debt ceiling, and reported stubbornly high unemployment, the S&P 500 climbed more than three percent. Year-to-date, the S&P 500 is up more than 22%.
That increase is in sharp contrast to anything approaching reality on Wall Street. During the first quarter of 2013, 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance, 81% during the second quarter, and a record 83% for the third quarter. (Source: “Earnings … Read More
If you listen to mainstream media, the power struggle in Washington is over. The left and right came together valiantly, raising the debt ceiling and ending the U.S. government shutdown. At least, they temporarily did; they basically just put a glow-in-the-dark “SpongeBob SquarePants” band-aid on a compound fracture.
Washington voted to temporarily fund the government through January 15, 2014, and extend the $16.7-trillion debt ceiling through February 7. Then it starts all over again—and if it’s a repeat of the last three weeks, it isn’t going to be pretty.
The self-inflicted U.S. government shutdown, according to one estimate, took at least $24.0 billion out of the U.S. economy; this is after the Federal Reserve reported modest growth in September. (Source: Johnson, L., “Government Shutdown Cost $24 Billion, Standard & Poor’s Says,” Huffington Post web site, October 16, 2013.)
How the January/February deadlines will impact the U.S. and global economy is anyone’s guess in 2014. Or rather, it depends on who you ask; according to the Canadian Imperial Bank of Commerce (CIBC), the global economy is expected to turn a corner in 2014, thanks to economic improvements in the U.S. and Europe. World growth could accelerate more than four percent in 2014, while U.S. growth will climb to 3.2% in 2014 from 1.5% this year. (Source: Quinn, G., “Global economy set to ‘turn a corner’ in 2014, CIBC’s Shenfeld says,” Financial Post web site, October 17, 2013.)
This, of course, is in sharp contrast to the International Monetary Fund (IMF), which said that, as a result of the U.S. government shutdown and slow international expansion, the global economy will grow at … Read More
The numbers are in, and we are not optimistic. The preliminary results of the University of Michigan’s October consumer confidence survey were released Friday, falling to 75.2, the weakest reading since April. October’s preliminary forecast was for a more modest decline to 77.2 over September’s 77.5 reading.
The ongoing erosion has been exacerbated by the U.S. government shutdown. Polls from both Gallup and the Rasmussen Consumer Index show consumer confidence has tanked since the beginning of October.
According to Gallup’s U.S. Economic Confidence Index, consumer sentiment fell 12 points for the week ended October 6 to -34. That represents the largest weekly drop since September 2008, when the index fell 15 points after Lehman Brothers collapsed. (Source: “Weekly Drop in U.S. Economic Confidence Largest Since ’08,” Gallup web site, October 8, 2013.)
By October 11, the end of the second full week of the U.S. government shutdown, the Rasmussen Consumer Index’s daily measure had slipped to 89.7, the lowest reading of the year. Consumer confidence is down 12 points since the U.S. government shutdown began and is down 13 points month-over-month. (Source: “Rasmussen Consumer Index,” Rasmussen Reports web site, October 11, 2013.)
American consumers may be resilient, but even these low readings, assuming they don’t get any worse, will still take a number of months to rebound. That could make Halloween, one of the biggest holidays next to Christmas, scary for U.S. retailers—and those ripples could extend into the December holiday season.
Even without the U.S. government shutdown, U.S. consumer confidence levels have been, for the most part, weak all year. But that can’t possibly be a surprise to Wall … Read More
We’re less than a week away from the perfect economic storm in the U.S., and, based on what others are predicting, just a few short months away from a major 15% stock market correction.
At the beginning of October, almost a million federal employees were furloughed after the U.S. government shut down because it failed to ratify its annual budget. Should the government fail to raise the debt ceiling and therefore default on its loans, that issue will be exacerbated when the debt ceiling deadline arrives.
Failing to raise the debt ceiling will just add to America’s economic woes and put a major dent in the global economy while also undermining America’s credibility on the world stage. While some think a short-term default on the debt ceiling will not cause a major ripple, history is not on their side.
In 1979, the U.S. breached the debt ceiling on about $122 million in bills, but that was blamed on a technical issue related to a new-fangled word processing failure. The glitch caused yields to increase by half a percentage point, where they stayed elevated for months. A default on the debt ceiling this time around couldn’t be blamed on a technical difficulty due to new technology (having a disproportionate ego, however, could be a valid excuse).
Even after the U.S. government shutdown is resolved and the debt ceiling is raised, the U.S. will have suffered a major blow to its credibility. After that, it could go from bad to worse.
According to French banking giant Societe Generale, the S&P 500 will go through a tumultuous correction, even after the debt ceiling … Read More
The U.S. government shutdown has highlighted two unavoidable and predictable events. The first is pretty obvious, the other maybe not so much.
For starters, the U.S. government shutdown means as many as 800,000 of the country’s 2.1 million federal workers could end up being furloughed (temporary, non-duty, non-pay status). Not surprisingly, members of Congress—those paid by taxpayers to determine their fate—will continue to pull in a hefty salary.
Thanks to their unpopularity, U.S. government shutdowns don’t last very long. The last U.S. government shutdown took place between December 15, 1995 and January 6, 1996—a span of 21 days, the longest on record.
The first U.S. government shutdown occurred back in 1976, during the Ford administration, and lasted 10 days. During the Carter years, U.S. government shutdowns averaged 11 days. And the six shutdowns that occurred during President Regan’s two-term tenure averaged about two days.
No matter how long it lasts, it’s more than a simple economic and financial inconvenience. Aside from the 800,000 federal workers who unfortunately take an immediate and direct hit, it has the potential to negatively impact the vast majority of Americans on many, many levels.
Sadly, Congress knows how a U.S. government shutdown will affect its citizens and continues to act with moral impunity—compromising only after the fact, all the while congratulating each other for doing what they were voted in to do.
Since history has a tendency of repeating itself in Washington, Wall Street knows all too well how a government shutdown will affect the markets. It’s calling the U.S. government’s bluff, and is happy for the buying opportunity.
Despite the fact that the S&P … Read More
Federal Reserve Chairman Ben Bernanke has reassured us that his quantitative easing (QE) efforts have been an asset for both Wall Street and Main Street. But for some odd reason, the benefits seem to be trickling upward.
Over the last four years, the S&P 500 has climbed 150%. During the same time frame, the number of Americans receiving food stamps has risen 113% to 47 million, or one-sixth of the American population.
As a broader measure, since the Great Recession began, the top one percent of earners have seen their incomes rise 31.4%, while the bottom 99% saw their earnings rise 0.4%. This translates into the top one percent capturing 95% of the total growth in American wealth during the so-called recovery.
Even those Americans who thought they planned responsibly for retirement have been caught flat-footed. Thanks to QE and artificially low interest rates, the Federal Reserve has taken “income” out of “fixed income” investments and made saving for retirement that much harder.
And with “QE Infinity” in play, it’s not going to get any easier. According to a new global study, one in eight workers say they will never be able to fully retire. It’s worse in the U.S. and the U.K., where the numbers sit at roughly 20%. (Source: “The Future of Retirement: Life after Work?,” HSBC.com, September 2013.)
On top of that, just 51% of American workers say they were “very” or “somewhat” confident that they would have enough money to live comfortably in retirement; in 1995, that number was 72%. That said, 51% actually seems a little optimistic when you consider that 57% of workers say … Read More
It’s a simple scientific principle: what goes up must come down. Well, the same principle applies to the stock market. As we know, the stock markets have kept near their record highs for most of this fiscal year. However, the Conference Board announced on Tuesday that its consumer confidence index slipped to 79.7 in September, down from a revised 81.8 in August and below the 80.0 estimate. Tuesday’s consumer confidence numbers also represent the weakest reading since May.
The consumer confidence numbers shouldn’t be a total surprise to anyone who has been paying attention to U.S economic data. Even though the U.S. unemployment rate dropped to 7.3% in August from 7.4% in July, most of those jobs were in low-paying industries. Also, more and more Americans left the workforce because they were tired of looking for work.
Stubbornly high unemployment means consumers are increasingly pessimistic about finding work. Coupled with stagnant wages, weaker consumer confidence means Americans will probably cut back on spending as we head into the all-important holiday season. It’s not the best fuel for the world’s largest economy, especially one in which consumer spending makes up about 70% of all gross domestic product (GDP).
But again, this can’t be a surprise to Wall Street, either. Thanks to weakening consumer confidence numbers, S&P 500 companies have been warning investors all year long that they can’t meet projections. During the first quarter of 2013, 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance, while 81% issued negative guidance during the second quarter.
Ahead of the third quarter, 88 companies (82%) have issued negative EPS guidance. This worsening trend … 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
Consumers like to purchase stuff, whether they need it or not. In the United States, this tendency to buy is our economic engine, driving 70% of all U.S. economic growth. In 2012, $11.119 trillion of the $15.685 trillion produced in the U.S. went towards household purchases. (Source: Amadeo, K., “What Are the Components of GDP?” About.com, April 25, 2013.)
With that much at stake, it’s easy to see why consumer confidence levels are one of the best economic indicators we have. If consumers are optimistic, they’ll spend more, and the economy expands; if they’re pessimistic, they rein in their discretionary spending, and the economy grinds down.
While Wall Street may be riding high, most of Main Street isn’t, and you can see that reflected in the consumer confidence numbers. High unemployment, high debt levels, and the idea of higher interest rates and slower economic growth have put a damper on America’s desire to spend the country out of its recession.
U.S. consumer confidence levels fell in August, just one month after reporting a six-year high. According to the Thomson Reuters/University of Michigan’s preliminary reading, consumer sentiment slipped to 80.0 from 85.1 in July, the highest since July 2007. Wall Street economists, who clearly have their pulse on the heartbeat of the average American, were expecting August consumer confidence levels to actually increase to 85.5. (Source: “U.S. consumer sentiment weakens in August,” Reuters web site, August 16, 2013.)
It was a different story in the eurozone: consumer confidence levels there rose in August to their highest level in more than two years. During the second quarter, it was reported that the … Read More