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April 2012
Wow. Great open, then a dip into the red ink, and then a bounce back into the black - and all in less than two hours worth of trading. And here's the killer..... I don't think we're past all the insanity yet!
I know that's the last thing you wanted to hear, but it's just the way it is. 
To the NASDAQ 100's (NDX) credit, it is back above the 25x5 DMA today, and on its third day above the 3x3 DMA. On the other hand, there's a giant gap left behind from Wednesday's pop, and the market's been moving higher on nothing but momentum since then; how much gas is really left in the tank?
Fact is, the market needs to survive a real test first before we can take this bullishness at face value. And, I just don't see that happening yet. This is a dead-cat bounce, and not a rally born from newfound optimism on stocks. Volume on the way up's been way low.
Anyway, with not much likely to change between now and the end of the day/week, I figured we'd take a little time to do something for you we don't get to do often enough... take a step back and look at the bigger picture, and earnings in particular.
First and foremost, the S&P 500 has easily topped its earnings estimates that were out there before earnings season started. In late March, the pros were thinking the S&P 500 - if it were a company - would earn about $23.86 per share for Q1. Now with a little more than half the S&P 500's companies having reported, the index is on pace to earn $25.38 for Q1, which is 6.3% higher than expectations.
Freakin' ridiculous, though we've all seen it before. The media screams 'gloom and doom', scaring investors out of stocks, and then we see that things aren't nearly as bad as they were supposed to be. Whatever.
Just keep in mind for next time around how it's very rare for the market to not have a good earnings season, even if only because the entire industry sets the bar so low before earnings season kicks off. That's part of the reason stocks struggled in early April - lowered guidance. Turns out things aren't that bad after all, and stocks have been feeling a little bullish pressure as a result. It's just part of the dance, you know?
But what about today's market weakness? What about Ford's (NYSE:F) huge shortfall? What about Spain? Oh yeah, I see all of that. It's like the newsletter was talking about on Wednesday though - you can either trade, or you can invest. If you're a long-termer, than the whole earnings picture matters, and the day-to-day stuff doesn't. If you're a short-term trader, than the whole earnings picture doesn't matter, and the day-to-day stuff is the key. You really can't blend the two, however. The problem is, the media likes to convince you to be a trader using the bigger earnings picture data. It rarely works out. [Reality check: Sorry, but Spain's debt woes and Ford's pitiful results last quarter aren't signs of sweeping trouble for everybody else.]
Now, I said all of that so I could show you the nearby graphic. It's a look at the S&P 500, the trailing and projected earnings by quarter, and the subsequent P/E ratio.
If you're strictly a short-term trader, you don't care. If there's any part of you that's a true investor though, then you'll want to take a look.
Are you still with me? Good, because the bottom line is, it's good news. Not only is the market on track to post record earnings for last quarter (something nobody expected), but the smart folks at Standard & Poor's say the march into record-earnings territory is going to continue through 2013.
At the same time, the market is still at rock-bottom, historically low valuations. The S&P 500's trailing P/E is only 14.12, which is at the extreme low end of its 20-year range.
I know a lot of people say that the P/E ratio doesn't matter, and I don't not understand what they're saying. Thing is, it doesn't matter UNTIL IT DOES. It mattered in 1995 when the P/E reached a low of 14.4, and stocks nearly tripled in value over the next five years. Just sayin...
Either way, the bullish earnings outlook isn't going to amount to a hill of beans in the near-term. We're just going to have to burn through all this volatility before the bigger trend resumes, which - unfortunately - may mean more downside before it's all said and done.
May 2011
What's the bigger-picture for the economy right now? Here's a quick look at last week's big economic news, and the major data in the pipeline for this week. Let's start with last week's numbers.
- The real estate picture was a mixed one last week. New home sales improved to a rate from just above a record low of 300K per year to a still-very-low 323K per year, while pending homes sales fell 11.6%. Home prices were up 0.3%.... effectively flat.
- Income-wise, workers made 0.4% more in April, though they spent 0.4% more as well. Thing is, there are still a lot of people out of work not making any real income. Continuing claims fell from 3.73 million to 3.69 million two weeks ago, but last week, new unemployment claims moved up from 414K to 429K.
- Durable orders were a disaster on the surface, plunging 3.6% in April, and falling 1.5% not counting transportation orders. BUT, what can't be ignored here is that the dip is just a partial offset of the prior month's growth of 4.4% and 2.5%, respectively.
Economic Calendar
It's going to be a stunningly busy week this week, and all compacted into four days instead of five. There's no way we can preview all of it, so here are the biggies to watch for.
- Tuesday: The Case-Shiller Index should confirm last week's dip in home prices, and the Conference Board's consumer confidence level should be way down (despite the Michigan Sentiment Index improving for May).
- Wednesday: A huge day for jobs and job cuts. We should see 170K new jobs added (same as last months). No word yet on the job-cuts change from Challenger, though the government number comes out Friday. Car and truck sales are out too.
- Thursday: Look for only a slight improvement in unemployment claims; and a slight dip (-1.0%) in April's factory orders.
- Friday: Another huge day for the employment picture. The unemployment rate should hold steady at 9.0%, but nonfarm payroll growth - the government's figure - should slump from 244K to 185K.
March 2011
Think the employment situation is getting better? In some regards it is, but the numbers and suggestions you're getting are misleading. It's not that they're wrong - it's just that they're incomplete in that they (1) don't show you how many people are actually working again, and (2) the continuing unemployment claims numbers you're hearing don't actually count everyone making unemployment claims.
The truth (the whole truth) is out there, but it takes some serious digging. Here's a look at a couple of the ugly truths with the nation's employment report card, as of last week. Just to put it all in the needed perspective, we've even charts several years' worth of this data. See below, under the commentary.
1. It is true that the initial claims levels have been falling for quite some time. This number peaked at 656K in February of 2009, yet is now at 385K as of last week. The implication is that more folks are going back to work, but that's not actually the case.
The reality is, far fewer Americans are working now than they were in late 2007 when the economy peaked, and even fewer are working now than when the economy bottomed in March of 2009. The seasonally-adjusted number of U.S. workers topped at 147 million in December of 2007, was at 141 million in March of 2009, and rolled in at 139 million last month. Things are NOT getting better on the jobs front.
2. It's also true that normal (insured) continuing claims have fallen from peak levels of 6.36 million in March of 2009 to the most recent reading of 4.28 million. The trouble is, that calculation excludes anyone receiving emergency benefits.... unemployment benefits that have been paid for so long, they're beyond the normal projections and requirements of the insurance plans.
The reality is, a total of 8.77 million people are receiving some sort of unemployment benefit; only about half of them are being counted in the government's official weekly total. And, it still doesn't include anyone who is still unemployed but no longer eligible for benefits of any kind. Granted, the total figure is still well under the January-2010 peak of 12.0 million. Remember though, there are 8 million fewer people working now than there were in late 2007, and 2 million fewer employed people than in early 2009.
A reason to be bearish on stocks? No, sadly it isn't a reason to bet against the market. Corporations have learned to run lean (without as much staff), and profits are legitimately improving... and have been for several quarters. Not only do they not need as many employees, they don't even need as many healthy consumers to pump up the bottom line. It sure would be nice though, to see ALL of these employment trends change for the better. It's not getting better nearly as quickly as the flash-in-the-pan looks imply.
Here's the chart.
February 2011
I'm not entirely busting Yahoo! Finance's chops, because both headlines are essentially true. For headline-skimmers though, you have to wonder if anybody really knows anything anymore. According to Fidelity, 401K balances have reached a ten-year high (a little shy of the bursting of the dot-com bubble). The Wall Street Journal says retirees don't have enough in their accounts to see them through to the end. Hmmm.
To be fair, it's not apples to apples. It's not apples to oranges either though. Maybe it's red apples to yellow apples?
Anyway, while the Fidelity number is true, it doesn't say whether or not that's because smaller investors are no longer saving via a 401K, nor does it say if the calculation excludes anyone who cashed in a small 401K to live on in the meantime; I suspect it does.
Likewise, the WSJ numbers don't comment on "now-versus-then"... only on the fact that what pre-retirees have isn't enough. And, I think it's safe to assume the reason IRA balances are at such high levels is that those approaching retirement are skewing the number much, much higher... but those accounts are still shy of the goal line.
The point is, folks are probably socking away as much as they possibly can, yet it's still not going to be enough. How does somebody bridge the gap? They can't, unless they work longer.
Just thought it was interesting how there can be such differing perspectives. Proves that if you look hard enough, you'll find evidence to support your thesis (which is the biggest tripwire out there for investors).
December 2010
The market may have closed flat last week, but it sure wasn't because there was a lack of economic data to push it around. Indeed, last week was the busiest week of this month as far as economic numbers go.
Too many to discuss them all.... let's just hit the highlights.
- Inflation wise, there still isn't much for consumers, though producers are starting to feel a little pinch. The annualized inflation rate (CPI) currently stands at 1.14%.
- Retail sales, sans autos, rocked and rolled in November, up 1.2%. Even with car sales though, retail sales were up 0.8% last month.
U.S. Retail Sales, Monthly (total, & total minus auto), x 1.0billion
Moving along....
- Industrial production as well as capacity utilization both confirmed the recovery is still getting traction. The former was up 0.4%, while the latter stands at 75.2%. Both are at new multi-year highs.
- Initial unemployment claims are still reaching into new low territory, hitting 420K last week. Ongoing clams are following that same lead, reaching 4.135 M two weeks ago (which wasn't a new low, but still easily part of a bigger downtrend).
- Housing starts were up to 555K in November, while building permits fell to 530K. The former was above expectation, but the latter was below the anticipated numbers. Overall, the construction industry is still just treading water.
Economic Calendar
As for the coming week, much less is in store, though what's in the lineup should be important. All the data, however, is compacted into Wednesday and Thursday.
We'll get a better feel for how the real estate market is progressing when we hear Wednesday's existing home sales and new home prices, followed by Thursday's new home sales. Existing homes should have sold at a slightly brisker pace of 4.65 million, and new home sales are expected to have sold at a slightly better pace of 303K last month. Better is better, of course, but most housing numbers still seem to be stick in tepid territory in the grand scheme of things. Take a look.
Construction and Real Estate Activity
On other fronts, it will be interesting to see if Thursday's personal spending and personal income levels jive with the revival of retail sales numbers and trends explored above. Both are only expected to be a tad higher for November (up 0.5% and 0.2%, respectively), but not having adequate income hasn't always meant a purchase wasn't made. The University of Michigan Sentiment Index may well underscore this reality when it's released on Thursday.
It's been a while since we've posted an industry ranking chart. There wasn't much need to, as everything was rallying or selling off in tandem. The same even goes for the broad sectors. Last week, however, we started to see some separation between the men and the boys... enough separation to suggest emerging leaders or decided laggards as we head into the new year.
There's a clear theme to most of the winners... industrial materials. If it's used to build a house or a machine or infrastructure, it was hot. Just be careful though, as many of those winners are also sitting atop big longer-term rallies. Aluminum may be an area you want to really focus on first.
Many of the laggards were recently the market's leaders, proving it's not wise to try and lasso every shooting star. Indeed, some of those recent winners may now be prime short candidates now that they're starting to crumble; apparel and internet stocks come to mind.
Best/Worst-Performing Industries
There's a clear theme to most of the winners... industrial materials. If it's used to build a house or a machine or infrastructure, it was hot. Just be careful though, as many of those winners are also sitting atop big longer-term rallies. Aluminum may be an area you want to really focus on first.
Many of the laggards were recently the market's leaders, proving it's not wise to try and lasso every shooting star. Indeed, some of those recent winners may now be prime short candidates now that they're starting to crumble; apparel and internet stocks come to mind.
Best/Worst-Performing Industries
There was plenty of good news about the economy last week. The Case-Shiller Index, for instance, confirmed that home prices inched higher again, consumer confidence swelled, construction spending was up, and more jobs were created than lost.
Before popping the cork on the champagne bottle though, digest the fact that the unemployment rate moved up (by more than a little), factory orders were down, and mortgage applications plummeted.
There was more going on than that though; the entire report card is below.
As for grading the economy based on the sum of last week's data, we'd have to give it another C. In some ways that's good, and in some bad. It's good in the sense of "could be worse, while the 'bad' is that it's not a conclusive snapshot, which allows investors to interpret and reinterpret the data on a whim. And clearly, that's what happened last week.
Economic Calendar
Before popping the cork on the champagne bottle though, digest the fact that the unemployment rate moved up (by more than a little), factory orders were down, and mortgage applications plummeted.
There was more going on than that though; the entire report card is below.
As for grading the economy based on the sum of last week's data, we'd have to give it another C. In some ways that's good, and in some bad. It's good in the sense of "could be worse, while the 'bad' is that it's not a conclusive snapshot, which allows investors to interpret and reinterpret the data on a whim. And clearly, that's what happened last week.
Economic Calendar
The coming week will be much less eventful, though important all the same. The pros are looking for another contraction in consumer credit levels (-$2.3B), which crimps the consumer spending that's needed to spur the recovery.
Of course we'll hear about new and ingoing unemployment clams on Thursday - both should be flat.
On Friday we'll get the initial Michigan Sentiment Index level for December, which at this point is expected to move higher, to 72.5.
Of course we'll hear about new and ingoing unemployment clams on Thursday - both should be flat.
On Friday we'll get the initial Michigan Sentiment Index level for December, which at this point is expected to move higher, to 72.5.
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