Month: April 2013

Itchy Trigger Finger

The preordained question of seasonality arrives once again. ‘Sell in May and go away’ has become such a common viewpoint, that in the words of Homer J. Simpson…’You say that so often, it’s lost all meaning’. Or has it? Last week’s economic calendar events were disappointing, especially in regards to existing home sales, durable goods and gross domestic product (GDP). New home sales showed strength but they certainly were not a catalyst to ward off an encroachment of bearish sentiment. The finalized GDP figure for Q4 2012 was a miserable 0.4%. Friday’s initial estimate, the Bureau of Economic Analysis reported that GDP posted a weaker-than-expected 2.5% uptick in the first quarter of 2013 and the Census Bureau also reported that durable goods orders dropped 5.7% in March. D’oh!!!

As we reach the peak week of the Q1 2013 earnings season, 69 percent of the S&P 500 have beaten forecasts, but let’s be honest…when you lower expectations enough that a stink bug can crawl underneath, having number’s that ‘exceed’ expectations isn’t all that remarkable. On the flip side of all the exuberance regarding positive personal consumption expenditures, private inventory investment, exports, residential investment, last Friday’s GDP report was attributable to a fall in government spending at the federal, state and local levels.

I remain optimistic. U.S. stocks have had a pretty good run thus far. The Dow recorded an all-time high in March, erasing all of its losses since October 2007 and the S&P 500 managed its own new record close. The tech heavy NASDAQ struggled in Q1 while the Russell 2000 came blasting out of the gates, and it has begun to show some fatigue as we entered into Q2. U.S. Treasury yields pushed up over the quarter and the U.S. dollar gained more than 4% against the six major foreign currencies. All fantastic news, but then again, the realist in me shouts out that the U.S. economy hasn’t fully recovered from the Great Recession as high unemployment and slow wage growth have become the new normal. Second quarter is establishing a reality check, we aren’t out of the morass just yet. There’s still a way to go, my finger isn’t on the sell trigger for May, but I’m also not so cavalier as to entrench myself deeper without justification.

Have a great week!

Tell-tale signs

The Doom and Gloom crowd are crowing that the economy appears to be dramatically decelerating, as data point after data point indicates that a likelihood of economic slowdown has appeared over the last several months. This past week, unfortunately, presented some catalyst to that via some released earnings reports.  Regrettably, that news isn’t to be ignored (I absolutely loathe hearing ‘I told you so’) as the market recorded the worst week of 2013.  For the week the S&P 500 was down -2.11%, the Dow Jones followed with -2.14%, the NASDAQ fell -2.70% and the Russell 2000 registering a whopping fall of -3.22%.

Last week’s tell-tale feebleness also showed that most of the disappointing numbers came from within the Manufacturing Sectors.  The Empire State Manufacturing Survey, Philly Fed Survey and the Industrial Production Report all indicated slowing growth or downright contraction.  I’m not joining the ‘Recession is coming’ brigade but these facts should cause some reflection as to what the Sequestration (read as abject US government incompetence) has in store for us this quarter.

A number of reporting corporations are either reporting weaker than expected results or have already warned of developing turbulence. Justified skepticism of the U.S. economy has remained at the forefront, as the warning signs were varied last week across sectors of the economy.  Unquestionably Europe continues to weigh on multinational companies, and growth was again, made known to be sluggish in China last week as they continue to reform their economy from an external to an internal model.

I remain optimistic.  Even with continued U.S. economic weakness as well as lowered consumer expectations; strength remained in areas where the Fed and the government provide synthetic support. It’s not the best of news, but I’ll take it for what it’s worth.  Also noteworthy in our current slowdown is the expiration of the payroll tax break from the start of the year.  Decreased personal income is directly attributable to our current economic conditions.  The Doom and Gloom throng enjoys proclaiming that the U.S. economy is deteriorating.  I don’t buy it; one month does not substantiate a trend.  I’m confident and optimistic that the D&G bunch has arrived too soon for a second quarter pity party, and I’m giddy that it gets shut down before it even begins.

Have a great week!

 

Sprung….

The S&P 500 and the Dow have recorded new highs, Q1 2013 earnings season began, manufacturing data continues to be mixed, geopolitical strife continues to create new headlines, employment data continues to whipsaw, and wait for it…those investors who have been in the market responded by looking for reasons to take profits and head for the closest exits.  What…are you not being entertained?   With individual stocks ascending into uncharted territory and a whole bag of news approaching from the edges; it’s a health indicator that the 2nd quarter of 2013, by and large, is eyeing a necessary and efficient pullback.

The bullish sentiment we have seen over the last few months looks to be taking a pause for the moment.  Depending upon your risk strategy, pullbacks are opportunities to add to positions or take your profits and sit on the sidelines.  As the markets have moved higher, smaller investors have started to move in, eager to participate.  In my opinion, they are buying tops right now and may be best served to sit on the bench a little longer.  You know that old saying, buy low-sell high?  I’m seeing signs that the little guy is buying high and not realizing that his exuberance just might be very ill-timed.  However, there will be those willing to take more risks.  Right now I’m not one of them.

The economic data both home and abroad isn’t aligning with my expectations that current market activity should be noticeable more robust right now.  The U.S. economy hasn’t achieved a ‘break free’ velocity to sustain itself, just yet.  It’s still quite vulnerable and the real impacts of sequestration haven’t begun to be demonstrated in many sectors.  The Eurozone remains in a recessionary posture, Kim Jong Un of North Korea continues to be an irrational man-child and the potential destabilizing of the world economies by aggressive monetary policies only aggravate and substantiate my analysis that this near term pullback is arriving just in the nick of time.  Some hedging strategies for the risk tolerant and aggressive are my guidance for the moment.  There are many bargains to be found, especially with dividend paying stocks, so take what the market is giving you.

I remain confident.  As we move deeper into earnings season, I’m expecting some changes, especially due to the mix of policy changes in Q1 and I’ll be keeping a sharp eye on companies that show declining margins but are also beating earnings estimates; they will be getting the stink eye, to be blunt.  After Tax Day, April is historically prone to exhibiting weakness in the stock market.  A little caution, continued optimism and enduring confidence are my attitudes this week.

Have an outstanding week!

 

Q2 begins with a whimper

Stock Markets started Q2 with a whimper, certainly not with a bang, ending the week lower with global weakness getting more and more noticeable. These last few sessions, it’s been up then down then up again.  Almost like a cheap carnival ride, by the way, when do I get to collect a big, overstuffed, counterfeit Garfield from dealing with this nausea?   The media hyped and announced, blind rush into stocks and the full retreat out of bonds didn’t materialize.   The market euphoria is still there, however, like a winded athlete, it’s bent over and gasping for as much air as it can inhale.

Where I’m suspecting to perceive the proverbial canary in a coal mine is with U.S. small caps.  The last three sessions have begun to indicate some significant weakness.  The underperformance in the Russell 2000 has raised my eyebrows, given that small-cap stocks are more profoundly tied to domestic growth prospects than the large-caps.  Large caps get to leverage their global coverage, Small caps, not so much.  Their market capitalization of between $300 million and $2 billion doesn’t allow much wiggle room during domestic economic weakness and therefore, basically neutering the opportunity to beat the institutional investors.  Small caps closed down last week by almost 3%.  That sets my alarm bells off and I’ll be watching how the U.S. Treasuries perform this week.  I’m expecting a decent uptick as large investors, looking for safety via low yield, move in that direction with a definable quickness.   Last week’s very poor job’s numbers also didn’t help; with an overall feeling that growth is slowing and the economy remains flimsy.

I remain optimistic.  In 2011 and 2012, each had outstanding first quarters which dovetailed into lousy 2nd quarters.  Also similar are the earnings forecast from those previous years and 2013 Q1’s haven’t been the most inspiring thus far; nevertheless the actuals have yet to begin to truly filter out.  That begins tonight with the Alcoa release.  Corporate earnings will be the decisive catalyst once again.  Stocks, I believe, will remain exuberant and bond holders will endure worrisome but not panicked circumstances.  I do not sense any overbearing fear for the global markets, unless you happen to reside near the Korean Peninsula, and even then, having served in the US Army right smack on the DMZ, most of the bloviating coming from North Korea is just that.  North Korea knows it would be suicide to let even a minor conflict begin.  The regime of Kim Jong Un can’t sustain a prolonged engagement alone and China and Russia certainly do not want to have Western forces sitting on their eastern borders, as the resolution of conflict would present.  I remain cautions, confident and optimistic.

Have a great week!

Second Quarter already?  Well that was quick!

The markets continued their upward swing in the first quarter, much like they did in Q1 of 2012.  Seeing the Dow Jones and the S&P 500 basically gaining, percentage wise, what they accomplished in the entirety of 2012; gives investors a reason to celebrate. But I hope they aren’t getting drunk with the revelry.  There’s nine more months to go, so let’s not get too out of sorts.  With the end of first quarter, 86 companies in the S&P 500 issued negative guidance for what they expect to report in earnings for Q1 2013, in little over a week from now, while only 24 issued positive guidance for the quarter.   Yes, that was a collective D’oh! you just heard.

The U.S. economy endures, while Europe’s weakness continues, and uncertainty in Asia has dragged market performance down in that region.   Europe’s problems are far from being resolved, not that you haven’t noticed the last few weeks.   I firmly believe that U.S. economy has enough momentum to produce a reasonable GDP number without all the Gloom and Doom crowd harping on about inflation.  But if economic conditions improve at a much faster pace, inflation will present an uncomfortable situation across the board and of course the G&D crowd will be all over the networks with their “I told you so” chant.  Read that again, if the economy improves faster, the Gloom and Doom gang will be cheering.  See the disconnect with logic there?

I remain confident.  One massive bright spot I see (and have been preaching about for years now) is the energy sector.   It’s, in my opinion, undervalued, and U.S. natural gas could be the play of the century.  The fundamentals make it even more obvious, after ages of depressed natural gas prices, production and infrastructure growth is readily apparent.  Opportunities to ride the coming natural gas tsunami, at prices this relatively affordable, won’t last forever.  In my opinion this is a once in a generation chance to participate and at the same time watch the U.S. become more energy independent.  I remain confident, cautious and eagerly optimistic.

Have a wonderful week!