Archive for the ‘recession’ Category
Tuesday, February 16th, 2010
With this being a holiday week and with little economic data out this morning the market decided to push stock prices higher. It may be caused by nothing ‘bad’ happening over the long weekend in the world. Maybe traders feel the correction phase of the market is coming to an end though the indexes only fell about 7% which is light for a correction. Of course all we have had are light corrections since the rally began last year.
Greece is still a problem as the rest of the EU talks about a bailout without calling it a bailout. Greece itself seems to be walking around like a zombie telling anyone who will listen that they have no problem.
There are many issues that could upset the worldwide recovery as China deals with a budding inflation problem. So far they have tightened their money supply twice this year to hold down inflation.
Despite these headwinds there is a rather large tail wind for our economy. Only about a third of the stimulus package passed last year has been spent. As a result, this year and next will see massive spending in our country and at a time where economic stats are showing us the beginnings of a recovery already. That spending is a major push and should support continued growth.
Will that push stock prices higher? Earnings and growth are the key. The chances are good that both will do well this year.
Good Trading
Steve Peasley
Posted in Current News, Financial Outlook, GDP, Hope, Uncategorized, inflation, mutual funds, recession, stimulus package | No Comments »
Tuesday, May 12th, 2009
The week started on an up note. The stock market got a boost from the existing housing sales report which showed sales up 3% nationwide with a more than 8% increase in the west. Also on Monday a report on China’s economy showed its manufacturing sector growing much stronger than expected. That led the market higher and set a tone indicating our economy will eventually recover.
By mid week, after a couple good days, we had a sell off on Thursday which was broad based and painful. However, this morning with the bank stress test and an employment report for April behind us without any surprises the market decided to rally again, at least so far this morning. This is an obvious case of the market climbing a wall of worry.
The economic numbers actually were very encouraging this week. Retail sales were up for April by .3% and for last week up .7%, but what was more surprising was the first time jobless claims which fell by 34,000 this week and the four week average fell as well by 14,759. True jobless claims sit at over 600,000 which are very high but the stock market cares about the trend and is looking for the beginning of the change. That seems to be happening. Can this change turn into actual growth? At some point it will but not for a number of months, maybe by the fourth quarter this year or next. At some point the worry will turn to the strength of the recovery but so far no one is talking about that, yet!
We have had several weeks in which economic numbers, though still showing us that the U.S. economy is in a recession, seem to point to a turn from free falling to just falling or leveling off. The just ended earnings season came in better than expectations. Of course those expectations were severely downgraded at the beginning of the year therefore beating them is not all that difficult. The real test will be the sustainability of improving numbers. Can that happen?
I believe it will. The LIBOR rate is now below 1% when a few months ago it was as high at 5%. That is the rate banks lend to each other. The mortgage rates are at 5% or less and this week we saw productivity increase by .8%. Add these stats to all the others these last few weeks and we have strong evidence that things will get better. Finally, China, who embarked on their own stimulus plan, is already showing signs of strengthening growth despite the slow down in exports. The guidance, by independent firms, is calling for an increase in China’s GDP from 6% growth to 8% this year.
Does this mean the stock market is going to rally straight up from the March 9th low? Probably not. We will have corrections along the way. Any correction will be one to buy not sell. At the same time taking profits every so often is not a bad thing. Since China is already recovering and growing we have increased our exposure to the Asian market. You need to go where the growth is and since the stock markets of the Far East fell a lot harder than ours it has made all of Asia a good place to invest, despite the risks of lack of transparency and multiple books that their companies keep.
It is time to invest and has been for several weeks. No one knows when and where the bottom is but we can look back and clearly see a strong bottom of the various markets that took place on March 9th. Put fear aside and let’s make some money.
Posted in Currency, Current News, Financial Outlook, Hope, Industry Analysis, banks, housing, jobs, recession, stimulus package, stock market | No Comments »
Tuesday, April 28th, 2009
This will be the last big week of earnings reports for the first quarter. There will be more in the weeks ahead but the amount of companies reporting will fall dramatically. Earnings as reported for the first quarter have been poor but surprisingly better than expected especially in the financial sector. The real story is in the tech stocks. Their earnings have been very good in comparison to other industries. Profits are
still rolling in nicely. Qualcom and Verizon reported with Qualcom numbers coming in at the high end of forecast. Verizon grew their earnings by 5%. Much of that was from the acquisition of Alltel Corp, but they also increased their client base without the purchase.
The worst in the economic slump is over and stocks will begin to trade based on fundamentals again. Those fundamentals are weak and will only begin to improve in the coming months. However, stock prices may have hit their lows for this cycle. The market is still down for the year but things are looking up and we have had a sharp move up from the bottom. Of course there was a sharp move down for the first two months of the year with the cycle low on March 9th. That low is the bottom – at least it appears that it will mark the bottom.
Good Trading,
Steve Peasley
Posted in Currency, depression, inflation, recession, stock market | No Comments »
Tuesday, April 21st, 2009
The market this morning decided to give back some of its recent gains. This certainly should have been expected and it’s a question of how much will the market retract? Actually, a pullback will be a healthy sign that we have reached the bottom set in early March and that the market with the economy has a brighter future for the rest of the year.
The large merger deals announced by Pepsi and Oracle and a great earnings report by Eli Lilly Company did nothing to help the market. Also, Bank of America announced surprisingly good earnings this morning though the bank stated credit defaults were still rising. None of that good news mattered.
The stock market reaction today is a clear sign that it is ready for a pullback. It could be short and sharp, but it should only be a pullback and one that should be bought not sold. Having cash on the sidelines waiting for it to finish its pullback, and having a hedge against this fall has ‘not’ been a benefit in the recent rise, but the market will now give you an opportunity to enter the market at better prices and exit your short positions.
It would be prudent to wait a few days to let the market work.
Good Trading
Steve Peasley
Posted in Currency, Current News, Foreclosures, GDP, Hope, Important, Industry Analysis, Uncategorized, banks, commodities, jobs, recession, stimulus package, stock market | No Comments »
Friday, April 17th, 2009
This week we had a blizzard of economic news and earnings reports for the first quarter. Overall the economic news was poor, but on balance probably better than expected. This trend of poor but slightly improving economic news will likely continue. Earnings as reported so far are not that good, but on balance they are better than anticipated. Three reports in particular from J.P Morgan/Chase, Wells Fargo and Citigroup had surprising earnings considering they are in the banking industry and everyone expects the worst from that sector. Certainly there were companies with worse than expected numbers and some with better, but the banking industry is supposed to be flat on its back.
On the economic front, retail sales reported this week fell 11% from February to March, Industrial production fell to 69.3% down 1% from February, and new construction fell 10%. All bad news, so why didn’t the market fall this week? Obviously, this kind of news was expected. Fear is subsiding. We saw good news this week in the earnings reports for the banks, in inflation which is dead, in mortgage applications for homes which are up 45% for the week compared to a year ago and in mortgage interest rates which are down to 4.8% for a 30 year fixed.
The numbers are still very ugly but the stock market has been so beaten up that it is reacting to news that shows some hints that the worst is over. The stock market is still down for the year even with the strong up move in the last month. There was a stronger move downward for the first two months of the year and so far all the market has done is return to early February levels. Except for the NASDAQ.
The NASDAQ index, which is full of large tech companies, is flat for the year. Past bull markets have been led by tech and this one is no different. Banking stocks are coming off severe bottoms and no bull market in history has occurred without a rally in banking stocks. It appears that though the economy is still in a severe slump that the stock market, which is itself a leading economic indicator, is telling us that the fix is in. That ‘fix’ may be some months away as we deal with backward looking statistics but it certainly seems that the mood has changed.
As we at KPP Financial have been heavy in cash. We did not pick the bottom of this stock market, nor did anyone else. Because we were heavy in cash we did not go down with the market in January, February and the first part of March. What that means is that we are late in catching the rally as well. As our clients have seen we have been moving into the market for the last six weeks. We are now heavily invested but with some cash on the sidelines that we plan to put to work on any weakness in the market. This is a bear market rally so far, albeit a sharp one, forming a ‘V’ bottom which was unexpected. Any pullback will be an opportunity to buy.
Finally, history tells us that this is the first leg of a rally. If the ultimate bottom is in, which we have stated in previous newsletters that we think it is, then the rally should continue. It should rise at least 50% from the bottom. After the 1973-74 recession, which so far looks very similar to the current recession, the S&P 500 rallied 73% and the DOW 75.7% over 19 months. This kind of rally from a recession low is normal. Don’t think that this is uncommon. Therefore, missing part of the first leg because you were protecting your nest egg, as we were doing, is not a bad thing.
However, it is now time to invest. Do it carefully and in fact hope for some weakness so that you can take advantage of lower prices. Do not fear any correction. Fear is hovering over everything. To the degree it is keeping people out of the market it is a good thing. Stock market rallies climb a wall of worry. Be cautious but be buying.
We will continue to buy slowly. The plan is to take advantage of any weakness to buy more. That doesn’t mean we won’t sell if something is not working but overall we are on the buy side of the market not the sell side. That time is over.
Good Trading,
Steve Peasley
Posted in Current News, Industry Analysis, depression, mutual funds, recession, stimulus package, stock market | No Comments »
