Oct 30

Better Economic Conditions

Market Recap:

Markets sold off slightly on Wednesday as there were few surprises in the FOMC announcement. As expected, the Federal Reserve announced the end of Quantitative Easing (QE), and maintained its pledge to keep interested rates low “for an extended period of time.” Dr. Yellen indicated in her press conference that the Fed saw better economic conditions and stronger employment growth in the years ahead, and believes that inflation will remain in check for some time. Stocks did sell-off on the typical emotional overreaction when the statement was released, but rebounded to close with slight losses. Market internals continue to point to a growing performance divergence within various sectors, as the Materials sector fell 1.26%, while Financials gained slightly. Within the Dow, DuPont (DD) shed 1.69% on weaker than expected earnings and outlook, while Pfizer (PFE) and Johnson & Johnson (JNJ) rose sharply on strong earnings reports. So far, with nearly 80% of S&P 500 constituents reporting Q3 earnings, over 72% have beaten earnings forecasts, supporting our expectations that, as a whole, earnings will rise about 10% year-over-year this past quarter.

Looking Ahead:

As predicted, investors quickly moved past the FOMC announcement and turned their focus on Thursday morning’s first read of third quarter GDP data and jobless claims. Third quarter GDP is shown as having risen 3.5%, ahead of expectations (consensus was 3.1%). Inflation remained low, rising a mild 1.3%, although we remind investors that the recent fall in gasoline and oil prices has had a meaningful impact on this figure and we would therefore expect a real inflation number to average closer to 2% once commodity prices stabilize. The broader question that needs to be answered, and will have a much greater impact on our economy, is going to be job growth. Specifically, while jobless claims (which came in at a relatively low 287,000) and the unemployment rate continue to fall, the key to stronger growth and the eventual return of inflation is strong high-wage employment growth. As we all know, so far the employment growth has predominantly been in the lower end of the market.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM (following the Rutgers game) and Sunday at 11:00 AM on WOR 710 AM Radio to hear a wonderful and very insightful interview with Callista Gingrich (Newt Gingrich’s wife), an important discussion between Gary and Oliver about the real risks of owning bonds if interest rates don’t rise, as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 29

Long Awaited Fed Meeting

Market Recap:

 

Investors ignored weaker than forecast Durable Goods orders and a slower rise in home prices and instead focused on corporate earnings and strong consumer sentiment ahead of Wednesday’s Fed minutes release and Chairwoman’s conference. All sectors of the S&P climbed, with Industrials and Energy shares gaining most, while the traditionally defensive Consumer Staples sector lagged with a meager gain of 0.39% on a day when major indexes all gained more than 1%. Commodities were mostly higher, while Treasuries sold off slightly and the U.S. dollar was relatively flat.

 

Looking Ahead:

 

The long awaited Fed meeting and minutes are unlikely to reveal anything new to market participants. In our view, barring a surprise announcement by Dr. Yellen, we believe investors will turn their attention to today’s earnings releases by Metlife, Revlon and Visa ahead of tomorrow’s first look at third quarter GDP which is expected to show a rise of 3.6%.

 

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our latest economic analysis, interviews with some of today’s most respected business leaders, as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 28

Expect a Relatively Muted Session

Market Recap:

It was a wait and see day on Wall Street as market participants mostly stayed on the sidelines ahead of earnings reports and this week’s key FOMC meeting where the Fed is expected to announce an end to QE (Quantitative Easing). Stocks were little changed on Monday as the economically sensitive Energy and Materials sectors fell by roughly 2% each, while Telecom shares rose more than 1%. Earnings releases and economic data were mostly in line with expectations.

Looking Ahead:

The two-day FOMC meeting kicks off on Tuesday morning and will conclude with the Chairwoman’s press conference on Wednesday afternoon. Barring a significant divergence from expectations in upcoming economic data, investors should expect a relatively muted session through Wednesday. On Thursday investors will get their first look at third quarter GDP figures, which is expected to have grown by 3.2%. Moreover, inflation data and European manufacturing data are likely to impact market action for the remainder of the week. Generally speaking we anticipate continued market volatility through early November when elections and the earnings season is behind us.

Make sure to tune into Fox Business Tuesday evening at 6:00 PM when our President, Oliver Pursche, joins Charles Payne on Making Money for the full hour. And don’t miss Money Matters with Gary Goldberg this Saturday at 5:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear great interviews with some of today’s most respected business leaders, our latest economic analysis, as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 24

Next Week’s Market Moving Events

Market Recap:

While major market indexes rose sharply on Thursday, it wasn’t an “all-clear” for investors as telecom shares and consumer staple stocks fell, while healthcare and technology shares rose nearly 2%. Strong earnings by Caterpillar, which also raised its full-year outlook, lifted investor’s spirits causing the Dow to gain as much as 300 points intra-day before closing up about 200. Markets did come under some pressure in the late afternoon after rumors circulated (which were later proven to be true) that a doctor in New York City was showing signs of having contracted the Ebola virus. Given the volatile nature of the market, many are asking themselves what they should do in this environment – in our view, and as we have frequently shared (watch our latest CNBC interview here: http://video.cnbc.com/gallery/?video=3000323515) taking a patient and long-term view to investments should alleviate many of the short-term concerns the fear filled news-headlines are bringing forth.

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Looking Ahead:

So far third quarter earnings have been strong.  While there have been some notable misses by the likes of McDonalds and Amazon, there have been more earnings beats by the likes of Nike, Microsoft and Caterpillar. So far, with just over 2/3rd of S&P constituents reporting, 68% of the companies have beaten EPS estimates. Additionally, economic news continues to be robust, with unemployment falling, inflation remaining benign and overall activity continuing to grow. However, it is clear that overall investor sentiment is best described as nervous, as fears over a spread of the Ebola virus, a worsening of conditions in Europe and the ongoing geopolitical turmoil between Russia and the West are all dampening investors mood. As such, we believe that a patient, longer-term view is most appropriate, meaning that investors should focus on the basics – corporate earnings and overall economic growth. As of Thursday’s market close, the trailing P/E ratio of the S&P 500 is 17.80, while the trailing P/E ratio of the Dow Jones Industrial Average sits at 15.44. Looking 12 months ahead, based on analysts’ expectations, the spread does narrow, to 15.75 forward P/E for the S&P, and a 14.25 forward P/E for the DJIA. Price to Earnings ratios are just one of many metrics used to judge the value of a stock and the broader market. However, given this disparity, and accounting for dividend payouts, it is fairly evident that high-quality dividend paying stocks continue to offer investors a relatively attractive value, compared to other segments of the market.

Next Week’s Market Moving Events:

  • Monday: Pending Home Sales, PMI Services and Dallas Fed Manufacturing. T-Mobile and Twitter report earnings.
  • Tuesday: The 2 day FOMC meeting kicks off, Durable Goods Orders, Case-Shiller Home Prices, Consumer Confidence and the Richmond Fed Manufacturing Index are all reported. Aetna, AFLAC, Coach, DuPont, Express Scripts, and Pfizer all report.
  • Wednesday: Mortgage Applications, FOMC Minutes release and the Chairwoman’s conference. Fiat-Chrysler, Ralph Lauren, and Southern Co report.
  • Thursday: (First estimate) Third Quarter GDP, Jobless Claims, European economic sentiment and inflation outlook. Cigna, Conoco Philips, and Master Card report.
  • Friday: European manufacturing and inflation data, US Personal Income and Spending, Consumer Sentiment and the Employment Cost Index are released. Chevron and Weyerhaeuser report.

Don’t miss our President, Oliver Pursche, on Fox Business Network next Tuesday when he joins Charles Payne for the six o’clock hour to discuss our year-end outlook and what we think will drive markets in 2015. And tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM (following the Rutgers game) and Sunday at 2:00 PM on WOR 710 AM Radio to hear a great interview with Newt Gingrich, as well as our latest market and economic analysis. Visit  www.ggfs.com for details.

Oct 23

Markets are looking to regain their footing

Market Recap:

Wednesday started out with the expected low volume, low volatility trading pattern as there was little news for investors to get agitated over. That all changed late morning, as news came across that there had been a terrorist attack in Canada’s capital, Ottawa – the second in three days. One or more gunmen killed a soldier standing guard at the national war memorial and then entered the capital building, firing as many as a dozen shots before being killed himself. The “lone gun-man” incident in Ottawa underscored the fragile psyche of investors, whose nerves have been frayed lately. The Utilities sector was the sole gainer yesterday, as Industrials and Material shares underperformed. Commodities were mixed, as Oil and other agricultural commodities sold off, while base metals such as Zinc and Copper rose slightly. The U.S. dollar was mixed with a slight upward bias.

Looking Ahead:

Markets are looking to regain their footing on Thursday morning after better than forecast economic news out of China and Japan helped lift international bourses. U.S. equity futures are pointing to a higher open as international investors digest the slightly better than expected European manufacturing and export data. The reports were mixed, with the UK and Germany outpacing expectations, while France’s domestic output fell more than feared. Today’s releases of U.S. consumer comfort data, jobless claims, home prices, PMI Manufacturing and Leading Indicators could all tilt the market’s direction. Make sure to tune into CNBC this afternoon at 3:45 PM to listen to our President, Oliver Pursche, discuss our year-end outlook and what catalysts will help drive the S&P past 2,100. And don’t miss Money Matters with Gary Goldberg this Saturday at 5:00 PM (immediately following the Rutgers game) and Sunday at 11:00 AM on WOR 710 AM Radio, to hear a great interview with Newt Gingrich, our latest economic analysis, as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 22

All sectors of the S&P rose

Market Recap:

Stocks rallied for a fourth day in a row as the S&P climbed nearly 2% on strong corporate earnings reports and better than forecast economic news. All sectors of the S&P rose on Tuesday, with the economically sensitive materials sector outperforming, while the traditionally defensive consumer staple and utilities sectors underperformed. Commodities were mildly higher, while the dollar was mixed and treasury yields rose as the benchmark ten-year yield reached 2 ¼%.

Looking Ahead:

Wednesday’s earnings and economic releases are relatively light compared to the remainder of the week, making today’s trading likely tepid and uneventful. Investors did get some additional positive news, as new Mortgage applications were shown to rise and overall inflation data was benign as lower gasoline prices kept prices in check. Thursday’s heavy data release calendar includes European manufacturing data, US jobless claims, housing data and PMI Manufacturing data, all of which could prove to be market moving data points.

Make sure to tune into CNBC on Thursday afternoon when our President Oliver Pursche joins Bill Griffith and Kelly Evans on the floor of the New York Stock Exchange to provide our latest economic and market outlook. And don’t miss Money Matters with Gary Goldberg this Saturday at 5:00 PM, immediately following the Rutgers Game, and Sunday at 11:00 AM on WOR 710 AM Radio for our complete economic and market analysis, as well as our ongoing market commentary.  This week’s guests are Newt and Callista Gingrich as well as insight on market volatility from our own Peter Dedel.  Visit www.ggfs.com for details.

Oct 20

Volatile weeks for equities in over five years

Market Recap:

In what turned out to be one of the most volatile weeks for equities in over five years, investors found themselves a bit befuddled as there really was no fundamental reason for any of the violent market action last week. Fears over the Ebola virus, weakening economic conditions in Europe and some saber-rattling by Mr. Putin in Russia were all part of the cause, however strong corporate earnings releases and decent U.S. economic data should have abated concerns. Instead, it was the Fed that came to the rescue of investors, as St. Louis Fed President James Bullard indicated on Thursday afternoon that he was in favor of the Central Bank continuing its bond purchases. While many interpreted this to mean that the Fed might be contemplating another round of quantitative easing, QE 4, we believe Dr. Bullard’s statement was taken out of context, as he most likely meant to indicate that the ending of QE hardly signified a deleveraging of the bank balance sheet or the end of easy monetary policy (see our post from last Friday for further explanation). Dr. Yellen clarified and to some extent reiterated Dr. Bullard’s comments on Friday morning.  This, coupled with much lower (better) than expected jobless claims, helped markets rally over 1%.

Looking Ahead:

Corporate earnings and economic data will be the rain-makers this week, as blue-chip stocks such as IBM, Apple, McDonalds, Elli Lilly and Microsoft are among some 300 companies releasing earnings this week. On the economic front, manufacturing and industrial production figures from China and Japan along with Housing data in the United States are likely to be the key drivers of activity. We suspect investors are wise to keep their seatbelts fastened and expect a bit more volatility – after all, it is hurricane season, and there is a monsoon of activity heading our way.

Make sure to tune into CNBC this Thursday afternoon at 3:45 PM when our President, Oliver Pursche, joins Bill Griffith on the floor of the New York Stock Exchange to discuss our latest market views. And tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our complete economic analysis and market commentary. Visit www.ggfs.com for details.

Oct 17

QE 4 or not?

Market Recap:

Volatility declined on Thursday as investors started coming back to the market and selectively took advantage of the buying opportunity the near 10% sell-off created. Energy, Industrial and Consumer Discretionary shares all fared well on Thursday, as fears over a significant slowdown in the global economy abated. Economic news was mixed, as home-builder sentiment unexpectedly fell, while jobless claims also fell to their lowest levels in over 2 ½ years. In a somewhat surprising move, Fed Governor James Bullard (a voting member of the FOMC) indicated that he would be in favor of continued bond purchases by the Fed.

QE 4 or not?

President Bullard’s comments on Thursday afternoon that he is in favor of the Fed continuing its bond buying (QE) program caused market participants to wonder whether he and the Fed were contemplating another round of Quantitative Easing. In our view this is highly unlikely – the Federal Reserve will conclude its QE policy in November or December. However, as the Fed has very clearly stated, it is their intent to continue to reinvest proceeds of their current Treasury and Bond holdings. Hence, while the Federal Reserve is no longer intending to expand its balance sheet, it is also not reducing it at this time – as their current bond (mortgage securities and treasuries) mature, they will take those proceeds and “roll” them into new similar or possibly shorter dated bonds. The likely effect of this is to allow for a very gradual rise in interest rates, with longer-term rates rising at a greater pace than short-term rates.

Looking Ahead:

Pre-market futures are indicating a sharply higher open in early morning trading, giving investors some reprieve. In addition to Housing Starts and Consumer Sentiment data, market participants will tune into Federal Reserve Chairwoman Yellen’s scheduled speech at 8:35 AM in the hope of hearing comments that echo President Bullard’s supportive comments made on Thursday. Furthermore, traders will keep an eye on Oil and the US dollar, both of which have stabilized a bit in the past 2 days, helping to reduce overall volatility. While down-side volatility may be coming to an end, we suspect that overall volatility will remain part of the landscape through the current earnings reporting season and possibly beyond.

Next Week’s Market Moving Events:

  • Monday: Chinese GDP, Industrial Production and Retail Sales are reported, as are German Producer Prices. There are no major economic releases in the U.S. Apple (APPL), Halliburton (HAL) and IBM (IBM) report earnings
  • Tuesday: U.S. Same Store Sales, Redbook report and Existing Home Sales are reported. Coca Cola (KO), Lockheed Martin (LMT), Kimberly Clark (KMB) and McDonalds (MCD) report.
  • Wednesday: US Consumer Prices, Mortgage Application, and Chinese Manufacturing data are released. Abbott Labs (ABT), ATT (T), and Leggett & Platt (LEG) report.
  • Thursday: Home Prices, Leading Indicators, PMI Manufacturing data and the Kansas City Fed Manufacturing Index are released. 3M (MMM), Amazon (AMZN), Caterpillar (CAT), Eli Lilly & Co (LLY) and Microsoft (MSFT) are amongst over 200 companies releasing earnings today.
  • Friday: New Home Sales data is released. Ford Motor (F) and Proctor & Gamble (PG) report earnings.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our latest economic analysis, interviews with some of today’s most respected business leaders, as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 16

Nerve racking volatility over the past few weeks

Market Recap:

Selling pressure came to a boil on Wednesday, as the Dow Jones Industrial Average fell as much as 460 points by 1:30 PM. Weaker than forecast Retail Sales data as well as a down-tick in manufacturing activity, coupled with weak Eurozone data caused markets to plunge over 1 ½% at the open. On the flip side, business inventories rose less than forecast, and the Beige Book report – which forecasts future business activity – showed increasing positive momentum in the fourth quarter. On the earnings front, news was mixed as Intel, PNC Bank and St Jude Medical all beat, while Bank of America earnings came in below expectations.

Don’t throw the baby out with the bathwater!

The persistent volatility over the past few weeks has certainly been, and continues to be, nerve racking. And, of course, hindsight tells us we should have sold on September 19th as markets hit their all-time highs. But that’s only part of the story – the reality is that while there has been some negative news, as well as some media-hyped hysteria, the overall landscape continues to improve. Corporate earnings are rising, the U.S. economy continues to grow at a steady pace (4.6% in the second quarter), and projections for consumer spending and overall economic activity for the upcoming holiday shopping seasons are pretty solid. So while there is always plenty to worry about, and news-headlines can raise all sorts of alarms and cause some to what to “sell everything,” the smart and patient investors realizes that a long-term view should be driven by fundamentals as opposed to short-term events. While the current cycle is likely to last a little longer, we don’t believe investors should throw the baby out with the bathwater. Rather, investors should stick to their disciplines and investment process and may well want to remember the sharp sell-off in the third quarter of 2011. Remember, the biggest mistake investors made in the last five years was to allow their emotions to get the best of them, sell in September 2011, and miss the subsequent rally in the fourth quarter and 2012.

Where to put your money now:

We maintain our view that one of the best places for long-term investors to put capital to work is high-quality dividend paying stocks. Companies with fortress like balance sheets, predictable and consistent earnings growth, and a history of raising their dividends, may not be immune to this correction, however they have historically declined less than the overall market and when including their dividends have outperformed the overall market in the long-run. More conservative or risk averse investors may also consider insuring a portion of their portfolio by utilizing a managed variable annuity strategy as a portion of the equity component of their overall portfolio.

Looking Ahead:

Earnings, which have been solid so far, are unlikely to come to the rescue of markets and investors on Thursday, as there was some additional selling pressure in the latter part of the trading day on Wednesday. Industrial Production and Housing data will be key reports on Thursday, but the real market sentiment shifter will come on Friday when Janet Yellen speaks before the market open. Incidentally, Dr. Yellen did pronounce a level of confidence in the US economy and the sustainability of our growth.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear our latest economic analysis and our ongoing market commentary. Visit www.ggfs.com for details.

Oct 15

Stocks rebound from heavy losses

Market Recap:

Stocks rebounded from heavy losses on Tuesday, although the rally fizzled in the late afternoon as weak energy prices weighed on the Energy sector as Oil prices dropped by 4 ½%. Concerns over weakening global demand remained an over-arching theme throughout the day, causing Treasury Yields to fall below 2.2% (10 Year Treasury), while Gold and other safe haven assets traded mildly higher. Although major indexes declined, the underpinnings of the market were a bit more positive as 6 sectors of the S&P rose, 2 sectors were flat, and 2 declined (Energy and Health Care). Most significantly, corporate earnings were mostly better than expected as CSX Corp (CSX), Intel (INTC), Citi Group (C) all beat, while JP Morgan (JPM) missed earnings as a result of higher than expected legal costs – however, Operating Income was better than forecast. Generally speaking, market sentiment improved.

Looking Ahead:

Economic data will come into focus on Wednesday, as Retail Sales, Business Inventories, Mortgage Applications, and the Beige Book data are all being released. On the earnings front, EBay (EBAY), Netflix (NFLX) and a few dozen small cap companies all report earnings. From a short-term perspective, investors should keep an eye on the Transportation Sector as well as Small-Cap stocks – a shift to positive momentum in these two areas could signal an end to the short-term market sell-off we have been experiencing. For more patient and long-term investors, the recent broad sell-off has created some additional attractive valuations – especially for investors seeking high-quality dividend paying stocks.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear our latest economic analysis, interviews with some of today’s most respected business leaders as well as our ongoing market commentary. Visit www.ggfs.com for details.

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