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.

Oct 13

This Week’s Market Moving Events

Market Recap: 

Two weeks ago the prospect of an overheating economy and a soon to be hawkish Fed made investors uneasy and caused an early October sell-off. Last week fears of slowing growth even with the prospect of the Fed remaining dovish caused more investor anxiety and the most volatility since September 2011. While the recent bout of volatility is highly unpleasant and stomach churning, it is also approaching the irrational and is largely unfounded.

  • Ebola fears are exaggerated and will not impact the U.S. economy
  • Fed will maintain its accommodative monetary policy, thereby keeping a floor under markets
  •  Corporate earnings could rise by 10% this quarter
  •  Europe is in a recession – it has been for 5 years and will likely stay there for 5 more

While there are endless scenarios and risks to be conjured up by the faint of heart, the smart, long-term investor will stay calm and carry on. More volatility is likely, but I suspect strong corporate earnings will ultimately turn the tide.

Looking Ahead: 

Monday’s market action could be erratic given that bond markets are closed for the Columbus Day holiday, and Tuesday morning’s release of Eurozone Industrial Production and German Business Sentiment could prove pivotal – sentiment and expectations are very low, so an upside surprise is possible. In either case, it will come down to earnings, which are off to a decent start and could rise by 10% year-over-year. If they do, the fourth quarter could prove very rewarding for patient investors.

This Week’s Market Moving Events:

  • Monday: It’s Columbus Day and little news will be released
  • Tuesday: Eurozone Industrial Production, German Business Sentiment, US Small Business Optimism, Chinese Producer and Consumer Prices. Citi Group (S: C), CSX Corp (S: CSX), Intel (S: INTC), Johnson & Johnson (S: JNJ), JP Morgan (S: JPM) and Wells Fargo (S: WFC) all report
  • Wednesday: Mortgage Applications, Producer Price Index, Empire Manufacturing Survey, Business Inventories, Beige Book. EBay (S: EBAY) and Netflix (S: NFLX) report.
  • Thursday: Industrial Production and the Philly Fed Survey are released. Delta Airline, Goldman Sachs (S: GS), Philip Morris (MO) report
  • Friday: Housing Starts and Consumer Sentiment are reported. GE (S: GE) reports

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 ongoing market commentary. Visit www.ggfs.com for details.

Oct 10

Investor fears cause sharp sell-off

Market Recap: 

UNCERTAINTY – uncertainty wreaked havoc on markets on Thursday as investor fears caused a sharp sell-off reversing Wednesday’s gains as major indexes lost over 1 ½%. Markets started on a weak note after another disappointing economic report from Germany sent international bourses lower. Later in the morning ECB President Mario Draghi disappointed investors more when he stated that in addition to levers the Central Bank can pull, individual countries must reform their fiscal policies to allow their economies to be more constructive. The combination of weak European economic data, overall concerns over the global economy, as well as the rising nervousness relating to the Ebola outbreak and a late afternoon statement by Fed Vice-Chair Stanley Fisher that the Fed Funds’ Rate will likely start rising in mid-2015, proved too much to take for market participants. All sectors of the S&P fell, with energy shares falling almost 3% as Oil traded at its lowest level since 2012. Consumer Staple shares were the best performing sector for the day, falling less than 1%, on the commodity front Gold and other precious metals rose over 1%, while energy futures fell sharply and agricultural commodities were mixed. The U.S. dollar strengthened while Treasury Yield closed relatively flat.

Looking Ahead: 

Stay Calm and Carry On is our message to investors. While the recent bout of volatility is highly unpleasant and stomach churning, it is also approaching the irrational and is largely unfounded. First and foremost, our view is that while the Ebola outbreak is serious, it is serious for West Africa, and must be put into context as it pertains to the United States. Media hysteria aside, the Ebola crisis should not be viewed as an economy-impacting event. Second, the sharp fall in oil prices will ultimately prove beneficial to the U.S. economy and will keep inflationary pressures subdued. This will allow the Fed to maintain its current easy monetary policy, including low interest rates for an extended period of time (most likely longer than most expect). The combination of 2.5% to 3% economic growth, low interest rates, and an absence of overall inflation will prove beneficial to corporate earnings. Third, while the economic developments, or lack thereof, in Europe are disappointing, they are hardly new or surprising. Europe is in a mild recession, just as it has been for several years, and is likely to remain for several more. There is a valid concern by investors that the persistent weakness will continue to be a drag on global growth and will likely have a negative impact on corporate earnings from some Multi-Nationals who will be negatively impacted by the weakening Euro / strengthening Dollar. However, it is important to recognize that most Eurozone economies, especially the larger ones, are export driven economies. Hence, this impact is likely to be company specific as opposed to systemic and broad. Lastly, as we have stated over and over again, it will come down to corporate earnings – we’ll find out soon enough as the earnings reporting season is just getting going, but our estimates indicate strong earnings growth. As a result we believe that while volatility will remain high, and a further short-term correction is possible, the three to six month outlook for stocks is in fact constructive.

Make sure to tune into Fox Business Friday afternoon at 4:00 PM when our Co-Portfolio Manager, Oliver Pursche, joins Liz Claman and David Asman to discuss our economic and earnings outlook in detail. And don’t miss 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 analysis and market commentary including an interview with Dick Morris. Visit www.ggfs.com for details

Oct 09

The Fed not prepared to shift monetary policy anytime soon

Market Recap:

Dr. Yellen and the Fed came to the rescue of investors once again on Wednesday, as major indexes rallied about 1 ¾% after the FOMC minutes showed that the Fed retained its dovish stance and was not prepared to shift monetary policy anytime soon. All sectors of the S&P were higher, with Healthcare shares rising by over 2 ½% as a group, the Utilities sector rising by over 2% while the defensive Telecom sector trailed with a meager 0.1% gain. Oil prices and other commodities also rose, albeit mildly, while Treasury Yields set a new low for the year as the Ten-Year Treasury fell to 2.29%.

Looking Ahead:

After a stronger than  expected earnings report by ALCOA on Wednesday afternoon and a better than expected release by PepsiCo on Thursday morning, market bulls look to regain the upper hand as U.S. equity futures point to a higher open. Investors are likely to pay closer attention to the 10:00 AM release of Consumer Sentiment data over the early morning Jobless Claims data. While economic data will clearly continue to matter a great deal, corporate earnings will be the main driver of market action – so far the news has been good for investors.

Make sure to tune into Fox Business Network Friday afternoon at 4:00 PM when our Co-Portfolio Manager, Oliver Pursche, joins Liz Claman and David Asman to discuss our fourth quarter market outlook, why we expect earnings to be much better than most forecast, and our overall take on the economy. And don’t miss Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear a great interview with Dick Morris, our detailed economic analysis, as well as our ongoing market commentary. Visit our website www.ggfs.com for details.

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