corporate

Solid Gains In Q1!

Posted on by George Mahfouz

The major averages closed out the first quarter of the year posting solid results. The Dow Jones Industrial Average (chart) closed up 4.6%, the S&P 500 (chart) closed up 5.5%, the small-cap Russell 2000 (chart) gained 2.1% and the technology focused Nasdaq (chart) finished out the first quarter of the year up an eye-popping 10%. It’s no surprise how well tech did in Q1 considering how much this sector sold off after Trump won the election.

Although stocks continue to outperform, there has been some uncertainty coming into backdrop. The GOP’s inability to pass Trumpcare was the first sign of the potential breakdown of the new administration’s policies. Investors are beginning to wonder whether or not there will be more divide amongst republicans and how that could affect the upcoming tax reform bill. If there are any snags there or if that reform does not pass, some market pundits believe a 10-20% correction could occur.

Here are my thoughts about that. I do agree that if the proposed Trump tax reform does not go through, there indeed could be an immediate market reaction to the downside. How much, who knows? The markets are seemingly priced to perfection and then some. So if corporate tax rates are not reduced as Trump and his administration has outlined, why wouldn’t stocks be affected? Of course we will not know until late summer how the administration’s new tax policy will look like in its final state or whether or not it will even pass.

That said, there is plenty of runway between now and then for stocks and this starts with first quarter earnings reporting season. April is the month in which companies begin to report their earnings results to their shareholders. Corporate profits appear to be growing along with the economy. This my friends is where investors should be valuing stocks. So much emphasis has been put on the new administration’s economic and tax reform policies that we need not to forget about what really matters and that is corporate profits. That is not to say that government polices including the Federal Reserve don’t matter, but at the end of the day and when all the votes are in, growth and profits to me is what truly matters when valuing and investing in stocks.

Good luck to all 🙂

~George

 

As Expected, The Fed Raises Rates…

Posted on by George Mahfouz

To no surprise, the Federal Reserve raised interest rates 1/4 point today citing stronger economic growth and a pick-up in inflation. A stronger job market also played a role in the decision of the Fed. What wasn’t quite expected was the language of an additional anticipated rate hike from the projected two hikes in 2017 to now three. This might of caused the slight sell-off yesterday in the markets with the Dow Jones Industrial Average (chart) falling 118.68 points, the S&P 500 (chart) was lower 18.44 points, the Nasdaq (chart) fell 27.15 points and the small-cap Russell 2000 (chart) retraced by 17.51 points.

With all things considered, this pullback was long overdue. In fact, I am surprised that the markets held up like they did yesterday. Especially considering the rip roaring rally most equities have enjoyed since the presidential election. Markets have been on fire with the Dow Jones Industrials (chart) gaining almost 1,600 points, the S&P 500 (chart) ripping 125 points, the Nasdaq (chart) catapulting about 300 points and the small-cap Russell 2000 (chart) up a staggering 170 points. What a breathtaking rally in such a short period of time.

So what can we expect between now and year end? Let’s think about this for a minute. If you are an institutional investor, fund manager, hedge fund or the like would you be taking profits into year end? Or would you wait until we get into the new year knowing that capital gains taxes and corporate taxes are coming down? I think it is fair to say the latter would make the most sense. Add into the mix the rotation that continues out of the bond market and into equities in which certain pundits believe we are in the fourth or fifth inning of that rotation, one has to ascertain that this bull market has more room to run.

Whatever the case I think pullbacks will be bought as momentum continues into year-end. Paula and I wish everyone the happiest and healthiest holiday season 🙂

~George

First Quarter In The Books…

Posted on by George Mahfouz

Q1 proved to be a mixed bag for the major averages. The Dow Jones Industrial Average (chart) closed out the first quarter up almost 1.5%, the S&P 500 (chart) finished up 0.77%, however, both the Nasdaq (chart) and the small-cap Russell 2000 (chart) finished out the first quarter of the year lower by 2.75% and 1.78% respectively. Not too shabby considering these key indices were down over 10% earlier in the quarter. This morning stocks are lower despite a stronger than expected  jobs report. In March, the economy added 215,000 jobs with the unemployment rate now at 5%.

With Q1 in the rear view mirror all attention will now be focused on first quarter earnings reporting season. The Commerce Department recently issued a report indicating that corporate profits were down 15% year-over-year. This does not bode well for stocks when the current p/e ratio’s of the major averages are well above their historic averages. With earnings reporting season just ahead, we will not have to wait too much longer to see how well corporate America is doing.

Let’s take a quick look at the technical shape of the markets. Most of the key indices are at or near overbought conditions, which has been the case for pretty much most of March. In my previous blog I eluded to what most market technicians look at when gauging overbought or oversold conditions. Furthermore and technically speaking, the major averages are all trading at or above their 20, 50 and 200-day moving averages with only the small-cap Russell 2000 (chart) chasing its 200-day. If you are bullish on the market, these moving average patterns are typically a good thing. That said, I do expect volatility to pick up a bit which is usually the case ahead of earnings reporting season. I will check back in mid-month or so to see how earnings growth actually appears.

Good luck to all 🙂

~George

Once Again, All Eyes On The Fed…

Posted on by George Mahfouz

Stocks closed lower last week for the first weekly decline of the broad indices in over a month. The Dow Jones Industrial Average (chart) closed the week down 1%, the Nasdaq (chart) -0.3%, the S&P 500 (chart) closed lower by 1.1% and the small-cap Russell 2000 (chart) also finished the week lower by almost 1%. I suppose a bit of a pullback was overdue considering how much the market has gained over the past five weeks or so. Some of the chatter is that this most recent weakness is due in part to the upcoming Fed policy meeting next week, and the expectation that the Fed is on the brink of changing its language pertaining to interest rates. Between strong economic growth and healthy corporate balance sheets, it’s no wonder analysts are expecting a shift in demeanor over at the Fed. Furthermore, oil has dropped significantly since late June which is finally beginning to show up at the pump. Lower gas prices is a positive for the consumer which could add more fuel to the economy, no pun intended. But wait a minute, the job market recently has done an about face with less hirings occurring in the month of August, which could give the Federal Reserve a reason not to put the brakes on so quickly. Personally, I think the Fed will become a bit more vocal   regarding rising rates over the coming months.

So what could this mean for stocks in the near term? For one, I expect more volatility between now and year end. Especially as it pertains to the upcoming third quarter earnings reporting season. We all know that the Fed will end its asset purchase program in October, and then next logical step for them is to begin to raise interest rates at some point in time. So corporate America sooner than later will have to stand on its own two feet and show top-line growth in order to appease investors and maintain their valuations. See, the accommodative policies over the past five years or so has in part given companies a pass so to speak if they weren’t growing their top-lines. What a lot of companies have done over the past few years is clean up their balance sheets by becoming more efficient by way of trimming expenses and implementing stock buyback programs. This of course in many instances improved their earnings and bottom lines, while not really growing their top-lines. Which is why I view the upcoming Q3 earnings reporting season as potentially one of the defining moments in this historic bull run we have enjoyed over the past five years. This could also be a “Goldilocks” moment where the Fed ends its asset purchase programs, begins to gently raise rates with minimal inflation in sight, and corporate America demonstrates top-line growth. This is what Janet Yellen and the Federal Reserve would call the perfect set-up. I, like most investors would love to see this theme play-out. However, let’s not forget the multi-trillion dollar balance sheet that the Fed has incurred during this unprecedented time of monetary accommodation, and as of now, no one really knows what type of impact this will ultimately have on our economy and our markets. Good luck to all and have a great week 🙂

~George

 

 

A Mixed Bag…

Posted on by George Mahfouz

At the height of Q4 earnings reporting season, results from corporate America have been conflicted, so far. Let’s start with everyone’s favorite, Apple (NasdaqGM: AAPL). Despite sales of its iPhone hitting records during the holiday season, those sales were shy of what the street was expecting by three million units. Furthermore, during the conference call after its earnings release on Monday, management projected a softer outlook for the upcoming quarter amid growing competition in the smartphone and tablet marketplace. This was enough to send Apple’s shares lower by over 10% this past week. In fact, the majority of the retailers have reported very disappointing results this earnings reporting season with the widely followed and traded retail SPDR S&P Retail ETF (NYSE Arca: XRT) (chart) down almost 10% for the month of January.

Now let’s take a look at the results of the four key indices so far this year. For the month of January, the Dow Jones Industrial Average (chart) is down 5.3%, the tech-heavy Nasdaq (chart) is off by 1.7%, the S&P 500 (chart) is lower by 3.6% and the small-cap Russell 2000 (chart) finished the month down by 2.8%. In my January 1st blog, I eluded to expecting a 5%, 10% or even a 15% correction in 2014, and we could very well be in this corrective phase as we speak. The question now to investors and traders alike is how steep could this current pullback become? Let’s not forget we are coming off of a year in which these key indexes individually gained well over 25%, with the Nasdaq leading the way gaining a whopping 38% in 2013. What I try to do is tune out all of the noise that comes out of the financial cable channels and media and focus on seasonal patterns and the technicals of the market. Technically speaking, the markets are not yet in an extreme oversold condition according to the RSI principles. Remember the Relative Strength Index a.k.a. the RSI is one of my favorite technical indicators where overbought and oversold conditions are exhibited depending on certain value levels. In this case and according to the RSI principle, the 30 value level and below is considered oversold and anything below 20 is considered extremely oversold. We are just not there yet. However, one thing I do want to highlight is for the first time in months the aforementioned key indices have all fallen and closed below their 50-day moving averages. Something that has not occurred since early October of last year and something we want to keep an eye on. If the markets cannot rise back and remain above their 50-day in the near future, the 200-day support line could be the next real support for these markets. I am not suggesting that we will test the 200-day moving average, but if this is the case, the selling pressure would most likely continue and may actually increase. Let’s see how next week’s earnings reports come in before we draw any further conclusions.

Looking ahead to next week, we will here earnings results from petroleum producer Anadarko (NYSE: APC), real estate investment trust Annaly Capital Management (NYSE: NLY), Yum Brands (NYSE: YUM), Boston Scientific Corp  (NYSE: BSX), retailer Michael Kors (NYSE: KORS), Cognizant Technology Solutions Corp (NasdaqGS: CTSH), Green Mountain Coffee Roasters (NasdaqGS: GMCR), Pandora Media (NYSE: P), AOL Inc. (NYSE: AOL), Expedia (NasdaqGS: EXPE), General Motors (NYSE: GM), Verisign Inc. (NasdaqGS: VRSN), Apollo Global Management (NYSE: APO), Flir Systems (NasdaqGS: FLIR) and Moody’s Corp (NYSE: MCO) just to name a few. So as earnings reporting season continues, so do the markets. Good luck to all.

Have a great weekend 🙂

~George

Despite a modest pullback in June, the major averages continue to post double digit gains on the year…

Posted on by George Mahfouz

In month of June, the key indices witnessed a spike in volatility and their first monthly drop in 2013, however, stocks in the second quarter once again posted impressive gains. In Q2, the Dow Jones Industrial Average (chart) finished up 2.27%, the Nasdaq (chart) +4.15%, the S&P 500 (chart) +2.36% and the small-cap Russell 2000 (chart) closed the quarter up 2.73%. So far this year these averages are up an eye-popping 13.78%, 12.71%, 12.63% and 15.09% respectively.

As I look back over the past month or so volatility kicked into high gear as the Fed continued to signal that its bond purchases would relent as early as the fourth quarter of this year. Couple that with Japan’s Nikkei index dramatically declining over 20% in less than a month from its recent high, and the gold market (chart) getting taken out to the woodshed with gold having its worst quarter on record, losing over 24% on the quarter. It’s no wonder the key indices retraced in June. In fact, I am surprised that our averages did not decline any further considering all of the facts.

So what now you may ask? How does the second half of the year portend to be? Here is the catch-22. As economic numbers continue to improve, this will give the Fed more reason to begin to lighten up on their bond purchases, hence more market volatility. However, if the economy continue to grow anemically, this will give the Fed the green light to keep stimulating. What’s wrong with this picture though? In my opinion, at some point in time our economy will have to stand on its own two feet and the top line of corporate America will have to show meaningful growth in order for this bull market to continue. We won’t have to wait very long to understand the health and growth prospects of corporate America as Q2 earnings reporting season kicks into gear here in July. That said, as a trader you relish in the opportunities that earnings season provides both on the long and short side. However, make sure to abide by your trading plans, disciplines and always consider using protective stops as part of your plan. Earnings reporting season typically adds to volatility and larger than expected price movements. I bid you good luck.

All the best 🙂

~George