Russell 2000 – All Time High!

So now the small-caps join in! The Russell 2000 (chart) closed the week at an all time record high of 1490. For most of the year the widely followed small-cap Russell 2000 has lagged the other major averages. Now it has broken out, see (chart). In fact, when you look at the chart of the Russell, one can say this index has gone parabolic. The Nasdaq (chart) and the S&P 500 (chart) also closed at their all time highs on Friday, while the Dow Jones Industrial Average (chart) posted yet another positive week. What’s more is the month of September is typically one of the weakest months of the year for equities losing on average of 1.5% happening 70% of the time since the 1970’s. Not this year, in fact there have been so many record-breaking closes on all of the aforementioned indices it’s hard to keep track.

Question is, now what? With the third quarter of the year now in the books, Q3 earnings reporting season is right around the corner. I have got to believe with the Federal Reserve closing the chapter on their quantitative easing policy and now taking those assets off of their books, plus interest rates scheduled to rise, investors should pay closer attention to the health and growth of corporate earnings. Do you remember the days when earnings and earnings growth actually mattered? Well those days may be back upon us. Hence, the report cards that come in from corporate America may actually move the markets in a fundamental way. This we have not seen in almost a decade. However, if the market momentum that we have experienced since the election continues, and investors ignore the fundamentals, then why couldn’t we end the year at even higher highs?

One thing for sure is October will be filled with many catalysts that should bring in some volatility and a lot of opportunity.  Between now and year end may be the time to implement a hedged strategy where one can potentially profit regardless of how the indexes or individual stocks react to what’s ahead. I’ll cover this in my next blog. Good luck to all. 🙂

~George

Q1 Ends With A Bang!

Stocks closed out the first quarter of the year down impressively. The Dow Jones Industrial Average (chart) closed down 200.19 points, the Nasdaq (chart) -46.55, the S&P 500 (chart) -18.35 and the small-cap Russell 2000 (chart) finished the day down 5.03 points. The Dow Jones Industrials (chart) also finished the quarter slightly in the red, while the other aforementioned indices eked out modest gains.

Looking ahead to Q2, I suspect that we will be in for a very volatile and choppy market. As the first quarter was winding down we were experiencing triple digit swings on the Dow, as well as spikes in volatility across the board. Now I am beginning to think we will even see more volatility come into the market. April historically is a strong month for stocks, but we find ourselves entering into Q1 earnings reporting season in which I think corporate America may see widespread earnings declines. This is due in large part to how strong the U.S. dollar (chart) has been and how this will affect a wide array of multi-national companies who generate meaningful revenues overseas. A strong dollar does not bode well for U.S. companies with this type of earnings profile. Of course not all U.S. companies rely on overseas revenue and I would also think that certain technology and healthcare companies will do just fine.

The one sector I will be paying the closest attention to this upcoming earnings reporting season is the energy sector. Oil (chart) has been taken out to the woodshed since last fall as well as the majority of oil related stocks. So with the price of oil plunging as it has, earnings out of this sector should be horrific. However, these are the times when rare opportunities can and do present themselves. I will look for “washout” moments with certain oil related stocks after they report their earnings to step in and start building positions. I would expect most of the bad news in this sector is about to be released, hence, a set-up for the right buying opportunity. Of course, I will be looking for companies with pristine balances sheets, with minimal to no debt and have those companies at the top of my list. That said, before you make any investments in any sectors, make sure that you consult with a trusted and certified financial advisor(s) to understand the risks associated with stocks, commodities and the like. Also note, this is a holiday shortened trading week due to Good Friday and both Paula and I wish everyone a very safe and happy holiday weekend 🙂

~George