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U.S. Economy

Why Second Quarter Earnings Haven't Spurred a Stock Market Rally

Second quarter earnings season is in full swing on Wall Street and investors are keeping a close eye on corporate profits.

But rather than pinning their hopes on earnings for relief from the recent downturn in stocks, investors seem to be suffering from tunnel vision. They're ignoring numerous positive earnings reports and instead focusing on macro-economic trends to determine the day-to-day fate of the markets.

And as a slew of economic reports continue to display conflicting trends, investors are finding it difficult to read the tea leaves. So far this earnings season, the market and the investors that drive it are all over the place.

The result has been a string of volatile trading days featuring gyrating and erratic stock trading. 

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Buy, Sell or Hold: United Technologies Corp. (NYSE:UTX) is Really Taking Off

We have already seen strength in industrial sales in many companies, but today's recommendation may be the most promising yet. United Technologies Corp. (NYSE:UTX) is hitting on all cylinders and is poised for both long and short-term gains.

The company reported earnings and hit it out of the ballpark.  UTC reported quarterly earnings of $1.20 per share – even including the loss of 12 cents a share due to restructuring charges.  That's 4 cents higher than analysts had expected – 16 cents higher, if you take out the one-time restructuring charges. 

The good news did not stop there, either. UTC raised its guidance and share repurchases for the year, despite new challenges in Europe. Sales beat expectations and profit margins were higher across the board.  Engine maker Pratt & Whitney and international elevator brand Otis were especially strong. That's remarkable considering the market's fear of a double-dip recession and the U.S. Federal Reserve's "uncertain" status about the strength of the economy.

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MLPs Top the Yield Charts, but Don't Overlook the Risks

With bank and money market rates bumping along between 1% and 2%, 30-year Treasury yields barely edging above 4%, and many old standby companies having slashed or eliminated their dividends, it's been a rough year or two for income-oriented investors.

As a result, many have turned an eye toward Master Limited Partnerships (MLPs), virtually the only game in town with the potential to give you a double-digit yield on your cash.

MLPs, for those not familiar with them, are tax-advantaged limited partnerships whose units are traded on stock exchanges, just like the regular common shares of corporations. MLPs provide very high yields – typically 5% to 12% – because U.S. law mandates that they pass most of their income on to unit holders. As such, it's not taxed at the partnership level.

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Question of the Week: Readers Respond to Money Morning's Credit Score Query

More Americans than ever before are seeing their credit score slip to the subprime level, according to a new report released last week by credit-scoring firm Fair Isaac Corp. (NYSE: FICO). That means it's going to get a lot tougher for U.S. consumers to borrow money – especially given that banks are becoming more and more reluctant to lend.

"It's hard to see the good news in this report, unless you are speaking for the payday lenders, title lenders, and pawn stores," said John Ulzheimer, president of consumer education at

The FICO report shows that 25.5% of consumers – or nearly 43.4 million people – have a credit score below 600, putting them in the subprime realm. That makes them a high risk for lenders and means they'll have a tough time getting a credit card, mortgage or auto loan under stricter lending standards.

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Canada's Economy Casts a Long Shadow Over its U.S. Counterpart

Canada's economy has consistently outperformed that of the United States since the beginning of the financial crisis. And while it's showing signs of slowing down, Canada's pending decline will be far shallower than that of the United States, and its rebound more dynamic.

Canada's gross domestic product (GDP) expanded by 6.1% in the first quarter of the year – the highest rate of growth among developed nations – and the country is expected to lead Group Seven (G7) nations in economic growth for at least the next two years.

The reasons are many:

  • Canada's banking system is sound.
  • It has a generous bounty of resources.
  • Its economy is more service-based than it's been in years past.
  • Corporate interests have less influence over government policy.
  • And it has far less government debt.

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Goldman Joins Chorus of Big Banks Reporting Weaker Earnings

Goldman Sachs Group Inc. (NYSE: GS) joined a chorus of big banks reporting weaker earnings for the second quarter as a weakening economy led investors to refrain from making deals.

Goldman's earnings plummeted 82% in the second quarter, hammered by the investment bank's settlement of Securities and Exchange Commission (SEC) fraud allegations and the U.K. tax on bank executive bonuses.

Strong trading and bond underwriting had bolstered the company's first-quarter results. But markets began to gyrate in April, and investor nervousness increased after the "flash crash" in May. Volatility has continued to rock the markets throughout the summer with investors' ongoing concerns about economies in Europe and fears that the U.S. recovery might be stalling.

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We Want to Hear From You: What's in Your Investment Toolkit?

Success in the business world is most often achieved by those with a competitive edge.

That's why, here at Money Morning, helping readers find that edge for their investment toolkit is Job One. In the past week alone, we've introduced readers to two little-followed indicators that have big proven payoffs. The first was the Baltic Dry Index, a shipping index that provides a panoramic view of the global economy. And the second was the "Gold Spike Indicator," which helps gold investors time their purchases.

Shrewdly used, either (or both) of these indicators have the potential to provide investors with that sought-after competitive edge.

Take the Baltic Dry Index. As Money Morning Guest Columnist Jack Barnes explained, "the Baltic Dry Index has [historically] shown itself to be the EKG of future industrial demand. And, right now, the BDI is screaming "Danger, Will Robinson!" to any investor who will read it and heed it as a true leading indicator."

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Why Upbeat Earnings Reports Mean Caution to Investors

While earnings reports continue to pour out each day, investors should be careful before being excitedly swayed by strong financials – there is much more of the big picture to consider.

Stocks failed to get traction in the middle of last week after Alcoa (NYSE: AA) and Intel (Nasdaq: INTC) earnings reports underwhelmed investors, and Friday they spun off the road. The culprit: Fears that recent earnings gains represented a peak, and that weak readings on the economy were more representative of current conditions.

Retail sales disappointed and the Federal Reserve cut its 2010 growth forecast. Even word that Singapore grew at a record pace of 19.3% in the second quarter couldn't lift the air of despondency on Wall Street. 

To read why there's a cloud over Wall Street, click here.

How to Profit From a Slowing U.S. Economy In the Second Half of 2010

As much as the architects of the U.S. stimulus might otherwise wish, it's becoming increasingly apparent that the U.S. economy won't be hot-rodding its way into a higher gear in the year's second half.

At best, the U.S. economy will chug along in low gear – managing only minimal overall growth, while bouncing over economic speed bumps that exist in more than a few key sectors. At worst, the engine of economic recovery will sputter, or stall completely – leaving Americans stranded alongside the fiscal roadside, or to roll backward into a double-dip recession.

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The Baltic Dry Index is Shouting "Danger, Will Robinson!" But Are Investors Listening?

Back in May 2008, when global investors still expected economic growth to continue, a thinly followed index began to broadcast a "red-alert" warning to those few who were watching.

The index proceeded to drop by more than 90% in the next six months.

Had you been watching – and heeded its warning – this index would have saved you from the fallout of the biggest financial crisis since the Great Depression.

And here's the thing. This index is updated five days a week and is readily available to anyone who wants to track it.

The index in question is called the "Baltic Dry Index," or BDI, and it once again merits a closer look: After peaking in May, the BDI has fallen for 35 straight days.

Is this another economic red alert, or merely a statistical red herring, like so many of the other economic reports that have appeared during the often-contradictory, whipsaw markets we've seen of late?

Let's take a closer look…

For advice on how to protectively position yourself, please read on...