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Fastest Recovery Ever Could Push Corporate Profits to Record Highs in 2010
Sometimes we get a little carried away talking about esoteric subjects like bulls, bears, supply, demand, moving averages and the like. But if you just want to focus on something real, then look at corporate profits. When they’re rising from a low, that’s good; when they’re flat-lining or declining, that’s bad. Pretty simple.
Much of the rally of the past year has been in anticipation of a profit recovery. And now that recovery is actually coming in a bit better than bulls expected, which is why they are able to elbow bears so effectively. ISI Group now figures that corporate profits will clock in at +38.8% for the first quarter (year over year) of 2010, then +42.4% in the second quarter, +36.8% in the third quarter and then +30% in the fourth quarter (against harder comparisons). That would put profits in 2010 up a record 36.1% overall.
To read more about how corporate earnings will shape the market click here.
Bulls Overcome Market Tug of War to Send Stocks off to Strong March Start
Stocks rose briskly last week, resulting in a big week for the major market indexes. Weekly and monthly index charts improved, and such major U.S. stocks as The Boeing Co. (NYSE: BA), Hewlett Packard Co. (NYSE: HPQ), American Express Co. (NYSE: AXP), Google Inc. (NASDAQ: GOOG), Apple Inc. (AAPL), Goldman Sachs Group Inc. (NYSE: GS) and General Electric Co. (NYSE: GE) emerged from flat-lining or faltering price patterns on decent, if not outstanding, volume.
Just two weeks ago, every one of the afore-mentioned stocks looked terrible, exhibiting intense apathy amid slow, grinding declines. Then the skies parted, and suddenly the sun is shining on these shares once again.
That’s why U.S. stocks are off to a strong March start – already up 4.1% from the end of February. And don’t forget, a year ago at about this time (March 9, 2009), the market reached its nadir: The Standard & Poor’s 500 Index is up 69.98% since that time.
Here’s why the shift seems so abrupt. The markets are now in a tug of war between two forces:
- On the plus side are good fourth-quarter earnings reports related to an improving economy.
- On the negative side – as a friend at a major macro hedge fund described it last week – are “frigid winds blowing across the credit icebergs.”
To find out who’s winning the stock-market tug of war, please read on…
Mortgage Markets Show Increased Stability, But Limited Opportunity
[Editor's Note: This analysis of the U.S. mortgage market is part of a two-story package that appears in today's issue of Money Morning. To read a related story on the outlook for adjustable-rate mortgages (ARMs), please click here.]
It doesn’t have four letters, but “mortgage” has definitely been a dirty word in the financial world the past few years. That’s especially true when the word “mortgage” is paired up with such other terms as “subprime,” “delinquent,” and “foreclosures.”
Little wonder that mortgages – along with the derivative securities backed by them and the often-unseemly practices of the people pushing them – have gotten much of the blame for precipitating the economic meltdown from which the American economy is now struggling to recover.
There’s still plenty of woe in the mortgage world. But in recent months there have also been some signs that the real-estate-financing markets are at least regaining some semblance of stability, with foundations being poured for a rebuilding phase that might not be too far down the road.
Weak Job Market and Low Inflation Stall Fed’s “Exit Strategy”
Any speculation that U.S. Federal Reserve Chairman Ben Bernanke had his finger on the "exit strategy" trigger has been silenced.
Bernanke yesterday (Wednesday) faced the House Financial Services Committee to instill public confidence in the Fed’s ability to exercise a smooth exit strategy and quell continued fears of a tightening monetary policy.
The Federal Open Market Committee (FOMC) "continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the Federal Funds rate for an extended period," he said.
Plans to Hide Commercial Real Estate Losses Won’t Avert a Double-Dip Downturn
Sooner or later, mounting losses on commercial real estate could crash through the market’s 2009 optimism and send the economy and stocks into a double-dip downturn.
The major problem is that lawmakers and regulators are setting up investors into believing that commercial real estate (CRE) losses are being effectively addressed. The truth is that escalating losses are being hidden as part of a campaign of optimism in a desperate gamble that a robustly reviving economy will save the day.
To protect yourself from another investment beating, here’s what you need to know.
To find out how to avoid the commercial-real-estate implosion, please read on…
Where’s the “Big Money” Headed Now?
The remarkable week that just concluded actually began on February 12, which was two Fridays ago. Stocks plunged in the opening minutes of trading that morning as investors’ faith in the global economic recovery was shaken. In China, policymakers again tightened monetary policy in a fight against rapid credit growth and fast rising asset prices. In Europe, which is plagued by concerns over the bailout of deeply indebted Greece, a report showed economic growth slowing dramatically.
For a few minutes, it looked like all of the prior week’s advance would be lost and stocks were preparing to plunge into oblivion. But then, encouraged by a positive retail sales report, buyers swamped the tape — focusing their attention on smaller, riskier companies, particularly in the technology sector. And off we went for the next six sessions.
To find out where the “Big Money” is headed now, click here.
Latest Report Shows the Jobless Recovery Still Endures
Stocks have staged surprise rebounds after seemingly poor payroll reports half a dozen times in the past year. But the one time that there was better-than-expected job news, on Dec. 5, the market tanked. Go figure – it’s a great example of how upside down the logic is on Wall Street.
To help us interpret the jobs report of last week, I turned to my favorite independent labor analysts, Philippa Dunne and Doug Henwood. Here’s their view of the latest numbers, which they considered the most positive in months – despite the many problems highlighted by the latest jobs report.
The Five Factors That Could Rescue U.S. Stocks
When the stock market is enduring as much trouble as it has been lately, it pays to remember that there are still many positive catalysts that are in place and working to buoy securities prices.
Let’s take a few moments to consider the top candidates:
- A Friendly Fed: The current U.S. Federal Reserve under Chairman Ben S. Bernanke is the most accommodative in history and is likely to keep short-term interest rates at or near zero for the remainder of this year. Occasionally there will be rumblings of an increase – as there was in The Wall Street Journal last Monday, but they are likely just smoke screens.
To find out about the other four factors – as well as three possible profit plays – please read on …
Seven Signs of the Fed’s Eventual “Exit Strategy”
Looking for an exact date when U.S. Federal Reserve Chairman Ben S. Bernanke and his fellow central bank policymakers will raise interest rates?
Experts refer to this eventuality as Bernanke’s "exit strategy" – a financial euphemism for the interest-rate increases that are certain to come … at some point.
That’s just it – those experts can’t tell you when that exit strategy will begin. I can’t tell you that, either (Sorry, loaned my crystal ball to Miss Cleo for her new infomercial).
But what I can give you that the pundits can’t is a "Road Map to Higher Interest Rates," which spells out the specific events that should precede the most-heavily anticipated U.S. central bank interest-rate increase in history. Follow it and you should be perfectly positioned to profit when the time comes.
(Remember, a few months ago, I introduced Senior Secured Floating Interest Rate Bonds, or SSFRs, an investment that you’ll want to own when interest rates rise.)
So, without further ado…
Buy, Sell or Hold: Paychex Inc. Offers a Chance to Profit From the Paradigm Shift in Employment
The U.S. labor picture may not be clear, but investors can profit by acquiring shares of Paychex Inc. (Nasdaq: PAYX) to take advantage of the new employment paradigm.
As the former head of credit and analysis for ADP Capital Management, the investment arm of Automatic Data Processing (Nasdaq: ADP), I know the outsourced payroll industry from the inside out. ADP – a company in which I have kept the stock I received – is the leader in the payroll sector. It focuses on the larger and more stable companies in the United States.
Today, taking into account the latest employment dynamics, and the massive change in the structural characteristics of the U.S. economy, we are going to focus on an ADP competitor – Paychex Inc.
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