Celebrations of the S&P 500's recent string of all-time high closes have been premature, as it turns out.
Yes, the Standard & Poor's 500 index set another nominal record today (Tuesday) with a close of 1,625.96.
But that doesn't account for inflation. If you apply Yale Professor Robert Shiller's CAPE ratio, the S&P 500's all-time high was somewhere north of 2,000 back in the year 2000 - some 24% below today's record close.
While that might sound like great news for Wall Street's bulls, Shiller's data - which has proven strikingly accurate at predicting long-term market trends - isn't nearly so optimistic about where the markets are headed over the next decade.
Stock Market this Week: Will Dow Soar Past 15,000?
The Dow Jones Industrial Average hit 15,000 Friday - so will the stock market this week see another new high?
Money Morning Chief Investment Strategist Keith Fitz-Gerald joined FOX Business' "Varney & Co." program Monday morning to discuss how much higher the market can go. Listen to Keith's take on what's ahead for investors.
Q&A With Shah Gilani: How to Protect Yourself Against the Coming Meltdown
The month of April brought in more than 1,000 comments, questions, posts, shares, "likes," and emails from you and your fellow readers. That's an Insights & Indictments record. It shows that you're thinking, that you're mad as hell about what you see, and you want to do something about it.
First, please keep helping me get the word out about the crimes and lies being perpetrated by our "leaders." Forward these emails; share my articles online. Spread the word however you can. Together, we can make our voices heard. We can make this country better for our kids and grandkids.
Second, at your request, I'm working on something big. I believe this could be the vehicle for the change you all want to see. We're going after the "permanent political class" getting cozy in Washington in a brand-new way. And don't think Wall Street is safe. We're going after them, too. We're going to shake them both up and demand reform.
I saw some brilliant comments and questions from my last two articles - about Congressional term limits and breaking up the too-big-to-fail banks. For today's Q&A, I purposely didn't include those. I want to address them in a different way. You'll see what I mean.
Lots else to cover this month... so let's get to it.
Bond Market Crash Will Strike By 2016, Expert Predicts
Not only is a bond market crash inevitable, but it will hit sooner than many think - by 2015 or 2016 at the latest, according to Michael Pento, president of Pento Portfolio Strategies.
"It's the most overpriced, over-owned, oversupplied market in the history of American economics," Pento said of the bond market in an interview with The Street.
Pento compared the current bond market, with its historically low interest rates and flood of U.S. Treasuries, to two of the most recent bubbles - the dot-com bubble of the late 1990s and the housing bubble that burst in 2007.
A sudden bond market collapse isn't likely, Pento said, but his models tell him it will happen, one way or another, within the next three years. And investors will need to be prepared.
Is "Dow 16,000" a Reachable Target?
We all saw it.
Barron's April 20 cover showed a cartoon bull on a pogo stock, with the exclamation "Dow 16,000!"
So what's the investor takeaway - are we all in to 16,000, or is it a contrarian signal to watch out for a looming market pullback?
Money Morning Chief Investment Strategist Keith Fitz-Gerald joined FOX Business Network's "Varney & Co." program to answer that question.
Watch the following interview with Fitz-Gerald to find out.
Stock Market Today: S&P 500 Reaches Record Before May Sell Off Hits
The stock market today (Tuesday) paused after kicking off the week with strong, across-the-board gains that took the Standard & Poor's 500 Index to an all-time closing high.
The S&P rose 11.37 points Monday, or 0.7%, to close at 1,593.61, a hair above the index's April 11 record of 1,593.37. The Nasdaq tacked on 27.76 points, or 0.8%, to 3307.02, its highest close since 2000. The Dow Jones Industrial Average climbed 106.20 points, or 0.7%, to 14818.75, inching closer to the anticipated 15,000 milestone.
Shortly before noon Tuesday, stocks took a breather. The Dow dipped 32.62 points, or 0.22%, at 14,786.13. The S&P slipped 1.95, or 0.12%, at 1,591.66. The Nasdaq notched a gain of 5.2%, or 0.16%, at 3,312.
As markets march into May, trading is expected to slow. The old "sell in May and go away" adage has many preaching caution. Bespoke Investments reports two of the ten worst months of May in S&P's history have occurred during the current bull market (2010 and 2012).
Stock Market Today: April Set to Continue 2013 Winning Streak
U.S. equities followed Europe's lead and headed higher when the stock market today (Monday) opened.
Wall Street's mood was lifted after Enrico Letta was sworn in as Italy's prime minister, ending weeks of political gridlock in the ailing European nation. The news also propelled Italian stocks up more than 1%.
Shortly before noon, the Dow Jones Industrial Average was up 68.55 points, or 0.47%, at 14,781.10. The Standard and Poor's 500 Index was higher by 8.59, or 0.54%, at 1,590.83. The Nasdaq climbed 26.72, or 0.81% at 3,305.98.
Another lift to the stock market today came from a report on March consumer spending. The read was 2%, much better than and 0.1% rise economists had expected and up from a 0.7% gain in February and a 0.4% advance in January.
With just two more trading sessions left in the month, U.S. stocks are set to end April with gains. That would mark the fourth consecutive positive month for equities.
But it's about that time when the familiar spring swoon weighs on stocks in the near term.
According to data from Bespoke Investment Group, over the past 30 years, an investor who bought the S&P 500 Index every Oct. 31 and sold the following April 30 would have reaped a 898% gain. In contrast, buying every April 30 and selling every late October would have returned just 56%.
Stock Market Today: Fiscal Cliff Fears Can’t Stop This 160% Gainer
The stock market today opened flat before turning negative as negotiations on the fiscal cliff have not progressed, outweighing Greece's new deal concerning its debt.
- Greece Close to Massive Bailout- Late Monday the International Monetary Fund, Eurozone finance ministers, and Greece came to an agreement that drastically eases the terms regarding Greece's repayment of debt and sets the stage for a third bailout. The deal lowers interest rates for bailout loans, suspends interest payments for a decade, pushes the deadline back for final repayments until the 2040s, and initiates a bond buyback program. Greece is also now on the brink of receiving a $44.7 billion loan beginning Dec. 13. "The big challenge now is to implement the decisions," Greek Finance Minister Yannis Stournaras said. "Greece has huge potential." The agreed upon measures aim to bring Greece's debt-to-GDP ratio down to 124% by 2020 from the projected level of 190% in 2014. The deal was accomplished by installing unprecedented measures such as carefully monitoring how Greece spends the debt, keeping an account strictly for debt servicing, and insisting that Greece completes the bond buyback before receiving more aid. "Euro-zone countries have put their money where their mouth is," Carsten Brzeski, an economist at ING Group NV in Brussels told Bloomberg News. "However, it is clearly not a carte blanche for Greece but rather a very tight leash."
- Fiscal Cliff Talks Resume- Congress returned from its Thanksgiving recess and the fiscal cliff will be at the forefront of discussions this week. After last week's short burst of optimism there has not been any further progress on a deficit reduction deal. But for now consumers seem unfazed by the whole debacle, as today the consumer confidence index reached levels not seen since February 2008. The onset of higher taxes coupled with deep spending cuts was thought to lower consumer confidence, but instead consumers spent a record amount of money through Black Friday and Cyber Monday. The consumer confidence gauge interestingly showed expectations for six months from now, when we could be off the fiscal cliff, unexpectedly rose. The percentage of respondents expecting more jobs to be available in six months rose to its highest level since February 2011, and the percentage expecting to buy a home in the next six months hit a new all-time high. "The consumer is in a better place than several years ago," Michael Gapen, a New York-based senior U.S. economist at Barclays PLC (NYSE ADR: BCS), told Bloomberg. "A lot of the numbers are improving, whether it is household balance sheets or the state of the housing market or employment."
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How to Play Q4 Defense: Hedge Your Bets, Up Your Stops and Sell Your Gold
So far fourth quarter earnings have made a mockery of things.
Of the 20 S&P 500 companies that have provided Q4 guidance so far, 18 of them have guided lower, "slashing" their forecasts, according to Goldman Sachs and CNBC (as of Monday afternoon).
What's more, roughly one quarter of the reported earnings have come in flat to middling. According to Capital IQ, overall revenues are up only slightly at 0.34%.
Yet, for some reason the S&P 500 is only 3.89% off of its highs and is up 12.01% year-to-date through Wednesday afternoon.
Under the circumstances this suggests two things to me:
- There's a lot of volatility waiting in the wings; and,
- The near-term risk is to the downside.
The Q4 Earnings Story
So far this earnings season, roughly one quarter of the S&P 500 has already reported. That leaves the market with nearly 375 companies that have yet to spit out their numbers, roughly 150 alone this week.
Assuming the balance follows the pattern set so far, companies like Caterpillar Inc. (NYSE: CAT), Philip Morris International (NYSE: PM), and 3M Co. (NYSE: MMM) are going to show "respectable" (under the circumstances) numbers while talking about the "challenges" they see ahead.
Meanwhile, a few others, like DuPont (NYSE: DD) and United Technologies (NYSE: UTX), are going to reflect weakening earnings and revenue pressures leading to further cost-cutting as a means of protecting profits. These will include job cuts.
I also expect the bulk of the remaining companies will take the opportunity to lower their expectations -- especially when you consider that 61% of the companies as of Monday afternoon missed revenue expectations.
The irony here is that 61% of the companies that have reported over the same period have also exceeded analysts' expectations.
Naturally the markets will punish those who missed even when what they should recognize is that the analysts were wrong yet again. But that's another story for another time.
What's important to understand is that top-tier company management is using this earnings season to accomplish three things.
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Three Cheap U.S. Stocks with Huge Profit Potential
Bargain-hunting investors this year have been able to feast from a market buffet of cheap U.S. stocks.
Reports have surfaced in the past few months about how the Standard & Poor's 500 is offering the lowest-priced stocks in years based on price/earnings ratios.
Bloomberg in March reported that companies in the S&P 500 were trading at 14.1 times earnings, the lowest valuation of all 34 peak periods since 1989.
Then in May former U.S. Federal Reserve Chairman Alan Greenspan declared that "stocks are very cheap."
Again just last week Bloomberg noted that the S&P 500 is trading 16% below its average valuation since the 1950s.
Now, after the S&P 500 recorded its best June since 1999, investors want to know if it's still the time to buy or if the party's over. With the Eurozone debt crisis still looming and a spate of recent gloomy U.S. economic reports, market optimism has thinned.
But there are still bargains to buy.
How to Find Cheap U.S. StocksFirst, to determine if a stock is undervalued with high profit potential, and not cheap and going nowhere, investors need to scrutinize the driving factors of why a stock's price has fallen.
For instance, you must look at what's happening to the stock's sector - is there a macroeconomic or cyclical reason for the stocks to slip?
Then look at the company - is it in healthy financial shape? What are its future prospects?
Some stocks like Bank of America (NYSE: BAC) may seem undervalued when looking at tangible value, which tells us BAC is worth almost double what it is trading at now. But the company posted negative earnings per share last quarter. Analysts expect it to post a positive EPS of 16 cents this quarter and give it a forward P/E just above 8, which is cheap - but it's a stock that comes with a lot of volatility, so its low price is risky.
Others have had a long slide and may be at a bottom, such as tech struggler Hewlett Packard (Nasdaq: HPQ). CEO Meg Whitman is trying to turn the company around, but HP has lost more than half of its market value over the past year. With its forward P/E less than 5 it seems like a bargain, but there isn't a strong case for why this stock could rally.
And finally look at General Motors (NYSE: GM) or Ford Motor Co. (NYSE: F). Both currently have P/E ratios below 6 and even though the auto industry has been one of the hardest hit U.S. sectors over the past few years it looks to be on the upswing now.
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