Oct 31 2014

Time For Market Bears To Hibernate Once Again

Market Recap:

Strong third quarter GDP data, which came in at an impressive +3.5%, caused some investors to fear that the Fed would raise rates sooner than expected (sound familiar?) – causing pre-market futures to fall slightly. But earning came to the rescue – today it was Visa’s (V) turn, which rallied more than 10%, contributing more than 150 points to the Dow’s 200 point rally. In spite of the sharp gains for the Dow, overall market action was a bit more muted, as only three stocks advanced for every two that declined. The S&P 500 gained nearly 2/3rd of a percent, as the energy sector was the sole loser on a continued decline in oil prices on the heels of a stronger dollar. Healthcare and Utilities sectors were the strongest, while technology shares generally underperformed as Microsoft (MSFT) and Intel (INTC) fell sharply.

Looking Ahead:

As October comes to an end, it might be time for Market Bears to hibernate once again. Not only is history on the side of the Bulls, but more significantly, with over 80% of the S&P 500 constituents reporting earnings so far, and the average EPS growth coming in just over 10% for these so far, valuations are coming down rapidly – making stocks more attractive. As we’ve frequently and repeatedly stated, corporate earnings are the long-term driver of market returns. With the potential of strong earnings growth in the fourth quarter as well as an improving outlook for 2015, more market gains could lie ahead. One area of concern, at least in the short-term, are commodity-price sensitive companies. Most evidently, this is being seen by the earnings misses by Starbucks, Hershey and Craft, as well as some of the Energy related companies such as Oil and Gas & Exploration companies. None-the-less, the overall outlook is reasonably constructive for patient investors.

Next Week’s Market Moving Events:

  • Monday: French and German PMI Manufacturing data, US PMI Manufacturing data, ISM Manufacturing data, Construction Spending, PMI Manufacturing
  • Tuesday: Goldman Same Store Sales, Factory orders, and the Redbook report
  • Wednesday: Mortgage Applications, Job Creation report, ADP Unemployment report, PMI Services and ISM Non-Manufacturing data.
  • Thursday: US Productivity and Consumer Comfort data
  • Friday: Eurozone Industrial Production data and US Unemployment report

Don’t miss Money Matters with Gary Goldberg this Saturday at 5:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our latest economic analysis and market commentary, as well as a great interview with Callista Gingrich. Visit our website www.ggfs.com for details.

Oct 30 2014

Better Economic Conditions

Market Recap:

Markets sold off slightly on Wednesday as there were few surprises in the FOMC announcement. As expected, the Federal Reserve announced the end of Quantitative Easing (QE), and maintained its pledge to keep interested rates low “for an extended period of time.” Dr. Yellen indicated in her press conference that the Fed saw better economic conditions and stronger employment growth in the years ahead, and believes that inflation will remain in check for some time. Stocks did sell-off on the typical emotional overreaction when the statement was released, but rebounded to close with slight losses. Market internals continue to point to a growing performance divergence within various sectors, as the Materials sector fell 1.26%, while Financials gained slightly. Within the Dow, DuPont (DD) shed 1.69% on weaker than expected earnings and outlook, while Pfizer (PFE) and Johnson & Johnson (JNJ) rose sharply on strong earnings reports. So far, with nearly 80% of S&P 500 constituents reporting Q3 earnings, over 72% have beaten earnings forecasts, supporting our expectations that, as a whole, earnings will rise about 10% year-over-year this past quarter.

Looking Ahead:

As predicted, investors quickly moved past the FOMC announcement and turned their focus on Thursday morning’s first read of third quarter GDP data and jobless claims. Third quarter GDP is shown as having risen 3.5%, ahead of expectations (consensus was 3.1%). Inflation remained low, rising a mild 1.3%, although we remind investors that the recent fall in gasoline and oil prices has had a meaningful impact on this figure and we would therefore expect a real inflation number to average closer to 2% once commodity prices stabilize. The broader question that needs to be answered, and will have a much greater impact on our economy, is going to be job growth. Specifically, while jobless claims (which came in at a relatively low 287,000) and the unemployment rate continue to fall, the key to stronger growth and the eventual return of inflation is strong high-wage employment growth. As we all know, so far the employment growth has predominantly been in the lower end of the market.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM (following the Rutgers game) and Sunday at 11:00 AM on WOR 710 AM Radio to hear a wonderful and very insightful interview with Callista Gingrich (Newt Gingrich’s wife), an important discussion between Gary and Oliver about the real risks of owning bonds if interest rates don’t rise, as well as our ongoing market commentary. Visit our website www.ggfs.com for details.

Oct 29 2014

Long Awaited Fed Meeting

Market Recap:


Investors ignored weaker than forecast Durable Goods orders and a slower rise in home prices and instead focused on corporate earnings and strong consumer sentiment ahead of Wednesday’s Fed minutes release and Chairwoman’s conference. All sectors of the S&P climbed, with Industrials and Energy shares gaining most, while the traditionally defensive Consumer Staples sector lagged with a meager gain of 0.39% on a day when major indexes all gained more than 1%. Commodities were mostly higher, while Treasuries sold off slightly and the U.S. dollar was relatively flat.


Looking Ahead:


The long awaited Fed meeting and minutes are unlikely to reveal anything new to market participants. In our view, barring a surprise announcement by Dr. Yellen, we believe investors will turn their attention to today’s earnings releases by Metlife, Revlon and Visa ahead of tomorrow’s first look at third quarter GDP which is expected to show a rise of 3.6%.


Make sure to tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our latest economic analysis, interviews with some of today’s most respected business leaders, as well as our ongoing market commentary. Visit our website www.ggfs.com for details.

Oct 28 2014

Expect a Relatively Muted Session

Market Recap:


It was a wait and see day on Wall Street as market participants mostly stayed on the sidelines ahead of earnings reports and this week’s key FOMC meeting where the Fed is expected to announce an end to QE (Quantitative Easing). Stocks were little changed on Monday as the economically sensitive Energy and Materials sectors fell by roughly 2% each, while Telecom shares rose more than 1%. Earnings releases and economic data were mostly in line with expectations.

Looking Ahead:


The two-day FOMC meeting kicks off on Tuesday morning and will conclude with the Chairwoman’s press conference on Wednesday afternoon. Barring a significant divergence from expectations in upcoming economic data, investors should expect a relatively muted session through Wednesday. On Thursday investors will get their first look at third quarter GDP figures, which is expected to have grown by 3.2%. Moreover, inflation data and European manufacturing data are likely to impact market action for the remainder of the week. Generally speaking we anticipate continued market volatility through early November when elections and the earnings season is behind us.


Make sure to tune into Fox Business Tuesday evening at 6:00 PM when our President, Oliver Pursche, joins Charles Payne on Making Money for the full hour. And don’t miss Money Matters with Gary Goldberg this Saturday at 5:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear great interviews with some of today’s most respected business leaders, our latest economic analysis, as well as our ongoing market commentary. Visit our website www.ggfs.com for details.

Oct 24 2014

Next Week’s Market Moving Events

Market Recap:

While major market indexes rose sharply on Thursday, it wasn’t an “all-clear” for investors as telecom shares and consumer staple stocks fell, while healthcare and technology shares rose nearly 2%. Strong earnings by Caterpillar, which also raised its full-year outlook, lifted investor’s spirits causing the Dow to gain as much as 300 points intra-day before closing up about 200. Markets did come under some pressure in the late afternoon after rumors circulated (which were later proven to be true) that a doctor in New York City was showing signs of having contracted the Ebola virus. Given the volatile nature of the market, many are asking themselves what they should do in this environment – in our view, and as we have frequently shared (watch our latest CNBC interview here: http://video.cnbc.com/gallery/?video=3000323515) taking a patient and long-term view to investments should alleviate many of the short-term concerns the fear filled news-headlines are bringing forth.


Looking Ahead:

So far third quarter earnings have been strong.  While there have been some notable misses by the likes of McDonalds and Amazon, there have been more earnings beats by the likes of Nike, Microsoft and Caterpillar. So far, with just over 2/3rd of S&P constituents reporting, 68% of the companies have beaten EPS estimates. Additionally, economic news continues to be robust, with unemployment falling, inflation remaining benign and overall activity continuing to grow. However, it is clear that overall investor sentiment is best described as nervous, as fears over a spread of the Ebola virus, a worsening of conditions in Europe and the ongoing geopolitical turmoil between Russia and the West are all dampening investors mood. As such, we believe that a patient, longer-term view is most appropriate, meaning that investors should focus on the basics – corporate earnings and overall economic growth. As of Thursday’s market close, the trailing P/E ratio of the S&P 500 is 17.80, while the trailing P/E ratio of the Dow Jones Industrial Average sits at 15.44. Looking 12 months ahead, based on analysts’ expectations, the spread does narrow, to 15.75 forward P/E for the S&P, and a 14.25 forward P/E for the DJIA. Price to Earnings ratios are just one of many metrics used to judge the value of a stock and the broader market. However, given this disparity, and accounting for dividend payouts, it is fairly evident that high-quality dividend paying stocks continue to offer investors a relatively attractive value, compared to other segments of the market.

Next Week’s Market Moving Events:

  • Monday: Pending Home Sales, PMI Services and Dallas Fed Manufacturing. T-Mobile and Twitter report earnings.
  • Tuesday: The 2 day FOMC meeting kicks off, Durable Goods Orders, Case-Shiller Home Prices, Consumer Confidence and the Richmond Fed Manufacturing Index are all reported. Aetna, AFLAC, Coach, DuPont, Express Scripts, and Pfizer all report.
  • Wednesday: Mortgage Applications, FOMC Minutes release and the Chairwoman’s conference. Fiat-Chrysler, Ralph Lauren, and Southern Co report.
  • Thursday: (First estimate) Third Quarter GDP, Jobless Claims, European economic sentiment and inflation outlook. Cigna, Conoco Philips, and Master Card report.
  • Friday: European manufacturing and inflation data, US Personal Income and Spending, Consumer Sentiment and the Employment Cost Index are released. Chevron and Weyerhaeuser report.

Don’t miss our President, Oliver Pursche, on Fox Business Network next Tuesday when he joins Charles Payne for the six o’clock hour to discuss our year-end outlook and what we think will drive markets in 2015. And tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM (following the Rutgers game) and Sunday at 2:00 PM on WOR 710 AM Radio to hear a great interview with Newt Gingrich, as well as our latest market and economic analysis. Visit our website www.ggfs.com for details.

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