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Monthly Archives: February 2015

Are Expectations Too High?

Thanks to some help from the Greece agreement reached Friday afternoon (February 20, 2015), the S&P 500 and Dow Jones Industrials Average ended last week at new record highs, while the NASDAQ has moved to within 50 points of the 5000 milestone. The market’s continued ascent has caused some to ask if the stock market reflects excessive optimism. One way to respond to that question is to look at valuations. On both trailing earnings and forward earnings estimates, we believe price-to-earnings (PE) ratios — both between 17 and 18 — are slightly rich, but not high enough for us to change our positive outlook for U.S. stocks for 2015. (For more on our 2015 stock market forecasts, please see our Outlook 2015: In Transit publication.) Another way to gauge optimism is to look at market surveys, such as the percentage of bulls from the American Association of Individual Investors (AAII), which at 72% is only slightly above the long-term average range of 60 – 65% and not excessively optimistic. Finally, earnings and economic surprises also indicate that investor expectations remain reasonable…..

Are Expectations Too High?

 

Energy Sector Outlook: What We Are Watching

No sector is getting more attention right now than energy. Market participants are attracted to the potential upside after both oil and the energy sector suffered substantial declines in recent months. Many see the sector as cheap, something that is not easy to find these days in the U.S. equity market. We drive by gas stations every day where we see prices have been cut in half, serving as a constant reminder of how cheap oil is. In this commentary, we discuss what we are watching to assess the opportunity in energy….

Energy Sector Outlook What We Are Watching

EARNINGS SEASON HIGHLIGHTS AND LOWLIGHTS

Despite the massive drag from the energy sector and the negative impact of a strong U.S. dollar, fourth quarter 2014 earnings are on track to exceed the prior Thomson-tracked consensus estimate of 4.2% (as of quarter end on December 31, 2014). In fact, despite a slow start, earnings growth for the quarter (after all 500 companies have reported) should approach 7%, reaching the average
historical upside surprise of 3%. As of February 6, 2015, with about two-thirds of S&P 500 companies having reported, S&P 500 earnings were on track for a 6.4% year-over-year increase for the quarter according to Thomson. In this commentary we look at some of the highlights and lowlights of this earnings season as it enters the home stretch.

HIGHLIGHTS
Industrials defying skeptics. The industrials sector had many skeptics coming into this earnings season. The sector is one of the most global and was expected to see among the biggest negative currency impacts, both in terms of translation of foreign profits and pricier U.S. exports (a strong dollar makes imports more expensive for foreign buyers). A significant portion of energy capital spending flows to the sector, so reductions in oil exploration and production investment have negatively impacted the industrials sector. Lackluster economic growth in Europe and slowing growth in China add to the challenges. But strength in North America and expanding profit margins helped offset the drags, and industrials are on pace for 12% earnings growth in the quarter, 2% above prior expectations as of quarter end. Although guidance has led to estimate reductions, as it often does for all sectors, 2015 estimates are still calling for a solid 7% earnings gain compared with
2014. Our industrials sector outlook remains positive. Technology producing big upside surprise. The technology sector is on pace for a solid 17% year-over-year gain in fourth quarter earnings, nearly double the prior 9% expectation, representing the biggest upside surprise among all 10 equity….

Earnings Season Highlights 2015.2.10

DON’T FRET ABOUT JANUARY EFFECT

The stock market declined in January 2015, causing some to ask whether the so-called January effect (or what some call the January barometer) meansthat stocks will fall this year. One of the best known Wall Street adages, “as  January goes, so goes the year,” has a good track record when January is positive, but it is mixed otherwise. Although we always put fundamentals first in trying to forecast market direction, in this commentary we look at January market patterns and posit that the January dip may not be a reason to fret about the stock market in 2015. The so-called January effect, or January barometer, has a strong track record in that positive Januaries for the S&P 500 have preceded positive years 90% of the time since 1950, with an average calendar year gain of 16.9%.

MIXED TRACK RECORD FOR JANUARY EFFECT

The so-called January effect, or January barometer, has a strong track record in that positive Januaries for the S&P 500 have preceded positive years 90% of the timesince 1950, with an average calendar year gain of 16.9%…..

 Dont Fret About January