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Job Growth by the End of the Year?

Leon Shirman — Thu, 12 Nov 2009 19:20:06 +0000

According to this chart from US Department of Labor, monthly job losses continue to trend down. If this continues, then overall job creation is likely by the end of the year.

It looks like this won’t be a jobless recovery.

Hurrah for Dow 10,000? Not…

Leon Shirman — Fri, 16 Oct 2009 18:13:31 +0000

A couple of days ago, the Dow Jones crossed the 10,000 mark. Is this a cause for celebration? Hardly. According to Wall Street Journal, it was the 25th time the index crossed that milestone, the first time being in 1999. So, despite the “meteoric” 50% plus gain of the Dow since March lows, we are still at the levels of 10 years ago. By historical measures, markets gain about 10% annually, which translates to 250% gain in 10 years. So this last decade has been quite horrible for the markets, as I am sure you realize.

This has happened before, in the thirties and then again in the seventies. The last time, the markets were stagnant from 1966 to 1982, with Dow Jones bouncing around another round milestone, 1000. There is no way of knowing how long the current stagnation will last, but the markets will revert to historical growth rates, as they have always done in the past.

New Review for My Book

Leon Shirman — Fri, 16 Oct 2009 18:02:48 +0000

Check out this new review for my book, 42 Rules for Sensible Investing.

No Stopping of This Rebound

Leon Shirman — Wed, 14 Oct 2009 17:01:18 +0000

Similarly to the previous quarter, this time around the earnings season had a great start. Bellwethers Alcoa, Intel, and JP Morgan all exceeded expectation by a wide margin. Take Intel, for example: not only profits were better than expected, but revenues as well. This is quite important as many analysts were concerned that earnings were driven by cost cutting only. Now we are seeing evidence that sales are growing as well.

In related news, retail sales improved also, as discussed in this article. Consumer spending (along with high unemployment), have been dark spots in this recovery for quite some time. Now, good news on consumer demand will greatly help to boost already increased confidence.

Has the Market Topped?

Leon Shirman — Sat, 15 Aug 2009 04:06:13 +0000

The second quarter earnings season is almost over, and what a season it has been! About three quarters of companies soundly beat earnings estimates, and many firms raised their guidance for the rest of the year. That, together with a number of rather benign economic news, propelled the markets to their yearly highs, and to nearly 50% gain from the March lows. Did this 5-month run happen too fast and is it too much?

While the rise has been extraordinarily swift and sharp by any standards, one needs to put it into perspective. Year to date, S&P 500 is up solid, but unremarkable 10%. It is still down nearly 20% compared to one year ago. And it is still more than a third off its top reached in the fall of 2007. There is a similar, and often even more exaggerated, situation with individual stocks. A number of them tripled since March, but they are still down 20-30% compared to one year ago. In fact, if we could erase tremendous volatility of the year past, we would be in the run-of-the-mill, ordinary bear market.

So where do we go from here? Will the rise continue or is the bear still in charge? No one is qualified to make a short-term prediction. However, it does appear probable and even likely to see some consolidation in the market during the next two months, especially since little new earnings reports will be coming out until Q3 results start rolling in mid-October. First and second quarter results were better than expected, and according to cockroach theory, this is likely to continue. In fact, analysts are already increasing their Q3 projections from a loss of 8.5% to a loss of 2%. I wouldn’t be surprised to see a gain. And in Q4, earnings are expected to rise by massive 270%. Year 2010 will also see easy earnings comparisons, which bodes well for stocks. This should also put a lid on P/E ratios — currently they are elevated for many companies as is always the case during difficult times.

As I mentioned, the economic news have been rather positive lately. We have seen improvements in housing market; manufacturing activity and industrial production are increasing. The Fed finally stopped calling the economy contracting or slowing. Most likely, the recession is already over, and we will see slight GDP growth in Q3. Not just the US is improving: the recession is now officially over in France and Germany, and emerging markets continue their growth. On the negative side, consumer sentiment is still rather grim and unemployment is high. Until it improves, the growth is likely to be rather muted.

The huge market move in late 2008 – early 2009 took practically everything down, and the recent move took practically everything up. Now, however, I think that we are returning to more or less normal market conditions, where the skill of stock picking will make a difference again. Some stocks are fully valued, but there are still plenty of bargains and many opportunities for a long-term investor.

Housing Prices Going Up

Leon Shirman — Tue, 28 Jul 2009 23:05:38 +0000

We received another bit of good news for the housing market. For the first time in 3 years, the housing prices based on 20-city index actually increased, compared to the previous month. While they are still down compared to one year ago, this is certainly a most welcome development as far as the overall economy is concerned.

Housing Market Showing Signs of Life

Leon Shirman — Mon, 27 Jul 2009 19:25:41 +0000

We are finally hearing some consistently good news in the housing market. According to a recent report, new home sales rose by 11% in June, much more than expected. At the same time, inventory of new homes on the market dropped to 8.8 month supply, or 281,000 units, which is below “normal” level of 300,000. Some economists think that the housing sector will stop being a drag on the overall economy and will actually add to GDP as soon as in the end of this year.

For more information, take a look at this and this article.

Green Light Ahead?

Leon Shirman — Fri, 24 Jul 2009 20:00:21 +0000

As always, the flood of earnings reports sets the tone for the market, and so far this tone has been very positive. Overwhelmingly, companies are beating earnings estimates. Just take a look at the weekly summary at briefing.com. It shows all earnings reports this week. Green color is used to show positive surprises, and red is for negative ones. As you can see, green color dominates, and this has been the reason for the market rally over the last couple of weeks.