Our chart of the Dow Transports compared to the Dow Industrials indicates that the transports are breaking down on a relative basis. Resistance established in March and May is about to be broken through, indicating the transports are falling behind the industrials at a faster pace. Transports lead the stock market, and weakness in the economy is often telegraphed by their performance first. Continued weakness compared to the Dow Industrials would not be a good sign for the economy. … [Read more...]
Stocks for the Long-Run
Jeremy Siegel, the famous Wharton School finance professor coined the phrase “stocks for the long-run” with his identically titled 1994 best seller, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-term Investment Strategies. In the book, professor Siegel looks back at up to two centuries of financial market history to support his claim that stocks are the most profitable long-term investments. And indeed his conclusion has been true. But the good professor failed to adequately warn investors that the long run can be a really long time. Check out my stock … [Read more...]
VIDEO: Do Earnings Surprises Matter?
See also, "The Quarterly Earnings Con Job." … [Read more...]
The Quarterly Earnings Con Job
Is it just me or has the quarterly earnings season become nauseating? At Young Research we try to spend as little time as possible scrutinizing the short-term results of the companies we follow for Intelligence Report and Global Investment Strategy. But the quarterly earnings headlines are unavoidable in the Wall Street Journal and other financial publications. The chief focus of the media seems to be on quarterly earnings surprises—whether or not a company beat the consensus earnings per share estimate. Companies that beat estimates often see their shares rise and those that miss see their … [Read more...]
Facebook’s Fatal Flaw Exposed
Has he gone mad? Mark Zuckerberg, Facebook’s CEO announced this week that his social networking company is buying Instagram. Facebook is paying $1 billion—a 100% premium to the company’s valuation only one week ago. Instagram is the creator of the identically named photo sharing / editing app for Apple and Android mobile devices.. Instagram was founded by two twenty-something Stanford grads about 18 months ago. The company only has about a dozen employees and by all accounts it generates almost no revenue. I am no Instagram expert. I didn’t even know the company existed until this week. But … [Read more...]
Top 10 S&P 500 Stocks: 2012
Valuable insights on the character of a bull run in stocks can be gained by investigating the companies leading the rally. The table below lists the 10 best performing S&P 500 stocks since the October 3,2011 low. My table shows the market’s biggest winners are among the most speculative—homebuilders, distressed financials, and tech companies. What does that say about the 28% rally in the S&P 500 since the October 3 low? Speculative sentiment is the dominant force in the stock market today. Invest accordingly. … [Read more...]
The 2012 Stock-Market Outlook
Barron’s released its 2012 stock-market outlook this weekend. In the issue, Barron’s surveyed 10 Wall Street strategists on the outlook for the U.S. stock market. Most of the strategists are the heads of equity departments at Wall Street’s biggest banks. What are the Street’s equity strategists forecasting for the S&P 500 next year? Solid gains, of course. Would you expect anything less from the heads of equities at Wall Street’s big banks? Wall Street earnings and bonuses are highly correlated with stock-market performance. It doesn’t pay to be a bear on Wall Street. If investors don’t … [Read more...]
Not Your Father’s Stock Market
This is not your father’s stock market. Over the last 10 years, the structure of the U.S. equity market has changed drastically. Gone are the days when the NYSE and its specialists dominated stock market trading. Today, as many as 50 different venues in the U.S. trade equities. Now, almost all stock trades are done electronically. The NYSE specialists who were once obligated to make an orderly market by providing bid and offer quotes during periods of market stress have been effectively replaced by high-frequency trading firms (HFTs). HFTs are opportunistic traders that operate with little … [Read more...]
Diverging Performance
The S&P 500 hit a cyclical bull market high on April 29 of this year. During a volatile session on Tuesday, the index dipped into official bear market territory (a drop of more than 20% from a recent high), but a stunning final hour rally of more than 4% helped the index narrowly escape the official bear market label. Should you care if the S&P 500 enters an official bear market? Unless your entire portfolio is invested in an index fund, the S&P 500’s performance is likely to differ, sometimes widely, from the performance of your own portfolio. For example, if your portfolio … [Read more...]
Welcome to the Bear Market
On a closing basis, the S&P 500 hasn’t dropped the necessary 20% to be considered an official bear market, but for all intents and purposes U.S. stocks are in a bear market. If you measure the index on an intra-day basis, the peak to trough decline was 21.58% at today’s low. And if not for a curiously timed and still unsubstantiated rumor from the Financial Times about a European bank recapitalization plan, the S&P 500 was set to close down more than 20% from its April high. Instead, the index ripped more than 4% higher in the last 40 minutes of trading. This is the FT’s second … [Read more...]
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