Strong Earnings Push DOW Higher & Globalization Effect on US Company Earnings

[SD Transplant]

Based on the current financial news, DOW is pushed higher by better financial results (mostly quoted are global organizations: Coca-Cola, IBM, Johnson & Johnson etc)

http://articles.moneycentral.msn.com/Investing/Dispatch/070417markets.aspx

Because I value/respect this blog member’s opinion, I’ve go a question to all of you. Why do you assume these market earnings are so strong? Why our stock market is even stronger base on bumpy local US economic news?

My perception/hint is based on the power at the global macro economic indicators (where is powayseller now :-)…..she could provide some great insight). More specifically, I suspect that global organizations (e.g. Coca-Cola, IBM, Intel etc) are little stressed by local US economic indicators because their business is expended worldwide & have far better stability.

Hence, any changes such as, in the press today:
1) Dollar to a 2 year low against the EURO (because these companies earn in EURO or other currencies, which are already above the trading value of the mighty U.S. $)
2) RE market, lending markets in recession in the USA, but that’s little impact to them (regional only)
3) Consumerism is now picking up in the rest of the world (emerging markets),so what’s lagging in the US market is picked up by the new markets.

Hence, I don’t expect the stock market to slow down much in the next 6-12 months (based on global marco indicators).

I also see the power/stability of being diversified in such various markets & think that for a short time (until other ECON changes are obvious) that stocks will be a decent investment. I guess hedging against the U.S. $ fall will provide a pretty good return.

Any thoughts……with my possible bias opinion?

[Chris Scoreboard Johnston]

Chris Johnston

I am glad to see a post from someone smart enough not to fight this uptrend in the stock market. Anyone can argue all they want about why it should or should not be happening, I would argue that it should be based on fundamentals that I follow. However, the fact is the market is in an uptrend and trying to pick the top to short is a very tough thing to do.

I do expect a decent sized retracement in the fall, August or so approximately, but not Armageddon. The dollar discussion is a different coversation entirely. We have a good downtrend, but the commercials are heavily long so a bounce could happen at any time.

[cabinboy]

SD Transplant…I think you’re pretty much on the mark. America’s Fortune 100 companies have become incredibly efficient at exploiting the globe for both topline revenue growth and bottomline cost savings. This is reflected in the solid earnings growth we’ve seen, and for companies that operate in sectors with decent global profit margins, this trend will continue. Watch the sectors and product lines…as they commoditize, companies will have to transform themselves just as they’ve been doing for the last 30 years.
How many Fortune 100 CEO’s are getting quoted saying, “gosh, we really have to completely redirect our business right now because we just can’t make money doing what were doing.” Housing and mortgage CEO’s are crowing this tune, but there are plenty of other sectors where you don’t hear much bitching. That’s a pretty solid sign that times are good and stocks will generally behave in accordance with the historical trend (UP! for those of you who have forgotten).
I’ve said it before, and I’ll say it again: the general sentiment on Piggington is at least one to two standard deviation units over to the bearish side. People on here were griping last summer when investment banks were projecting that there were decent gains to be had. Well, what happened? Hmmm…most of my funds are up at least 15% since last summer. Thanks JP Morgan and Goldman Sachs for your thoughtful projections. Good thing I trust your 100+ years of experience and glorious returns more than I trust people I don’t know on the web.
Folks, if in the span of 2003-2007 your portfolio has not made 10%+ per year, you need to ask whether you might be one of the people who for whatever reason significantly underperforms every major stock index. If you are in that category and you want to do better, consider listening to the guys that have been doing this since the advent of modern banking. Don’t listen to “knowledgeable” people on the web. Goldman Sachs does not have half of its assets in a double-inverse index fund, and neither should you!

[Anonymous]

Aw, cabanaboy, someone disagrees with you:

http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/04-09-2007/0004561847&EDATE=

Q1 07 earnings for the S&P 500 are projected by S&P to come in below Q4 06 earnings and 5% above Q1 06.

My first job out of business school was working in corporate financial planning and analysis at one of the world-beating big boys. 5% growth year over year is good for a utility, but bad for something sporting a 17.3 P/E, as the S&P 500 does today.

Long Term Capital Management thought that they were unbeatable; Goldman and Morgan will be eating humble pie soon enough.

[Wiley]

Cabinboy,

Lets say you bought the dow in 2001. You are just now up 6 or 7%. So you made 1% a year. You are just now getting back and above even.

Now factor in inflation and where are you. A big loser. (not you, your investment).

Investments need to be analyzed in relative terms. If the dollar loses 32% of it’s value in the same time your investment got back to even then you lose. (using dollar index for this)

I believe the german stock market made advance through its hyper-inflationary period. You couldn’t really buy anything with the marks at the end but you were “up” on your investment.

Relative to….
housing
oil
commodities
gold
silver
emerging markets

the dow has been a loser.

I don’t think its so much a collective bearish view here. I believe people are realizing that things aren’t right and in need of confirmation/answers/whatever.

Just my thoughts.

Wiley

[SD Transplant]

I have to agree that if your stock/401k portfolio did not yield above 8%/year in the last few years, you might have missed the mark. I though I could have done better, but I can not complain with 14.8%.

By the way, I’ve moved up to 25% in the international investments, and I can see better results (specially hedging against the $).

[cabinboy]

Just to clarify…
In no way did I mean to imply that one should only invest in the Fortune 100. I’ve been about 50% in international over the last couple of years.
jg, I fail to understand how the link you posted contradicts what I was saying. There is plenty of growth on that S&P chart. I did not state an earnings growth number, nor did I say that earnings would be as easily had for all companies in all sectors. I simly stated that there’s still good money to be made in some sectors, and that’s pretty well reflected in that chart.
Now, on the other hand, you have predicted that Goldman and Morgan will be eating humble pie. If our definition of humble pie is getting a 2007 Christmas bonus that is smaller than 2006, well then yes, they may very well be getting humble pie. If your definition of humble pie is suffering the same fate as LTCM, well then I believe you are quite mistaken. LTCM was about as close to a one-trick pony as you can get. It is ridiculous to equate LTCM’s risk profile with the risk profile for a Goldman or Morgan.

[Anonymous]

You’re right, cabanaboy, Goldman never stumbles:
http://www.iht.com/articles/2006/12/10/bloomberg/bxhedge.php

Largest hedge fund manager in the world, with $30B under management. Back in Nov. ’06, its $10B flagship hedge fund was DOWN 12% YTD, while the S&P 500 was UP 14%.

Then, to compound matters, they hire a star investment team:
http://financial.seekingalpha.com/article/22144

Just ask the City of San Diego about Amaranth’s performance.

Your confidence in Goldman is misplaced, sir.

[Author]

Posts