Tag: street authority

Here's Your Market Roadmap For The Rest Of 2014

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By: David Sterman of Street Authority

When the Federal Reserve first suggested a gradual tightening of its monetary policy in May 2013, investors began to wonder if the long-running bull market would come to an abrupt end.

A quick spike in interest rates at the time gave a sense that times were indeed changing. Yet investors end up shrugging off that noise: The SP 500 rose an impressive 22% between July 1 of last year and June 30 of this year. Toss in dividends and investors garnered a 25% total return -- roughly the amount investors should expect to garner over a three year period in normal times.

But these are not normal times. The stunning 191% gain for the SP 500 since bottoming out in March 2009 is remarkable in light of the fact that the subsequent economic rebound after the Great Recession has been quite tepid. Low interest rates, a huge amount of global liquidity and very high corporate profit margins all get credit for the bull market that has exceeded the wildest expectations of even the most aggressive market strategists.

At this point, it might seem the wisest path to sit back and enjoy the ride, waiting for another 20% gain over the next 12 months.

Yet before you grow too complacent, you need to take a closer look at factors driving the market higher and assess what kind of backdrop we should expect in the six months ahead. Here are key events and factors you should be tracking.

The Economy

At this point, there are really only two points of economic interest: unemployment and inflation.

The former is falling and the latter may be rising. We now know that the U.S. economy created at least 200,000 jobs for the fifth straight month. That's the first time that has happened in more than a decade. The next payroll report comes on Aug. 8, and if that report also highlights a gain of at least 200,000 jobs, then it's hard to see how the Fed will stick by its "no rate hikes in the near future" policy. Continue reading "Here's Your Market Roadmap For The Rest Of 2014" →

Why The Bull Market May Not Be Finished Yet

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By: John Kosar of Street Authority

The major U.S. indices were mixed last week, closing on Friday just slightly on either side of unchanged. The tech-heavy Nasdaq 100 and small-cap Russell 2000 were the strongest performers. As long as the May trend of relative outperformance by these two market-leading indices continues, so should the current broad market advance.

The two strongest market sectors last week were consumer discretionary and utilities. My own asset-flow based metric shows that the biggest increase in sector bet-related assets over the past one-week and one-month periods was in utilities, which supports more upcoming strength in this sector.

A strengthening utilities sector is often driven by declining long-term U.S. interest rates, which we saw last week as the yield on the 10-year Treasury note declined by 9 basis points to 2.53%. This encourages yield-seeking investors to accept more credit risk (via utility stocks) in exchange for potentially higher returns. Therefore, as long as long-term interest rates continue to decline, it should drive more investor assets into utilities and buoy Treasury prices, which move inversely to yields.

Small Caps, Tech Should Continue Leading the Way Continue reading "Why The Bull Market May Not Be Finished Yet" →

Charts Point To Another 5%-7% Advance Before A Correction

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By: John Kosar of Street Authority

All major U.S. indices were higher last week, led by the previously downtrodden Nasdaq 100 (+2.5%) and Russell 2000 (+2.1%). Both of these market-leading indices must continue to outperform the broad market SP 500 if last week's strength is going to become the next leg higher within the larger 2013 stock market advance. The major indices are now all in positive territory for 2014 except for the small-cap Russell 2000, which ended last week down 3.2% for the year.

From a sector standpoint, my own asset flow-based metric shows the largest inflow of investor assets over the past week went into consumer discretionary, which led all sectors with a 2.1% gain. The utilities sector had the biggest outflow of investor assets and, as would be expected, was the only sector to lose ground for the week.

Is Technology Leading the Blue-Chip Stocks Higher?
Beginning in the April 21 Market Outlook, and again in several subsequent issues, I have been discussing overhead resistance at 3,617 on the Nasdaq 100 and stating that a rise above this level was necessary to indicate that this market-leading technology index's larger November 2012 advance was resuming.

After negotiating this level for the past month, 3,617 was significantly broken to the upside last week. This clears the way for more near-term strength and a potential 2% rise to retest the 3,738 early March high.

More recently, in the May 12 and May 19 Market Outlooks, I identified an emerging pattern in the SPDR Dow Jones Industrial Average (NYSE:DIA), commonly known as the "Diamonds." The formation was a triangle, indicating investor indecision, and I said, "For the bullish implications of the pattern to remain valid, the lower boundary at $163 must contain DIA on the downside this week while it rises back above $165.51 -- and stays there." Continue reading "Charts Point To Another 5%-7% Advance Before A Correction" →

5 Ways To Tell If You Own A 'Dividend Disaster'

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Imagine living in a world with stocks creating dividend yields of 20%, 30% or even over 40% on an annual basis. For income investors, that sounds like a dream come true -- but the truth is, these yields exist right now.

I recently searched for the highest-yielding stocks on the U.S. stock markets. I found 10 actively traded stocks that yield between 20% and close to 50% annually. My first reaction is that there must be something wrong with the data -- but these stocks actually exist. Here are three examples:

It may seem like all an investor needs to do is invest in one or more of these names and their portfolio will grow like wildfire. However, nothing is further from the truth.

Sure, several of the top 10 names will continue to pay ultra-high dividends for a while, but the dangers inherent in them are simply too high for prudent, risk-averse portfolios. Remember, a high dividend does not always indicate a successful company. Often, a high dividend yield is indicative of a plunging stock price or a failing company's last-ditch effort to attract interest. 

What's the best way to avoid a high-yielding "dividend disaster"? Here are five questions to ask before risking a penny on a high-yielder. Continue reading "5 Ways To Tell If You Own A 'Dividend Disaster'" →

Get Out Of Gold Stocks -- Right Now

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Few investments are driven by psychology and fear as much as gold. Concerns about ruinous inflation, global tensions or economic instability can send investors out of stocks and right into the seemingly safe harbor of gold.

Is the fear trade back on? A double-digit rebound in gold prices since the year began has led some investors to wonder if gold is poised for a great 2014 after a dismal slump in 2013 when gold prices fell more than $400 an ounce. Junior gold miners have fared even better: The Market Vectors Junior Gold Miner ETF (NYSE: GDXJ) is up roughly 35% in the past three months.

Much of the impetus for an upward move in gold prices was the building tensions in Ukraine, which led to concerns about potential military escalation. It's now apparent that financial sanctions, and not a deepening of a war posture, will characterize the hardening Russia/European Union relationship, and the risk factor is slowly receding. Continue reading "Get Out Of Gold Stocks -- Right Now" →