Profit Confidential (www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is warning investors to consider wealth preservation strategies, as weak corporate earnings on Wall Street are putting increased pressure on major stock indices.
“If there is an investment theme that investors should consider for 2014, it’s preserving capital, because key economic indicators are suggesting that stock market returns will be nothing like they were in 2013,” says lead contributor and financial expert Michael Lombardi. “In fact, 2014 may just be the year when the floor is taken out from beneath stock prices. This would not be unlike what occurred in 2007, the year where, despite glaringly obvious economic warning signs, investors were increasingly optimistic toward an overvalued stock market.”
The main driver of key stock indices, corporate earnings, is under pressure. The 344 companies on the S&P 500 that have released their corporate earnings for the fourth quarter of 2013 have reported earnings 3.3% above what was expected. However, this is still below the four-year average “surprise” rate of 5.8%, meaning corporate earnings are far from exceptional, according to Lombardi. (Source: “Earnings Insight,” FactSet web site, February 7, 2014; http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_2.7.14.)
“Throughout 2013, an increasingly larger number of S&P 500 companies revised their quarterly guidance lower,” Lombardi explains. “In the fourth quarter of 2013, a record 86% of companies that issued guidance reported a negative outlook. For the first quarter of 2014, 80% of the S&P 500 companies that have issued guidance revised their earnings lower; this compares to 78% of S&P 500 companies that did so in the first quarter of 2013. Buying stocks when companies in the key stock indices are worried about their corporate earnings has never been a wise move.” (Sources: Ibid; “S&P 500 near record highs despite cuts to earnings estimates during Q1 2013,” FactSet web site, March 28, 2013; http://www.factset.com/insight/2013/3/earningsinsight_3.28.13#.UvupoPldXfI.)
On top of that, Lombardi adds, the Federal Reserve has started to slowly taper its monthly bond buying program; printing $65.0 billion a month in new money, as opposed to the $85.0 billion a month it printed in 2013. The monthly pullback has had a negative impact on emerging markets, whose currencies have been collapsing as the U.S. dollar strengthens. This is putting further pressure on U.S. companies that sell abroad.
“From a technical point of view, key stock indices aren’t looking very attractive either. Last Friday’s payroll numbers came in weaker than expected—the second straight month of disappointing jobs data. The S&P 500 responded with their best day since October 2013,” he concludes. “But one critical indicator is being overlooked, and that’s that trading volume fell. A stock market rising on weak volume cannot be characterized as a rebounding market. 2014 is starting to look more and more like 2007, and investors looking to protect their wealth might not want to be too leveraged in the stock market right now.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation and Profit Confidential, visit www.lombardipublishing.com.
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