#-ad_banner-#The rapid surge in the dollar has thus far had little impact on the stock market. But it soon will.  In the upcoming earnings season, you’ll be hearing a lot about how many companies in the S&P 500 are having a tough time racking up sales in their foreign subsidiaries. And when you consider that few expect the dollar to pull back any time soon, this trend is likely to persist for at least the rest of 2015.  As we’ve noted in the past, larger companies tend to have much greater global exposure than smaller companies. And in the face… Read More

#-ad_banner-#The rapid surge in the dollar has thus far had little impact on the stock market. But it soon will.  In the upcoming earnings season, you’ll be hearing a lot about how many companies in the S&P 500 are having a tough time racking up sales in their foreign subsidiaries. And when you consider that few expect the dollar to pull back any time soon, this trend is likely to persist for at least the rest of 2015.  As we’ve noted in the past, larger companies tend to have much greater global exposure than smaller companies. And in the face of rising global sales challenges, you would think large cap stocks would be losing favor. Yet the S&P 500 has actually outperformed the Russell 2000 (a small-cap index) over the past 13 months. The simple explanation: global uncertainty tends to lead to a “flight to quality” as larger companies are generally seen as safer investments. Yet as Q1 earnings season will likely show, these aren’t “quality” times for big companies.  That’s why I am focusing my research these days on small-cap stocks. A number of individual stocks in the Russell 2000 are now trading far from their 52-week high,… Read More

You would be shocked to know how many accepted “facts” in the financial world are simply not true.  For example, you may have been told that asset allocation — the amount of your portfolio you dedicate to stocks, bonds, etc. — is more important to your future returns than stock selection. This widely cited idea comes from a grossly misinterpreted study that suggests “more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return.” The statistic is… Read More

You would be shocked to know how many accepted “facts” in the financial world are simply not true.  For example, you may have been told that asset allocation — the amount of your portfolio you dedicate to stocks, bonds, etc. — is more important to your future returns than stock selection. This widely cited idea comes from a grossly misinterpreted study that suggests “more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return.” The statistic is attributed to a 1986 paper published in the Financial Analysts Journal called “Determinants of Portfolio Performance,” written by Gary P. Brinson, CFA, Randolph Hood, and Gilbert L. Beebower. It is commonly referred to as the BHB study. Read that way, the study is basically telling us stock picking is a waste of time since we can only squeeze a small amount of performance out of the stock selection process. If you read the paper closely, however, the authors actually said something different. BHB studied the variation of a portfolio’s quarterly returns. #-ad_banner-# I don’t know where the misinterpretation started, but… Read More

While insider action can provide valuable hints about where a stock is headed, many investors consider this activity most helpful with buying decisions. After all, as legendary fund manager Peter Lynch once noted, insiders might sell their firm’s stock for any number of reasons. But they only buy it for one reason: they think it’s going to go up. And who better to make such a call than the people most closely associated with a company? Trouble is, keeping abreast of insider buying trends in such a large universe of stocks is much too time-consuming for most individual investors. But… Read More

While insider action can provide valuable hints about where a stock is headed, many investors consider this activity most helpful with buying decisions. After all, as legendary fund manager Peter Lynch once noted, insiders might sell their firm’s stock for any number of reasons. But they only buy it for one reason: they think it’s going to go up. And who better to make such a call than the people most closely associated with a company? Trouble is, keeping abreast of insider buying trends in such a large universe of stocks is much too time-consuming for most individual investors. But no matter. There’s a simpler way to own stocks with heavy insider buying, and recent performance suggests it’s capable of generating market-beating returns. The method: investing in exchange-traded funds designed specifically to offer broad exposure to stocks with robust insider buying. Currently, there are two choices, the Guggenheim Insider Sentiment ETF (NYSE: NFO) and the Direxion All Cap Insider Sentiment ETF (NYSE: KNOW). Both are index funds (with reasonable expense ratios of less than 70 basis points). NFO tracks the Sabrient Insider Sentiment Index, an equal-weight benchmark of the 100 stocks with the highest composite rankings incorporating four factors: the… Read More

By any measure, $104 billion is a lot of money. That’s the dollar value of share buyback announcements made in February — the largest monthly figure since these flows were first tracked 20 years ago. It was also nearly double the amount from a year earlier, according to money flow tracker TrimTabs Investment Research. (Companies make share buyback announcements throughout this year, but February is typically the high watermark as companies release full-year financial results.) Companies in the S&P 500 spent $564.7 billion on share repurchases over the past 12 months, which was a year-over-year increase of… Read More

By any measure, $104 billion is a lot of money. That’s the dollar value of share buyback announcements made in February — the largest monthly figure since these flows were first tracked 20 years ago. It was also nearly double the amount from a year earlier, according to money flow tracker TrimTabs Investment Research. (Companies make share buyback announcements throughout this year, but February is typically the high watermark as companies release full-year financial results.) Companies in the S&P 500 spent $564.7 billion on share repurchases over the past 12 months, which was a year-over-year increase of 18%, according to FactSet Research. In fact, 72% of all companies in the index bought back shares in the fourth quarter of 2014. Make no mistake, the powerful waves of buybacks are a clear positive for stocks — in the near-term. For proof, look no further than the five-year chart for the PowerShares Buyback Achievers ETF (NYSE: PKW). Simply put, the more than $2 trillion in cash that has been returned by S&P 500 companies since 2009 has been a key factor behind the bull market’s extended run. Said another way, a steady reduction in shares outstanding has… Read More

All major U.S. stock indices finished slightly higher last week except for the tech-heavy Nasdaq 100, which lost 0.4%, posting its second consecutive negative weekly close. As I have been stating for the past month, relative outperformance by technology is necessary to drive the broader market higher. If this recent weakness continues, it is likely to trigger a correction. From a sector standpoint, last week’s modest advance was led by defensive utilities and consumer staples, which gained 2.1% and 1.5%, respectively. However, my own ETF-based metric shows that the biggest contraction in sector bet-related assets over… Read More

All major U.S. stock indices finished slightly higher last week except for the tech-heavy Nasdaq 100, which lost 0.4%, posting its second consecutive negative weekly close. As I have been stating for the past month, relative outperformance by technology is necessary to drive the broader market higher. If this recent weakness continues, it is likely to trigger a correction. From a sector standpoint, last week’s modest advance was led by defensive utilities and consumer staples, which gained 2.1% and 1.5%, respectively. However, my own ETF-based metric shows that the biggest contraction in sector bet-related assets over the past one-week and one-month periods actually came from consumer staples. This suggests that last week’s strength in the sector is likely to be short lived and may lead to some outright weakness and relative underperformance versus the S&P 500 later this quarter. #-ad_banner-# Technology: Contracting Investor Assets a Red Flag In last week’s Market Outlook, I pointed out that the Nasdaq 100 was testing underlying support at its October uptrend line, which I identified as a critical inflection… Read More

The chickens are coming home to roost. After a remarkable eight-month rally in the dollar, many U.S. firms are finally feeling the pinch. In the near-term, investors need to brace for a cautious earnings season. Yet, as I’ll explain in a moment, there are still ample reasons for long-term optimism, especially when the dollar loses momentum and/or the global economy starts to rebound in earnest. The strong dollar, which blunts the competitiveness of American firms, both at home and abroad, will have a clear impact on first-quarter results and forward outlooks. According to FactSet Research, 85 companies… Read More

The chickens are coming home to roost. After a remarkable eight-month rally in the dollar, many U.S. firms are finally feeling the pinch. In the near-term, investors need to brace for a cautious earnings season. Yet, as I’ll explain in a moment, there are still ample reasons for long-term optimism, especially when the dollar loses momentum and/or the global economy starts to rebound in earnest. The strong dollar, which blunts the competitiveness of American firms, both at home and abroad, will have a clear impact on first-quarter results and forward outlooks. According to FactSet Research, 85 companies in the S&P 500 have already warned of a Q1 profit shortfall, while just 16 companies have pre-announced that results will be better than expected. If that figure of 16 holds, it will be the lowest number since the first quarter of 2006. While much has been made of the dimming profit picture for energy companies, the pain is also building for industrial firms, many of which have global sales exposure. You can see the growing headwinds for this sector by glancing at the recent monthly reports from the Institute of Supply Management.  Is The Manufacturing Sector Headed for… Read More

All major U.S. stock indices finished in the red last week, led lower by the tech-heavy Nasdaq 100, which lost 2.8%. Throughout the past month, I have been saying that as long as technology continued to outperform, the overall market was likely to continue grinding higher. Accordingly, I view last week’s relative weakness by the Nasdaq 100 as an early warning of potential weakness in April. All sectors of the S&P 500 fell last week, with financials, technology and industrials hit hardest. The energy sector held up relatively well. Read More

All major U.S. stock indices finished in the red last week, led lower by the tech-heavy Nasdaq 100, which lost 2.8%. Throughout the past month, I have been saying that as long as technology continued to outperform, the overall market was likely to continue grinding higher. Accordingly, I view last week’s relative weakness by the Nasdaq 100 as an early warning of potential weakness in April. All sectors of the S&P 500 fell last week, with financials, technology and industrials hit hardest. The energy sector held up relatively well. #-ad_banner-# My own asset-flow-based metric continues to indicate that this beleaguered sector is historically under-invested. This suggests an emerging opportunity to overweight the sector in upcoming months and look for buying opportunities in undervalued energy assets. Dow Theory Non-Confirmation Remains in Force In the March 2 Market Outlook, I pointed out that the new closing high in the Dow Jones Industrial Average on Feb. 20 had not yet been confirmed by a corresponding new closing high in the Dow Jones Transportation Average. I said… Read More

#-ad_banner-#​Two weeks ago, I said that as long as technology and small-cap issues continued to outperform, I viewed the broader market’s recent weakness as a temporary countertrend correction rather than a sustainable decline. My expectations materialized last week as all major U.S. stock indices closed sharply higher, led once again by the tech-heavy Nasdaq 100 and small cap Russell 2000. Both are now up more than 5% for the year.  Last week’s rally was triggered by the Federal Reserve’s March 18 statement and Chair Janet Yellen’s subsequent comments, which were collectively… Read More

#-ad_banner-#​Two weeks ago, I said that as long as technology and small-cap issues continued to outperform, I viewed the broader market’s recent weakness as a temporary countertrend correction rather than a sustainable decline. My expectations materialized last week as all major U.S. stock indices closed sharply higher, led once again by the tech-heavy Nasdaq 100 and small cap Russell 2000. Both are now up more than 5% for the year.  Last week’s rally was triggered by the Federal Reserve’s March 18 statement and Chair Janet Yellen’s subsequent comments, which were collectively viewed as being dovish and likely to postpone the inevitable rise in U.S. interest rates to later this year.  Adding fuel to the fire was the fact that investors were bearishly over-committed headed into the meeting, according to the elevated extreme in the CBOE Put/Call Ratio that I pointed out in in the previous Market Outlook. This increased the initial buying pressure on Wednesday as these bearish investors scrambled to readjust their portfolios.  The strong rebound was led by the defensive health care and utilities sectors and pushed all major U.S. indices back into positive territory for the year.  New… Read More

“Don’t run for the exits just yet…”… Read More

“Don’t run for the exits just yet…” That’s what my colleague Jimmy Butts and I told readers in the most recent issue of our premium newsletter, Maximum Profit. #-ad_banner-#Yet it seems like every day for the past week or so, we’ve seen headlines about the possibility of the Federal Reserve raising interest rates in June. And depending on how investors… Read More

Are wage increase announcements bad news for share prices? That’s the easy conclusion to draw after seeing the recent pullback in shares of Wal-Mart Stores, Inc. (NYSE: WMT) following an announcement that the retailer would raise wages for hundreds of thousands of its employees. The starting wage for associates will increase to $9 per hour in April and further to $10 an hour by February of next year. Department managers will also see their starting wages increase to $13 an hour this summer and to $15 an hour next year. #-ad_banner-#The raise will affect as many as 500,000 associates and… Read More

Are wage increase announcements bad news for share prices? That’s the easy conclusion to draw after seeing the recent pullback in shares of Wal-Mart Stores, Inc. (NYSE: WMT) following an announcement that the retailer would raise wages for hundreds of thousands of its employees. The starting wage for associates will increase to $9 per hour in April and further to $10 an hour by February of next year. Department managers will also see their starting wages increase to $13 an hour this summer and to $15 an hour next year. #-ad_banner-#The raise will affect as many as 500,000 associates and could cost the company upward of $1 billion in additional annual wage expenses. Shares have now slid more than 3% since the late February announcement. Investors saw this coming. Back in November, Greg Foran, CEO of Wal-Mart’s U.S. operations, warned the company would see pressures to the bottom-line as it balances wage leverage with higher customer service standards. Though investors see the wage hikes as bad news, the opposite is true. Higher wages should strengthen the company’s competitive position and even boost bottom-line earnings. Much Ado About Nothing First, understand that the impact of the wage increase is likely overstated. Read More