Wall Street could sure use a break … but it just isn’t getting one! I say that because the news is going from bad to worse on both the earnings and economic fronts!
The only thing standing between us and a potential full-scale collapse at this point? The world’s central banks, who think that if they just throw enough printed money at these problems, they’ll go away.
But my thesis is — and has been for some time — simple: Neither the Federal Reserve nor the European Central Bank has any “bazookas” left. All they have left are pea-shooters. That’s why we’re poised on a knife’s edge here, and why I believe you need to take protective steps immediately!
Nasty Projections Piling Up!
Corporate earnings are the lifeblood of the market. When they go up, stock prices tend to go up.
But the opposite is also true. That’s why the latest slew of big-time profit misses and warnings about future earnings — from major domestic and multinational firms — should have every investor paying close attention!
Just consider …
* Tech darling Apple (AAPL) reported fiscal third-quarter profit of $9.32 per share on revenue of $35 billion. Those figures missed analyst estimates of $10.37 per share and $37.2 billion by a mile! The apologists tried to claim it’s a temporary lull in demand caused by the transition from the iPhone 4S to the as-yet-unreleased iPhone 5.
|Apple wasn’t the only tech to drop a bombshell this earnings season.|
But if that’s the case, why did Mac sales miss targets? And what about the onslaught of strong competition for iPhones and iPads from the likes of Microsoft, Samsung, Google, and Amazon?
* If Apple was the only tech firm that was struggling, maybe you could ignore it. But it’s not. Profit at the chipmaker Texas Instruments (TXN)plunged 34 percent from a year earlier in the most recent quarter, and it warned of lousy future demand. That followed on the heels of lousy earnings from Advanced Micro Devices (AMD) and Intel (INTC), which lowered its 2012 earnings outlook.
* Transportation stocks are also getting hammered in the wake of earnings problems at trucking firms like J.B. Hunt Transport Services (JBHT) and Ryder System (R). Plus, mega-shipper United Parcel Service (UPS) just warned that it expects full-year earnings per share of just $4.50 to $4.70. That was down from an April estimate of as much as $5 per share. International revenue dropped 4 percent, and the company warned that the domestic economy is hardly growing at all!
* In the financial arena, Morgan Stanley (MS) missed earnings estimates badly, sending that stock to within a whisker of a fresh almost-four-year low. Separate reports out of sector bellwethers like JPMorgan Chase (JPM) and Goldman Sachs (GS), first touted as “bullish” by Wall Street analysts, have instead just been sold into.
That’s a sign investors know the outlook is going to get worse. No wonder shares of some financial sector firms, like mortgage insurer MGIC Investment Corp (MTG) and Genworth Financial (GNW) are either plumbing new multi-year lows or very close to doing so!
Recession Risk Spreading
Throughout Europe, Asia, U.S.!
The macroeconomic outlook is deteriorating as well. For starters, the euro currency and European bonds continue to slide, with no more than a day or two of respite here and there.
In Spain, the yield on the country’s 10-year note just jumped to 7.75 percent after even more of the country’s regional governments requested billions of euros in additional aid from the tapped-out central government. Italian bond yields also surged, as did risk in Greece after reports that country may need even MORE debt relief.
As if that weren’t enough, German business confidence fell to a two-year low. The U.K. also reported a 0.7 percent decline in GDP in the second quarter, the biggest decline since 2009. That confirms my view that the economic deterioration is spreading from the European periphery to the core of the continent!
|Business confidence in Germany continued to drop as companies become more pessimistic about the euro-zone’s fiscal crisis.|
Here in the U.S., we just learned that new home sales plunged 8.4 percent in June. Existing home sales also sank 5.4 percent, dampening talk of a huge new rebound in housing. Regional manufacturing indices in Philadelphia and Richmond also disappointed, suggesting a deeper pullback in factory activity is underway.
Despite all that, some investors are still clinging to the misguided hope that the world’s central banks will save their bacon. Rumors of new interest rate cuts overseas, or more QE in the U.S., keep leading to small intraday rallies.
But I can’t for the life of me understand why anyone would expect more of those “solutions” to work. After all, we’ve seen them fail repeatedly to accomplish much of anything over the long term — for the markets or the economy.
So my recommended course of action is different: Batten down the hatches … and soon! Because these threats could lead to a 2011-style — or even a 2008-style — rout!
Until next time,