Climbing the Wall Of Worry... But Will it Last?
The ADP employment report came in at +91,000 which was about 20% under expectations. And with that stocks went higher.
We've seen a lot of that lately as stocks are shaking off weak economic news as it continues to rise. There are 2 reasons for this:
Technical Reason: The chartists here at Zacks tell me that the stock market usually retraces to the 50 day moving average after a major decline. That would be around 1260 on the S&P 500. These technicians are not necessarily predicting a rise above that. (And neither am I).
Fundamental Reason: The worse the news the more likely we see Fed or Government intervention to which indeed could spark the economy and therefore stocks. So each bout of bad news increases the odds of this happening.
So why am I still bearish given the notions above? Because the market moves over the long haul based upon the fundamental outlook for corporate earnings. So easy to write off the short term technical picture as that has no bearing on the main issue.
It is tempting to believe that a new round of stimulus or QE could cure what ails us. Unfortunately, it is most likely too late to fend off the looming downturn given the current fear of the populace. This leads to plummeting demand which makes businesses less likely to invest in expansion. This dastardly combination usually spells recession and lower stock prices.
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Today's Top Stories: Thursday- September 01, 2011
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- Aggressive Growth - International Game Technology (IGT) projections for this fiscal year are up a nickel, to $0.94. Next year's estimates rose 6 cents, to $1.10. This is expected growth rates of 10% and 17%, respectively.
Growth & Income - InterContinental Hotels Group Plc (IHG) Zacks Consensus Estimate for 2011 is $1.18, representing 25% EPS growth over 2010. The 2012 consensus estimate is 16% higher at $1.37. Read More...
Momentum - Foot Locker, Inc. (FL) earnings came in strong at 24 cents, doubling the Zacks Consensus Estimate calling for 12 cents. That lifted the company's average earnings surprise 60% over the last four quarters. Read More...
Value - OM Group, Inc. (OMG) has a P/S ratio under 1.0, which indicates a company is undervalued, and trades with a forward P/E of just 10x. It also has a price-to-book of only 0.7, which is well below the 3.0 cut off I use for value stocks. Read More...
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