Profit Warnings Crush Stocks

"For its 1...2...3 strikes you're out at the old earnings game."

Tech firms Applied Materials [AMAT] and Advanced Micro Devices [AMD] warned of profit shortfalls before the market opened on Tuesday. And yet stocks still jumped higher out of the gate because of some good news from Europe.

Not until the lunchtime warning by leading engine maker and global growth favorite, Cummins [CMI], did things really turn sour. Essentially they saw order weakness in Brazil, India, China and, worst of all, the US. That is the wrong kind of Royal Flush... straight down the toilet.

From there it was a rough Risk Off session with most commodity related stocks and global economy sensitive stocks getting hammered.

What happened to the 2 tech stocks is not unusual as both are weak sisters with a history of botched earnings. However, Cummins is a perennial investor favorite as they carried the banner for global growth. And what they stated was the worst fear of investors at this time. That being slowness is not JUST abroad. It may be taking root here as well.

Don't throw in the towel yet. Perhaps Cummins troubles are company specific. Or not as wide spread as feared. Plus there were improvements seen in Europe Tuesday. Some more pledges, plans and proclamations came out that were well received. Stocks went up and key bond rates went down (Spain under 7% again and Italy under 6%).

That brings me back around to my comments from yesterday. Still think it's the right strategy for the times.

"My recommendation is to stay balanced. Meaning around 50% long US stocks. This allows you to participate in any upside if that is on tap. And not get slaughtered if a greater pullback is in the cards."

Featured Commentaries
•  Stock Strategy: Get Ready To Be Surprised This Earnings Season
•  Has Dr. Copper Been Benched?- is copper prices signaling a recession?

Best,

Steve Reitmeister (aka Reity... pronounced "Righty")
Executive VP, Zacks Investment Research

Today's Top Stories: Wednesday- July 11, 2012

ZACKS RANK BUY STOCKS

• Aggressive Growth - Abaxis (ABAX) Zacks Consensus Estimate for fiscal 2013 has risen 6.2% to 86 cents per share, representing year-over-year growth of more than 48.0%. Read More...
   
• Growth & Income - Grupo Aeroportuario del Centro Norte SAB de CV (OMAB) paid a special dividend of 71.3 cents per ADS. As a result, the effective dividend yield is currently around 6.44%. Read More...
   
• Momentum - UniFirst Corporation (UNF) has been on an upsurge since October 4, 2011, gaining a solid 53% with the strength of consistent earnings beats over the last four years. Read More...
   
• Value - Ship Finance International Limited (SFL) has a price-to-book ratio of 1.4. A P/B ratio under 3.0 usually means value. SFL also has a 1-year return on equity of 15.9%. Read More...
   

Learn how to profit from our exclusive Zacks Rank stock-ranking system with free resources. Read More...

• Top 5 Zacks #1 Ranked Government Bond Mutual Funds  Read More...
• Top 5 Zacks #1 Ranked Wells Fargo Mutual Funds  Read More...
• What Patent Cliff? Pharma ETFs Continue to Surge Read More...
• Beat the Heat with These Three ETFs Read More...
• Fund Homepage

• Bull Of The Day: Alkermes, Plc
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• Bear Of The Day: AGL Resources, Inc.
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• Zacks Industry Outlook: Foreign Banks Stock Outlook - July 2012
  The industry remains thwarted by non-stop challenges that are keeping its performance under pressure. Read More...
  
  
• Analyst Blog Highlights
• Merck KGaA's Erbitux Disappoints
• NiSource-Hilcorp Pact in Utica Shale
• Staying Neutral on Unum Group
• Full Analyst Blog

• Focus is on Earnings and Economy
• Roundtable Top Picks for the Week of Jul. 9th
• Early Signs Point to weak Q2 Earnings Season

PeopleAndPicks.com:

VIP "rjm77me" can still gain returns in this market with his BUY calls in (CYH), (M) and (RGR). Read More...

• N.Y. Fed asked Barclays about Libor in '08 @ CNNMoney.com
• AMR CEO: We Are Evaluating Mergers. US AIrways: Finally @ TheStreet.com
• CFTC Chairman: Money was Essentially Stolen by PFGBest @ FOXBUSINESS.com
• Financial stocks decline after CFTC vote @ MarketWatch.com

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