Dell executives reported this week that they believe the U.S. computer market has reached its low point, and they expect a wave of replacement purchases for aging computers in 2010. Another big technology name provided good news this week when Intel reported much better than expected earnings. In addition, IBM, Goldman Sachs, Johnson & Johnson and CSX all reported better than expected earnings for the second quarter of this year. This is helpful since the previously mentioned companies come from a variety of industries – technology, financial, consumer products and railroad.
Merrill Lynch surveyed 221 fund managers whom managed a total of $635 billion. The survey revealed that overall the managers were more positive on economic growth and bonds in July, but less positive on equities. It appears that the stock market’s recent run up may have diminished their appetite for risk in the short term.
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Reuters/University of Michigan Surveys of Consumers shows that U.S. consumer sentiment declined in early July to the weakest since March. The stock market has hinted in the last couple of weeks, and consumers are realizing that this may not be a speedy recovery. People are unhappy that it will take time for the unemployment picture to improve and to see their personal finances recover. This is quite understandable; however, it is not a valid reason for a second government stimulus program. Be patient- the economy and the stock markets around the world will improve – in time! Businesses and investors will make money! The worldwide recession did not occur overnight, and overcoming it will take time.
When I read in today’s Wall Street Journal that Chinese auto sales are surpassing the United States, I am beginning to see the Chinese becoming consumers versus savers. As such, this will take hold at some point and they will be buying Levi jeans, Apple iPods and iPhones, Big Macs, Chevys, etc. Yes, much of this will be good for U.S. corporations who make these products, but we must be prepared to see a greater demand for oil and other natural resources as this occurs. As a result, I continue to believe the natural resource stocks, ETFs and mutual funds are an excellent investment option long-term. Simply put, based upon what you know, do you really believe oil will be under $60 a barrel five years from now or that gasoline will be $2.21 a gallon? If you don’t, then we are in agreement on why we should consider natural resources in your portfolio.
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For the most part, automakers are beginning to see sales stabilize and level off. Rising consumer confidence is playing a big role. There is still a tremendous amount of caution among investors and business executives. That being said, increasing corporate earnings / profits will be the signal that consumers and businesses are truly feeling better and are spending money. Any positive news, especially from the automakers or housing industry, is welcomed. Corporations will begin reporting their second quarter earnings (March – June) this month and that will give us a good sign as to where we may be headed.
Ironically, this good news regarding cars sales is somewhat offset by an article in today’s Wall Street Journal. The theme of the article is that the Corporate Average Fuel Economy (CAFE) mandating higher gas mileage or fuel efficiencies for cars sold in the U.S. will hurt U.S. car companies and most specifically General Motors. The reasoning is Honda and Toyota have honed their skills on small fuel efficient cars – it’s their bread and butter. However, the U.S. car companies have not done well in this segment. General Motors real niche or specialty is mid-size to larger cars, SUVs and trucks. As a result, it is nearly impossible for GM to come out with a new line of ultra-fuel efficient cars that combined with their current product line will allow them to meet government mandates. This could result in GM paying fines to the government while trying to resurrect the company that is substantially owned by the government.
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