The following are just a few items to consider as we look at the potential for investors (via their investment holdings) and the economy.
- The Labor Department released employment numbers that were less than enthusiastic.
- As of this Wednesday, over 80% of the S&P 500 stock index companies have reported that earnings were up 46% compared to the prior year. However, much of these gains were from cost cutting and increased efficiency. Along this line, it has been mentioned that many of these companies may continue to prioritize cost cutting and efficiency improvements versus hiring additional workers. As such, this is a counterbalancing equation in that companies may be able to preserve their profit margins, at the expense of lower consumer demand and sustained higher unemployment.
- I continue to read and hear that many companies continue to struggle with parts shortages. This may be a continuing sign that some manufacturers or suppliers would rather backlog orders from their customers than hire additional workers.
- Some retailers are reporting less than robust sales and aren’t overly enthusiastic about the back-to-school shopping season.
Yes, U.S. and overseas stock markets have rebounded over the last month or so, and some investors may question why they still have some money (i.e., cash) on the sidelines. It should be noted that the three widely quoted stock indices (Dow Jones Industrials, S&P 500 and NASDAQ) are basically flat for the year, which means lots of emotions (up and down), but in reality no progress.
I believe that we may see signs of softness in the U.S. and some overseas economies in the coming months, which may result in some temporary pullbacks in stock prices. As a matter of fact, as of mid-day today, the stock market is down as a result of some of the previously noted items. This is not a horrible event or reaction, because it allows for more opportunistic buying. For example, I know for a fact that many fund managers have a list of stocks they wish to acquire, but at more favorable (i.e., lower) prices.
If you are fully invested, you may see some volatility in the months ahead, before you see a continued uptrend. If you have cash on the sidelines, this volatility will allow you opportunities to put it to work. As such, I believe a pragmatic attitude, combined with patience, is the key to future investor profits.
What does IBM know that we don’t about interest rates?
The Wall Street Journal reported today that interest rates are near record lows, and a good example is IBM’s recent sale of $1.5 billion in three-year bonds with an average yield of 1.0%. Borrowing money at 1.0% is great for companies or consumers. But what is interesting about this is that IBM, going as far back at 1979, has an uncanny track record of issuing bonds near lows in interest rates. Some investment professionals believe that this is a signal that interest rates will raise in the next year. If this is the case, why didn’t IBM sell the bonds with longer maturities of say 10 – 20 years? No one knows for sure, but the current low interest environment is a boon to corporations issuing debt and individuals refinancing their homes. Both are able to cut their interest costs significantly.
The previously mentioned soft economy keeps the odds of dramatic interest rate hikes by the Federal Reserve a non starter for the foreseeable future, but not forever.
Quotes
“A father’s words are like a thermostat that sets the temperature in the house.”
Paul Lewis, musician
“Life is like a game of cards. Reliability is the ace, industry the king, politeness the queen, thrift the jack: Common sense is playing to best advantage the card you draw, and every day as the game proceeds, you will find the ace, king, queen, jack in your hand and opportunity to use them.”
Edgar Watson Howe, novelist and editor
“Life is not about one shining moment. You can’t just kick back and put your feet up on your desk.”
Peggy Fleming, Olympic skater
“Happiness is a side effect of living purposefully, standing up for what you believe in, and developing your full potential.”
Dan Baker, author
Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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