As I've written, I think this is a very tricky market where investors need to be careful b/c despite the rally in stocks we've seen so far this year, I expect for stocks to increase in volatility and I expect to see a decent selloff in the near term. So far today, the markets are down around 1% as several large companies have come out with earnings and guidance that have disappointed analysts on Wall Street.
Some of these companies include:
FedEx - the global delivery company came in with below expectation earnings and their going forward guidance was murky as they said they were unsure how the rebound in the economy would continue apace
Caterpillar - the heavy machinery manufacturer sighted a slowdown in sales in Europe and China and lowered their sales guidance for the next quarter
Oracle - the technology company missed earnings big time this morning and also guided down for the next quarter
Along with the slew of poor earnings of late, the unemployment numbers that were released yesterday were not as good as analysts expected and an overall improvement in employment is cloudy as our economy works on improving. Business owners still remain cautious on hiring b/c they are (in general) concerned the economy will cool off a bit over the coming months. I'm also concerned with the high price of oil/gas as this has acted as an added tax on the consumer which has hurt consumer spending. Geopolitically, China's economy has cooled off quite a bit and they are experiencing a real-estate and property bubble which as we've seen can substantially hurt an economy. In the same region, heated rhetoric between North and South Korea, along with the United States is becoming a growing concern. I wish I was done with the negatives but here are a few more:
- Washington is a mess as our ridiculous politicians continue to bicker and refuse to come together and work for the good of the country
- tensions between Iran/Israel and the United States remains a concern
- the monetary problems facing European countries has become a bigger problem as Cyprus's financial system has come to a halt as the government has shut down the banks until they can figure out how to secure money to prop up the financial system (currently there is a "run on the banks" as citizens in the country have been pulling money out of ATM's for fear that they will lose all their money)
Ok, enough negatives...but I just want to put out there that the markets look a bit overbought and it would not surprise me to see stocks pullback a bit as investors look to take profits they have in leu of the concerns facing our economy and the other problems I mentioned above.
On a final and brighter note, the housing recovery is continuing which will hopefully increase consumer confidence. I'd also like to add that one of our bigger holdings, Chimera Investment Corp (CIM) has been up big of late as it appears the company might be acquired by a larger real-estate company. The stock currently trades at $3.20/share and it appears, based on research that the company could be acquired between $3.80-$4/share - which would represent a great return from where it trades today. Added to that, the company pays a 11% dividend yield which investors will receive while they wait for the possible bailout (it's also a positive that the housing market is rebounding!).
