Editor’s note: Marc Leavy,CFP? is a regular financial columnist for Business Reform Magazine, the leading Christian business magazine with over 100,000 readers. Each issue features practical advice on operating successfully in business while glorifying God.
July is usually one of the best performing months for the stock market. So far, the Dow is up slightly and the NASDAQ is up like a bottle rocket.
If you are unsure if you want to get into the market, you may want to pay close attention to next week’s earning news. Personally, I am bullish, but if you are not already invested, I would move in slowly. The “dog days” period of summer is the time Wall Street types head to the Hamptons, so there won’t be much definitive action in August or early September. Then we move closer into the most ghoulish time of year, October.
October is typically a volatile month due to the end of some fiscal years, year-end projections and rebalancing, plus option and future expirations; aside from the historical context of “Black Mondays”.
“Earnings growth expectations for technology firms remain high,” said Stephen Massocca, president and head of trading at Pacific Growth Equities. Most analysts/economists are looking favorably on the last half of the year and are expecting earnings to increase.
Nay-sayers will point to the Price Earnings ratios. Overall the P/E ratio of the market is at historical norms and allows for growth; especially if you factor in interest rates and inflation.
P/Es haven’t put off investors because several internet/e-commerce stocks with P/Es in excess of 100x have increased 50-100% in the past six months. The Biotech Index, the winner for the year, has soared by more than 40% in the first part of this year.
Chuck Hill, director of research for First Call stated that earnings preannouncements haven’t been any more or less negative than normal. Expectations for the Standard & Poor’s 500 in the second quarter are for a 5.3% increase in earnings.
Earnings growth expectations range from 7 to 10%, which would be helpful indeed but if you look strictly at P/Es, it won’t be enough for you.
The labor market remains weak and needs real economic growth and not just earnings estimates. “It is pretty clear that we’re still losing jobs,” said Mark Zandi, chief economist with Economy.com.
Bad news in the unemployment numbers took the market down Thursday. Jobless claims climbed to 439,000 with the four-week moving average advanced 1,000 to 426,750. The 400,000 mark is the threshold many economists use to gauge a healthy employment. Remember, the market is a leading indicator so the market will go ahead of employment.
During the dog days remember the adage, “A bull market climbs a wall of fear.”
Marc Leavy, CFP? is a Certified Financial Planner. Principled Investing teaches Solomon’s principles of investing and offers wisdom regarding comprehensive financial planning for a fee. You may contact Marc at [email protected] or visit www.principledinvesting.org.
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