Nervous Consumers Stall Recovery

The fear on Wall Street is that nervous consumers (non-believers) are going to short-circuit the economic recovery.

Stocks fell sharply this past Friday, taking the major indexes (NYSE & NASDAQ) down about 1 percent, after investors were disappointed by reports that the Reuters/University of Michigan index of consumer sentiment fell significantly short of expectations for the first part of August. That’s a sign consumers may well keep cutting back their spending as they worry about losing their jobs and furthering economic woes. Consumer spending is crucial for the economy to emerge from recession as it accounts for two-thirds of all U.S. economic activity.

The discouraging reading came a day after the Commerce Department reported a rather unexpected down trotting in retail sales, which was not suppose to happen this time of year as August has typically been a big month for retail. Investors were able to shake that off, but Friday’s consumer sentiment number had them bailing out of stocks, jeopardizing a summer rally that had lifted the Standard & Poor’s 500 index more than 15 percent in about a month.

Investors also sold off oil and other commodities and moved their money into the relative safety of the dollar and government bonds. Treasury prices jumped, sending their yields lower, while the dollar rose against other major currencies.

After rallying for months on expectations of an economic recovery, investors are worried that they have been too optimistic, given consumers’ continuing reluctance to spend. Analysts are predicting that the market may be choppy for several more months and this recession will continue to drage on with consumer confidence not as high as expected.

After the consumer forecasts were released the Dow Jones fell slighttly (0.8 percent). The S&P 500 index fell 8.64, or 0.9 percent, to 1,004.09, while the Nasdaq composite index fell 23.83, or 1.2 percent, to 1,985.52.

The drop erased much of the market’s advance of the last two days, and gave the big indexes their first losing week after four weeks of gains. The Dow was down 0.5 percent for the week, while the S&P 500 index fell 0.6 percent and the Nasdaq was off 0.7 percent.

In other trading, the Russell 2000 index of smaller companies fell 11.29, (or approximately 2%).

Bond prices rose sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.57 percent from 3.62 percent late Thursday. The drop in the 10-year yield is good news for consumers because it is closely tied to interest rates on mortgages and other loans.

March 2009 Free Hot Stock Picks

Crazy overall market strength now, undervalued stocks galore.  Lots of birdie opportunities everywhere on my free hot stock picks watchlist, 100+ stocks I’m trying to narrow—remember, I truly excel at shorting into strength…especially when that strength looks temporary…as I did with MBLX (Metabolix, Inc) yesterday, to only a little degree of success. To recap MBLX, I shorted 2000 shares at $6.25, looking for it to fail from going green on the day and come back a bit towards the morning low of $4.60…didn’t quite get there, I covered at $6.03ish because it showed it couldn’t break below $6…which was really the main technical support out there, took a healthy gain of $400+ as did my hot stock picks subscribers. No matter whether they have small losses or small gains, if the stock doesn’t do EXACTLY what we expect it to, then pull the trigger.  I will keep you posted on MBLX.

Here are a few other free hot stock picks to add to your watchlist :

 

Yadkin Valley Financial Corp (NASDAQ: YAVY) is just like any other failing financial, it’s been in a death spiral for the past 2 months dropping from $14 to $3, now up from $4 to $7 in 1 day, potential short although there’s no resistance until $10.

 

 

Gladstone Investment Corporation (NASDAQ: GAIN) is just like many of the crappy financial companies spiking, this one surged $1.26, or 50%.

 

Asset Acceptance Capital Corp (NASDAQ: AACC) is a debt-related company that has stair-stepped its way up from $3.50 to $5.12 over the past 3 days…potential short.

 

 

Bronco Drilling Company, Inc (NASDAQ: BRNC) has had 2 stair steps up from $3.75 to $5.50 in 2 days…was my #1 potential short, but now its just one of many Penny Stocks up 50% in a few days…no shares to short anywhere.

Ascent Solar Technologies (NASDAQ: ASTI) is a debt-related company that has stair-stepped its way up from $3.50 to $5.12 over the past 3 days…potential short.

 

 
The Steak n Shake Company (NYSE: SNS) is actually a solid potential buy as the stock broke out of a multi-month base above resistance at $7…kinda reminds me of SFLY, probly $1 of upside, low risk, but I need to see more of a breakout to get me excited.

 

Direxion Financial Bull 3X Shares (ETF) (NYSE: FAS) is the way to go if you think this is a bottom in the financials…strong buy but could move down slightly before bouncing up. 

 

For more information on Short Selling Stocks you can read the lastest post by our resident in house Short expert Gregg Andreski.

Economy Makes for Mixed Market

Major indexes came off earlier lows Friday February 20th after the Dow reached a six-year low in the previous session. Big banks remained in the spotlight amid nationalization fears. U.S. stocks were mixed in early trading Friday amid market volatility as February options contracts expire. Major indexes came up from earlier lows following Thursday’s skid in the Dow Jones industrial average through its Nov. 20 bear market low to a six-year low. The Dow is off 47% in the 16-month slide.

Today the 30-stock Dow Jones industrial average was lower by 44.21 points, or 0.59%, at 7,421.74. The broad S&P 500 index fell 5.66 points, or 0.73%, to 773.28. The tech-heavy Nasdaq composite index was up 1.81 points, or 0.13%, to 1,444.63.

On the NYSE, 21 stocks were lower in price for every six that advanced. Nasdaq breadth was 14-8 negative. Trading was relatively active.

The financial sector remained in the spotlight Friday amid concerns that big banks may be nationalized. Bank of America (BAC) Chairman and Chief Executive Kenneth Lewis told Bank of America executives at a senior leadership meeting on Thursday that Washington policy officials have assured him that the possibility of nationalizing the largest U.S. bank by assets is not on the table, the newspaper said, citing a person at the meeting.

Separately, Lewis was subpoenaed last week by New York Attorney General Andrew Cuomo, who is investigating whether the bank violated state law by withholding information from investors, the Wall Street Journal said. Investigators took testimony all day Thursday from former Merrill Chief Executive John Thain, the newspaper said. Thain was asked about $4 billion in bonuses paid to Merrill employees, and in particular why Bank of America’s merger agreement with Merrill contained a nonpublic attachment outlining the maximum Merrill could pay, the newspaper said.

The troubled newspaper industry remained in the headlines. The New York Times Co. (NYT) said its board voted to suspend the quarterly dividend on the company’s Class A and Class B common stock. In November, 2008, the company reduced the payout level of its fourth quarter to $0.06 per share from $0.23 per share in the 2008 third quarter. Let’s further look at the analysis of the US Economy here below:

Shares of Chiquita Brands International (CQB) tumbled Friday after the company posted a $0.74 fourth-quarter non-GAAP loss per share vs. $0.02 EPS on flat sales, higher costs including flood impacts, a weaker euro, and lower performance in salads. The company expects to deliver improved full-year results in 2009.

In recent economic stock news, U.S. CPI rose 0.3%, with the core rate up 0.2% in January. That follows a revised 0.8% decline in December headline index (was -0.7%), and a flat reading on the core. Gains were widespread following several months of declines and should help unwind deflation fears. Energy prices rose 1.7%, rebounding from a 9.3% December decline. Gas prices rose 6.0% after a 19.3% drop in December. Food prices edged up 0.1%. In the housing sector, the owners’ equivalent rent measure rose 0.3%. Apparel prices rose 0.3%. Medical care costs are up 0.4%, and tobacco prices are up 0.8%. The data are close to expectations and should have little effect on the markets.

The euro headed lower vs. the U.S. dollar Friday as worries about trouble in Eastern Europe encouraged investors to flee to safer assets. Traders were nervous about damage to the European banking industry from struggling economies on the euro zone’s periphery and in Eastern Europe, says S&P.

US Economy November Analysis

Global business sentiment is as dark as it has ever been since the 1930′s, although the free fall in confidence may be temporarily truncated by the Obama cabinet selections. Some are even fearing the worse of the glooming fear of the stock market crash of 1929.  Our survey results have been broadly unchanged since early November. Pessimism is pervasive across the world, with the only distinction being that Asian businesses are somewhat less nervous than elsewhere. Equipment and software investment did fall last week to a new record low, as did demand for office space and sales strength. Pricing pressures and interest rates are falling rapidly, although they are not yet consistent with outright deflation. The global economy is suffering a severe recession according to the business confidence survey results.

There was nothing but gloom and doom in the release of November U.S. economic reports. Economic headwinds are expected to have retailers expecting a slow holiday shopping season. But early indications per Black Friday only 1.6% lower than 2007. These are numbers we hope to see consistent through the remainder of the holiday shopping periods.

Construction spending for September came in at $1.060 trillion, a decline of 0.3% from August and down 6.6% from September 2007 as total construction—particularly for residences—continues to decline in the wake of a declining economy. We can expect the continued ripple effect of the home mortgage crisis to continue to hit the construction sectors.  Private construction increased by 0.1% for the month, but private residential construction fell by 1.3% from August to September. Total public construction also fell for the month. With the financial crisis still restricting credit to new projects, total construction will most likely decline in the coming months also. Expect construction related sectors to feel the first blow of initial first year recession waves.

The Institute for Supply Management’s manufacturing index fell 4.6 points to 38.9 for October. The larger than expected fundamental analysis decline puts the ISM index at its lowest level since the early 1980s. Conditions for manufacturing were very restrictive in October. Businesses’ and consumers access to credit was essentially cut off, leading many to reduce overhead, employment and production. The ISM index is consistent with an economy in a severe recession and opens the door for the Federal Reserve to lower interest rates below 1%. 

The U.S. personal income report revealed a bigger-than-assumed 0.3 percent October gain, although the increase followed sizable downward third-quarter revisions that were revealed in the third-quarter GDP report released Nov. 25. We also saw the expected 1.0 percent drop in October consumption, but a much-weaker-than-expected -0.5 percent figure in real (inflation-adjusted) terms, as personal consumption expenditure (PCE) chain prices fell “only” 0.6 percent in October. The real consumption shortfall implies a hefty 2.4 percent fourth-quarter rate of decline alongside a 7.1 percent rate of decrease for nominal spending, and a much-stronger-than-assumed 4.2 percent pop in the fourth-quarter GDP chain price measure, as falling import prices are slow to “pass through” to consumption. We now project a big 4.0 percent real GDP decline in the fourth quarter.

In summary the US Economy is right where we would expect it to be during this quagmire, and the Obama administration has done much to put a tunicate around the financial and stock market bleeding. But we can expect unemployment to grow to 11-12% and slowly start feeling the stronger waves of recession until consumer confidence and fundamentals have been restored. The NASDAQ and other majore indices are showing a modest recovery.

Stock Market Basics

This post is for the stock market beginners or those needing a refresher course in stock market fundamentals. Let’s first start with defining what exactly is a stock. A stock is basically a small share or interest that represents a partial ownership of a company. Stocks are issued by companies in order to raise capital and are bought by investors in order to acquire a portion of the company in the form of investment. Even a small share or interest in the company will give the investor the right to have a say or vote in how the company is run. Although investors do gain a portion of the company’s profits, investors do not carry liability in case of lawsuits or defaults. Stocks allow for cash infusion and stock issuance is typically needed for start-up capital, acquisition or company expansion and or growth. Each stock is limited to a particular number of shares available for issuance. A company’s growth potential and perceived health of the company influences the market adjustment of the initial value or “par value” of the stocks.

Obviously investors purchase stocks with the idea that the company will grow and ultimately raise the value of the purchased shares. Acquiring stocks from a new company or start-up is somewhat more risky than buying shares from an established company, but the potential gain is much greater.

 

Only companies which are listed with the public exchanges like the US Exchanges, NYSE (New York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated Quotation System), are capable of stock trading. The shares from the companies listed on public exchanges can be bought and sold on the open market.

An individual investor typically hires a broker to make transactions for him. Or now with the internet an investor can bypass the broker and use an online broker company such as Scottrade.com, Etrade.com or Zecco.com.  The orders can contain specific instructions to trade at a price that the market will bear or at a price that the investor will prefer. The broker then tries to execute the investor’s orders by searching for either a buyer or a seller. In return the brokers or exchange houses will typically receive a commission on each trade. Some online brokers such as Zecco.com will allow for 10 free trades per month and then a flat fee of $14.95 per trade thereafter that month.

Stocks have a lot of advantages over savings investments because they represent ownerships in a particular company. This gives the investor a certain right to participate in making decisions for the company. Some important company matters require voting and one stock is equivalent to a single vote. Partial company ownership also allows the stockholders to benefit from the company’s profits which are distributed in the form of dividends. These may be issued one or twice a year at the discretion of the company directors.

A prospering company causes the value of the stocks and the profits to increase while a suffering company causes the value of the stocks and the profits to decrease. Stocks, when compared with savings investments, both carry a higher risk of losing money and a higher potential of earning money. A good knowledge of the different stock markets and the various investment strategies can help investors to minimize their losses. Knowing when to enter and exit a market is critical to maximize returns.

“Stock market” is a term used to describe the physical location where the buying and selling of stocks take place as well as the overall activity of the market within a particular country. The correct term to be used in pertaining to the physical location for trading stocks is “stock exchange.” Every country may have a couple of different stock exchanges that are usually traded on only one exchange although a lot of large corporations may be listed in several different locations. For example India, Canada, Japan, China and several other countries all have their own stock trading exchanges.

The ubiquity of these international exchanges makes it possible to buy or sell stocks throughout the world. The only restriction to stock exchanges is time. Different exchanges may have differing opening hours based on their local times. The major global stock exchanges are the Tokyo Stock Exchange of Japan, the Bombay Stock Exchange of India, the London Stock Exchange of United Kingdom, Frankfurt Exchange of Germany, the SWX Swiss Exchange of Switzerland, the Shanghai Stock Exchange of China, and the NYSE, the NASDAQ, and the AMEX of USA.

The economic health of a country is closely followed by stock markets. The term “Bull market” is referred to as an up economy when a country experiences high economic production, low unemployment level, and low inflation rates. “Bear markets”, on the other hand, follow the down trends in the economy. Such indicators of economic downturn are high levels of unemployment and high inflation. Supply and demand which are affected by consumer and investor psychology also influence the prices of stocks.

Aside from the stock exchange, other popular markets that offer many investment opportunities include currency trading via the Foreign Exchange Market (FOREX). The FOREX is the biggest investment market in the world, in terms of trades and overall values.

Other trading options include futures and options. The futures market is a market of contracts where goods are bought and sold at specified prices and times.
The options market is very similar to the futures market because it also features a contract that gives the right, and not the obligation, to trade a stock at a certain price before a designated date.

Stocks can be bought and sold by anybody who has money. Knowing the basics will help people understand how stock trading works despite the process’s own specialized vocabulary. People who have knowledge about stock trading are the ones who are most likely to be successful in the investment industry.