6 things to think about in August
The next few weeks could be volatile after the market hit new highs in July. Disney, meanwhile, will be this week's big earnings report.
The stock market managed decent gains last week, confounding pundits and investors who keep seeing a pullback just around the corner.
The Dow Jones industrials ($INDU) gained a modest 0.6%. The Standard & Poor's 500 Index ($INX) added 1.1%, and the Nasdaq Composite Index ($COMPX) rose 2.1%. The Dow and S&P 500 ended the week at record highs. The Nasdaq finished at its highest level since September 2000.
While the next few weeks could be quiet as Wall Street typically heads to the beach, there are clouds that could disrupt the dreamy days by the shore. Interest rates are a worry. The Dow and S&P 500 now sport gains of nearly 20% for the year. The Nasdaq is up 22%. Many analysts fear that gains that big can be followed by sell-offs. Technical indicators also suggest the market is getting frothy. It is not yet, however, a screaming sell.
Ralph Acampora, the managing director of market analytics at Altaira Wealth Management and a longtime Wall Street veteran, thinks the market is still a big buy.
Here are six questions to think about.
Why do investors fear August? The Stock Traders Almanac reminds us that August has produced among the worst results for stock investors since 1987. If you want bad, just look at 2011 -- when the debt ceiling crisis produced losses of 3% to 6% for major averages, or to 2010, when the averages fell more than 4.5%. It can also be a pretty good month as well, but it can set up a nasty sting. We all know what happened in 2008. In August 2000, the Dow jumped 6.6%. The Nasdaq was up 11.7%. Of course, the market totally fell apart afterward, with the Nasdaq sinking 72% by October 2002.
What's worse than August? September. The 2008 recession nearly became a depression after Lehman Bros. collapsed. September 2001 was rocked by the Sept. 11 terror attacks. In 1987, the market began its slide to the Oct. 19, 1987 crash. And, of course, there was the debt ceiling crisis of 2011, a holdover from August. There are worries the debt-ceiling battle will erupt again next month, along with a budget fight. Plus the Federal Reserve may announce it's trimming its bond-buying, and it's not clear how the markets will absorb that news. Interest rates jumped after Fed Chairman Ben Bernanke started to talk about trimming the bond-buying. And rising rates, as we know, are death to stocks.
What did the July jobs report tell us? The bottom line from the jobs report: The second quarter was nothing to write home about. There was job growth, just not as much as hoped. There were declines in the participation rate, weekly hours and weekly wages. The jobless claims numbers released on Thursday suggested a bit more buoyancy in the economy. Claims fell to their lowest level since January 2008. Car sales in July may have dipped slightly from June. But the seasonally adjusted 15.9-million-unit sales rate was the second best month since the recession ended.
What are corporate earnings saying? They're telling us the economy -- domestic and global -- remains a slog. Forget the idea that earnings are beating estimates by a large margin. The money ideas are these: Earnings among S&P 500 companies are expected to grow 4.3% from a year ago. That's not great. And because financial earnings have been very good, it probably means the earnings coming up won't show much growth. Revenue is the larger issue. With the exception of the financial companies, revenues aren't doing much. Energy revenue are down 8%. Technology revenues are down 4%.
Is any earnings report bigger than Disney's this week? Nope. Walt Disney (DIS) is the big kahuna, reporting after Tuesday's close. The entertainment giant is expected to earn $1.02 a share in its fiscal-third-quarter, up from $1.01 a year ago. Revenue of $11.7 billion will be a 5.1% gain from a year ago. Disney's results will be fueled by its television business, particularly ESPN. Watch the results from theme parks and cruise ships. That's a great gauge of consumer confidence. Shares are up 33% this year, fourth best among the 30 Dow stocks. Also reporting next week: luxury retailer Michael Kors (KORS), Tuesday; fashion retailer Polo Ralph Lauren (RL) and Tesla Motors (TSLA), Wednesday; Dillard's (DDS) on Thursday and James River Coal (JRCC) on Friday.
Are there big earnings reports left? Yes, the week of Aug. 12 is a big week. It includes Cisco Systems (CSCO), Wal-Mart Stores (WMT), Macy's (M), Deere (DE), Abercrombie & Fitch (ANF) and J.C. Penney (JCP).
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The jobs report could be an issue. Things haven't looked good at all over the past few months and it feels like we may be reaching a tipping point one way or the other. Anything less than 150k or more than 240k will probably stir up the markets.
The next ISM and consumer confidence reports should also give us a better idea where we're headed, along with the results from back-to-school retail sales. In addition, we'll also get an idea from retailers about how much they plan to ramp up for the holidays.
Looking past that, the debt ceiling battle and Q3 GDP report will be huge factors this fall. If Q3 GDP growth comes in under 2%, that will mark the 4th consecutive quarter of sub-2% growth - an ominous sign.
hey r-t. pretty good article. time to take some chips off the table? i mean it's been one helluva party thus far.
on the "rising rates, as we know, are death to stocks." comment - not. that is a myth. stocks have often done quite well in a period of rising rates as that is when the Fed is normally trying to cool the market off.
in any case, a few positive pmi data points in one month do not an extended rally spike make.
be safe out there ....
Fatty I've been wondering for sometime about your parenting or parented..
I won't say anything about yo' Momma....But do you have any idea "who yo' Daddy is".
I be your Daddy, fool...
You missed a spot on that deck...Get to it, Swabby...ha, ha.
I WOULD HAZARD a guess and say my only worries are what we invest in and maybe a few bellwethers... Disney and Penneys are not any concerned to us..
Maybe a consumer sentiment and vacation gauge...Nothing else.
I'm pretty sure the "surprise" that is shaping up August is a total default scenario in bonds. People are NOT making progress. I suspect bodies on college campuses will pale compared to enrollments... no one can cover the hiked tuition costs and loan rates. Without that exchange, people with multiple sub economic jobs will keep them but not make enough to participate in the economy. The chain reaction kills the holiday buying season.
We need Washington to divorce itself from Wall Street and force the Federal Reserve out of the credit buy-back and end the $85 billion monthly QE. Seeing 99% of business platforms that won't hire, just conspire and leave the economy in ashes... FAIL; while banking the largest stash of unearned cash in history- offshore... is a giant leap in the correct direction. You have to go- organized business. Choose wisely now and go in peace or tomorrow in pieces.
Active....I agree...And have been doing just that, but probably not near enough..
About 3-4% so far....Setting aside some dividends and culling hi-flyers or stagnant's.
Because of FED, I'm worrisome about positions in REITs.
I'm concerned about Sept. or the latter part of the month...But it always seems to be a fool's game for me trying to time Markets.
If you`re smart you`re making money in this market and thank Obama.If you`re stupid you
missed the bull market and tell lies about Obama to cover up your bitterness.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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