Daily Gains Letter ( — www.DailyGainsLetter.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is warning that the major stock indices, currently trading near record highs, will face selling pressure as more and more companies release their second-quarter financial results.
“Even though the major stock indices are trading at record highs, now is not the time for investors to relax and take it easy, as has been the case for the last few years since the Great Recession,” says financial analyst George Leong. “While the broader market has edged higher, I continue to see some nervousness and selling pressure in the small-cap and growth elements of the stock market. The Russell 2000 is holding above its 200-day moving average, but it’s tenuous.”
Leong explains that actions taken by the Federal Reserve are helping to support the stock market. Since taking over for the former Fed chairman Ben Bernanke, Janet Yellen appears to be just as, if not more, dovish than her predecessor, which pleases the stock market. That’s because the Federal Reserve has hinted it will not begin to increase the historically low interest rates until sometime in 2015, and even then, it will likely only be a small increase, says Leong. The central bank wants stronger jobs creation and economic growth.
Stock markets, Leong continues, are only as strong as the companies that are listed on the exchanges, and the disastrous first-quarter gross domestic product (GDP) contraction of 2.9% was horrible. While some have blamed the poor results on the winter weather, a closer look shows declines on spending across the board that negatively impacted the GDP growth. The contraction in durable goods spending in May also supports the continued fragility in the economy and stock market, according to Leong.
“The problem is that investors have minimal options for investing compared to the stock market. While the risk is prevalent, it’s clear that investors are willing to assume some of the risk, but not to the same degree as in 2013, if you look at the muted price action on the stock market so far this year,” Leong observes. “Investors will also see the impact of slower GDP growth on corporate America when the second-quarter earnings season comes into play in a few weeks.”
Leong warns investors not to expect a lot during the second-quarter earnings season, as more and more companies continue to cut expenses to try to meet Wall Street-reduced earnings estimates amid the stalled revenue growth. The stock market simply wants to see some positive guidance, but this has been absent; so far, about 85 S&P 500 companies have issued negative guidance, says Leong.
“I strongly recommend investors take some profits off the table, especially with some of the growth stocks that have rewarded them with superlative returns,” he concludes. “I’d also consider hedging the downside risk via put options on the key stock market indices, such as the S&P 500, the NASDAQ, and the Russell 2000.”
For more information on Daily Gains Letter, visit www.DailyGainsLetter.com.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com.
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