Will Cash on Hand Lead to Hiring?
Sometimes, trying to decipher the stock market's signals
is easy. Like during the rally out of the March 2009 lows. It was clear
that stocks were ready for a strong move higher.
Sometimes, it's more difficult to get a handle on the
subtle shifts in sentiment that drive stock prices. The correction in
January of this year is one such example.
Other times, it's darn near impossible to read the tea
leaves. I'd say now is one of those times. The stock market is giving off
mixed signals. And that's because, at the most fundamental level, the
economic picture is mixed. For every bullish point investors can make,
there's an equally valid bearish counterpoint.
At the end of the day, we need more data and more time
to reach any solid conclusion about the way the markets been acting
lately.
Consider the
fed's statement today. The phrase from the FOMC statement that
"…financial conditions have become less supportive of economic growth on
balance…" is being widely repeated.
The Fed is acknowledging that European debt issues and
subsequent austerity measures may hamper growth in the
U.S. The Fed is also saying that
interest rates will stay low, perhaps well into 2011. And other
expansionary policies might remain in place, too.
New home sales
dropped 33% in May, after the homebuyer tax credit expired. Clearly, the
bears would say, the economy is dependent on government spending and is
nowhere near ready to walk on it own.
But auto sales fell around 30% in the month that
followed the cash for clunkers incentive. Auto sales have also recovered
from that big drop. Perhaps the May decline should be considered as
somewhat expected. Perhaps we need more data from future
months…
It's worth noting that homebuilder stocks like KB Homes
(NYSE:KBH) and Lennar
(NYSE:LEN) posted 4%
moves yesterday.
So investors are ready to sell off most stocks because
new home sales are way down, but, at the same time, are ready to buy
homebuilder stocks?
Some investor, who was no doubt scratching his head like
I am, once opined that it was the stock market's job to make as many
people wrong as possible. The stock market did its job
today…
The Wall Street
Journal reported recently that U.S.
corporations have a record amount of cash on hand.
Non-financial companies have amassed $1.84 trillion in cash, up 26% from
last year.
Look for this cash to be deployed in share buy-backs,
raised dividends, acquisitions, and yes, hiring.
A recent Business Roundtable survey found that 39% of
CEOs who responded said they planned to increase hiring. 79% said they
expect sales to increase in the next six months.
Ironically, lending is down 5.4% from last year.
Once again, we have a pretty mixed picture. And from an
investors point of view, companies can raise all the cash want and CEOs
can say they will hire, but until the headline unemployment number
actually comes down, it doesn't really matter.
Oil prices have
dropped back below the support/resistance zone at $78 a barrel.
Interestingly, the 50-day moving average and the 200-day moving average
are on a collision course at $78.
As you know, oil prices are a good indicator of economic
growth, because demand increases as the economy recovers.
I expect we'll see oil prices hover between $76 and $78
for the next few days before moving toward its next trading range.
Seasonal patterns favor that move to be higher into the end of summer.
Despite a judge's decision to lift the moratorium on
offshore drilling, there seems to be little impact on oil prices from
disruptions in Gulf of
Mexico supply.
I still say that land-based oil exploration and
production companies are among the most reliable investment you can make
right now. And North Dakota's Bakken pool may
contain America's largest land-based oil
reserves.
Energy World Profits readers recently bought a top "Bakken stock" for less than $4 a
share. To learn why this stock could have 50% coming soon, click
HERE.
Thanks for all
your comments and keep 'em coming to dailyprofit@wyattresearch.com
