First, I must start with an apology. Due to a crashed email
server, you did not receive your Daily Profit yesterday.
Obviously, the server is up and running today, but still my apologies for
yesterday’s failure. In the future, you can always check the Wyatt Research
website for the Daily Profit. Now on to today’s
business…

Stocks were unable to hold onto the enthusiasm from better
than expected new jobless claims yesterday. This probably didn’t come as much
of a surprise. After all, the jobless claims number was still poor, and with
the 2Q
GDP revision and Fed statement today, there was
still plenty of uncertainty in the air.

TradeMaster Daily Stock Alerts trading strategist Jason Cimpl expressed his
disappointment in today’s morning advisory to his members thusly:

Many indices made great reversal candles on Wednesday.
On Thursday, no index followed through on those reversals. The bulls blew
their chance to rally to 1085 this week. All they had to do was keep the SPX
above 1060 on Thursday and they could not get the job done. Buyers were
hesitant to add longs ahead of
GDP. Volume was low and sellers took the
market down all afternoon. Despite the negative session oil had a great
day.

Now, as you know, we are watching oil and bonds for signs of
reversal for the stock market and economic growth expectations.

Oil prices as a function of demand is virtually a pure-play
on economic expectations. If expectations improve, oil prices rise.

Bonds may seem a bit more complicated. Bonds are a “fear
trade”, in that investors will park their money in bonds when the outlook for
stock gets dicey. But bonds also compete with stocks, in terms of yield.

Treasury bonds have a “guaranteed” profit in the form of the
interest rate or yield they carry. In a general sense, when yields become
attractive enough, bonds become a desirable alternative to stocks because
that yield is essentially guaranteed. The thing is, bonds are usually
attractive when 10-year yields are above 3.5% or so.

The fact that bonds have been attractive with 10-year yields
at 2.5% and lower seems like a scathing assessment of stocks. I mean, if
investors can’t imagine making more than 2.5% from stocks, well, that’s
clearly not good.

But don’t forget too, that the Fed’s recent Treasury
purchases acted as another “guarantee” that bond prices would rise (and
yields would fall). So investors who were quick to enter the bond market
after the Fed announced that buying program made some good money that was
independent of their assessment of stocks.

At some point, and it’s difficult to say when, Treasury bond
prices will take a nosedive. And with any luck, stocks will look promising
enough to attract some of that money…

Will today’s2Q GDP revision be enough to attract some bond money
into the stock market?

2Q GDP was revised lower, from 2.4% to
1.6%. Make no mistake: that’s a huge revision. But it could have been worse.
Some were expecting the number to drop to 1.2% or lower. And some are already
calling for 3Q to be that weak.

But let’s also remember that GDP is a sequential number. That means it measures growth above the previous
quarter’s growth rate. So while 2Q growth was not good by any measure,
the
U.S. economy is still
doing better than it was last year.

It might even be reasonable to expect corporate profits to
continue growing. Now, growth won’t be as strong as analysts hoped just a few
weeks ago, but there should still be growth.

The problem, of course, is that weak growth doesn’t help us
reverse any of the current conditions of the economy. And by that I mean
unemployment and housing.

According tothe
Wall Street Journal, the trailing P/E for the S&P 500 is 16.5 and the
forward number, based on earnings expectations, is 12.9.

If corporate profits simply maintain current levels, then we
can say that stocks are roughly fairly valued at current levels. (Of course,
nobody wants to own stocks when there’s zero profit growth, but for the sake
of argument, let’s go with it.).

The forward P/E of 12.9 represents earnings expectations
that have been lowered recently. Still, it’s tough to call a 12.9 P/E
attractive in the current environment. Especially when you have a company
like Intel (Nasdaq:
INTC) trading with a forward P/E of
8.6. Or how about Cisco (Nasdaq:
CSCO) at a forward P/E of 10?

I would say, however, that economic growth would not need to
pick up much for these stocks to be extremely attractive. The key, of course,
would be for growth to appear sustainable, which is clearly lacking right
now.

One wayinvestors
can keep exposure to stocks so they can benefit when
GDP growth does turn for the better and still protect their money is to buy
dividend stocks. Right now, companies are flush with cash and many are
raising their dividend payouts to investors.

Plus, given the relatively depressed level of stock prices,
dividend yields are high. I mean like 8% and 9% high. I just finished a new
Special Report featuring 3 top dividend paying stock. You can access that
report
HERE
.

As always, please send me your comments and questions:

dailyprofit@wyattresearch.com
.

Published by Wyatt Investment Research at