The stock market rally that started on February 5th, 2010 appears to be absolutely unstoppable. Bullet-proof. However you want to say it, there seems to be very little downside to stock prices, even after a strong rally.   


Now, we are not surprised. I’ve been relentlessly bullish here in Daily Profit. Sure, I may point out some discrepancies once in a while, maybe even shoot a few holes in the financial media’s neat and tidy explanations, but I’ve had us focused on upside targets for a year now, and there’s one main reason: earnings.   


This time last year, it was brutally obvious that analysts were seriously underestimating the earnings potential for bank stocks, even after the government changed the accounting rules to encourage profitability.   


And in subsequent months, analysts continued to lowball earnings estimates. Companies kept beating them, and the market kept rallying.     


How did we know estimates were too low? Well, partly because stocks kept rallying. It was one if the worst-kept secrets in history.


Of course, common sense tells us that, eventually, analysts will get estimates right, or <gasp> overshoot. How will we know when that time is at hand? Ironically enough, hiring will need to pick up.  


Corporate expenses were trimmed to the bone during the financial crisis and recession. And since payroll additions have only recently started to be noticeable, that means corporations haven’t noticeably adjusted their cost structure for the single biggest expense they face – workers.   


So until we see some true, meaningful gains in employment, stocks will move higher.   


Or, the Fed could start raising interest rates. That would sure give us some quick downside for stock prices.   


But getting back to earnings, Barron’s ran an interesting earnings table this weekend showing earnings growth by sector, based on analyst estimates. 


Three sectors are expected to show triple-digit earnings growth in the 1st Quarter. Those sectors are Consumer Discretionary (115%), Financials (194%) and Basic Materials (179%).   


Now, we must remember that the 1st Quarter last year was absolutely dismal. Poor earnings helped drive the S&P 500 to 20 year lows. Last year at this time the S&P 500 was trading with a P/E of 32, and it was below 850.   


Today, it has a P/E of 23, but the forward P/E based on estimates is a reasonable 15. 


Things get interesting if analysts have once again lowballed 1st Quarter earnings. And judging by the stock market action, investors seem to believe another quarter of beaten expectations is in the works.   


The minutes from the last FOMC meeting were released yesterday. Aside from re-committing to low rates for an extended period of time, there wasn’t much worthy of comment, so I’m just going to re-print the headline from Bloomberg: “Fed Officials Saw Recovery Curbed by Unemployment”.   


You don’t say, Ben.   


I started following the commercial real estate sector last September when I noticed breakout moves from Maguire Properties (NYSE:MPG) and a few others.  


Daily Profit readers have had a couple opportunities to make nice gains from Maguire. In fact, it looks like it has started another move yesterday when the former CEO and founder offered to buy a few buildings from Maguire.   


Maguire’s not the only one running. And April 16 may mark a launching point for commercial real estate stocks.   


That’s the day shopping mall REIT General Growth Properties (NYSE:GGP) is expected to present its plan to exit bankruptcy as a stand alone company, thereby rebuffing the buyout offer from rival Simon Property Group (NYSE:SGP)  


Now, many people think Simon will make a better offer between now and the 16th. And if so, we may see a bidding war for a bankrupt REIT break out. On one side will be Simon, and on the other will be a group of hedge funds that has backing from the Chinese Investment Corp (CIC).   


The presence of the CIC is significant for a few reasons, but none are as important for our purposes than the fact that it has $300 billion to invest and it’s looking at U.S. commercial real estate. That much investment capital could certainly re-price a lot of impaired assets.   

To learn more about the CIC’s involvement in commercial real estate, click HERE

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