QE3, ECB or Bust

Courtesy of David Brown, Sabrient Systems and Gradient Analytics

Well, perhaps not literally, but it is high time that the Central Banks started following up on their statements with action. How many times have we heard “We will do whatever it takes to…” or “We have a number of choices to make regarding getting the economy going ….”  Can we please do one or two of those things?   Right now, getting Europe back on track is mandatory to avoid a catastrophic dismantlement of the euro.  And with withering domestic economic numbers, it is time for more action and less talk from our Fed Chairman.

 Corporate America is still beating the reduced Q2 earnings expectations 66% of the time, but the top line estimate has been missed on more than 60% of those who have filed to date.  If the top line is falling, how do corporations maintain their earnings and hefty bank balances?  Answer: Layoff more people!  Outsource more jobs!  These guys aren’t the villains. They have a duty to make profits for their shareholders.  Of course, they might consider cutting back on hefty executive pay and bonuses.  But that is not a likely solution; we need the government to provide further stimulus to expand business within our country. 

So do it!  Don’t keep giving us words. We need action.

This will be the last big week of earnings announcements with another 800 companies, including 100 S&P companies, reporting.  The FOMC meets on Tuesday and makes its interest rate decision on Wednesday, but more importantly, European Central Bank (ECB) meets Thursday.  Hopefully, the economic reports of the past week will convince them both to act now.

Market Stats. Last week’s market action showed a strong “flight to safety” with Large-cap Value leading the way up, +1.66%, while Small Cap Value was last, at -0.34%.  Financials, having been very weak in the past month due to major issues with Barclays and JP Morgan (JPM), rebounded on ECB President Draghi’s strong promise.  Just keep in mind that most of the options available to Draghi and our Fed are likely to introduce an inflationary bias into the system.  Holders of fixed income instruments beware!   Even though Financials is the highest ranked Sabrient sector due to weakness in bank stocks over the past four months, I would avoid it because of the risks that Barclays and JPM, for example, face and other financial shocks over the past year.  Healthcare, Technology, Industrials and Energy may be more enticing. 

Keep an eye on this week’s economic announcements: Personal Income and Spending tomorrow along with Chicago PMI and Consumer Confidence; Construction Spending and the FOMC rate decision Wednesday; Initial Jobless Claims and Factory Orders on Thursday; and the monthly Unemployment Report on Friday. 

 Finally I would remain hedged, using some combination of the European ETF’s that we have listed in past articles (VGK, IEV, EWP, EWI or FEZ).

Here are the market stats.

4 Stock Ideas for this Market

This week, I used the Insider Buying preset search in MyStockFinder. This search selects stocks with an unusually high amount of recent insider buying activity. Here are four you may find interesting whose earnings announcements are approaching in the next couple weeks:

Chesapeake Energy Corporation (CHK)—Energy

Amicus Therapeutics Inc. (FOLD) — Healthcare

Synta Pharmaceuticals Corp (SNTA)—Healthcare

GP Strategies Corp (GPX)—Industrials

 

Until next week,

David Brown

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