Richard Cripps
Richard Cripps
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We're looking at a 12 percent decline in earnings this year for the S&P 500, and that's the sharpest decline we've had since the last recession. The confidence level that one has in looking at those earnings is very low.
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We've set up a situation where a 25 basis point (a quarter percentage point) cut is good but you're looking at a market that's desperate.
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Wal-Mart highlights an economic transition from relying on consumers to relying on the private sector and capital spending. So, we're looking more at companies like Caterpillar rather than Wal-Mart.
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You've lost your earnings catalyst so we're moving away from the second quarter. With the economy moderating you're looking at earnings estimates that are too high and have to come down.
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Analysts generally can talk to companies during the first two weeks of the last month of the quarter so what we'll be looking at is the beginning of the earnings pre-announcements or commentary for the third quarter.
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And while you are waiting, you get a 3 percent yield and one of the strongest balance sheets in corporate America.
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Putting it in context, it wasn't a great display of bullishness one would assume.
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Probably in the short term we're a little ahead of ourselves. We don't have any earnings visibility and we won't until the fourth quarter.
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Either the fundamentals have to grow much faster or the stock has got to come down.
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Between October and March, the Nasdaq has almost doubled in price. Even these companies that have been cut in half are still three or four times more than they were a year ago.
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You get a kick in the market that draws in the buyers. I think we're in a trading range and are getting into the bottom half of that trading range.
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I would let this play out as opposed to trying to be brave and buying here.
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I think if you are bullish here, you go back and look to the last time the Fed eased up on interest rates which was 1995, which, of course, was a good year for investors. The S&P shot up almost 35 percent. So using that as a guide, some investor think that is what we're going to see.
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From a trading desk standpoint, you'd rather be long (own stocks) here than short, and that starts to build its own dynamic and attract its own level of interest. The market is oversold and selling pressure is easing.