Why Stocks Are Unlikely To Go Any Higher

Forget about today's Fed Minutes. Forget about corporate third quarter earnings lowing to markets this week and next, and for the next month.

Forget all the gains made over the past nine years. The market has peaked, and there's good reasons to believe that and data to back it up.

First of all, stocks are wildly overvalued. By many measures, US equities are priced at the highest point they've ever been. Higher than during the dotcom phase, higher than the subprime wildness, stocks today are carrying just plain stupid valuations, like they are darling growth stocks with improving bottom lines. Many are not.

As an example, take Coca-Cola (KO) a standard of the Dow Industrials for many long years. KO is not a growth stock. It's an income stock with a dividend of 1.56, yielding a healthy 3.46% on its share price of around 45. But, here's the kicker. The P/E of Coca-Cola is a whopping 82. That's a number usually reserved for hot tech start-ups, not globally-engaged, long-in-the-tooth mature companies. It's a ridiculous situation because as the price of the stock falls, the dividend yield will rise, making it the attractive investment it is today.

But it's not. If Coke goes from 45 to 35 in a year or two, the dividend yield will be in a higher range. Revenue is falling. Earnings may be stable due to stock buybacks, which is a hidden portfolio killer. Other stocks like Coke exist, like McDonald's, Home Depot, Goldman Sachs, or just about half of the Dow Industrials.

If the simple overvaluation isn't enough to keep people from dumping their money into stocks, then there's the economic data, like unemployment, currently at 3.7%, which is an historic low. Economists generally consider anything below five percent as full employment because there are always a certain number of people changing jobs, retiring, or otherwise out of the employment market.

Inflation is moderate, but interest rates continue to rise, thanks to the Fed. Their rate hikes are putting a much needed brake on what could be a runaway speculative stock market and maybe already is. The Fed isn't going to suddenly stop raising rates, so, as 2018 winds down as a very dull year for stocks, bonds, currencies, and commodities, 2019 is shaping up to be even worse.

IN many ways, President Trump's promise to "Make America Great Again" may already have been kept. America is pretty great already. Anything more would be Nirvana. We've reached a peak. It's time to slow down a little. Recessions are healthy because they clear out excess malinvestment, like Sears, which recently filed for bankruptcy protection. Or Toys 'R Us, which went belly up last year but had been a zombie company for many years prior to its implosion.

There are other issues as well, from political turmoil in Europe, to trade tensions, to the huge credit bubble that's affecting individuals, businesses, and governments. They're all over-leveraged and deeply indebted.

For these reasons, stocks can't really go much higher, if at all. The bull run is coming to an end, but that's not necessarily bad news, it just means that investors will have to be more disciplined if they hope to profit.

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47
10/9/18	26,430.57	-56.21	-27.74
10/10/18	25,598.74	-831.83	-859.57
10/11/18	25,052.83	-545.91	-1405.48
10/12/18	25,339.99	+287.16	-1118.32
10/15/18	25,250.55	-89.44	-1207.76
10/16/18	25,798.42	+547.87	-659.89
10/17/18	25,706.68	-91.74	-751.63

At the Close, Wednesday, October 17, 2018:
Dow Jones Industrial Average: 25,706.68, -91.74 (-0.36%)
NASDAQ: 7,642.70, -2.79 (-0.04%)
S&P 500: 2,809.21, -0.71 (-0.03%)
NYSE Composite: 12,613.05, -32.90 (-0.26%)

Stocks Split As Dow, Led By Consumer Stocks, Rallies

Having plunged 224 points just before noon, the Dow Jones Industrials seemed destined for a third consecutive losing session on Monday.

Instead, investors sensed opportunity, buying up shares of mostly consumer stocks. Walgreens (WBA, 74.15, +1.64, +2.26%, Walmart (WMT, 94.69 +1.38, +1.48%), and Coca-Cola (KO, 46.48, 0.60, +1.31%) emerged the big gainers on the day as the Dow marched ahead more than 240 points to close marginally in the green.

Following along were the NASDAQ and S&P 500, though neither of those indices were able to punch above the unchanged line. Particularly hard hit was the tech-laden NASDAQ, which, inducing Monday's losses, had shed nearly five percent of its value top to bottom over the past three trading sessions.

With stocks floating close to all-time highs, the buying stint today seems to be of questionable quality. Globally, markets were stunned to open the week, with European bourses losing more than one percent, the German and Belgian markets dipping further below correction levels. To say the least, afternoon trading in US markets was built on shaky ground.

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47

At the Close, Monday, September 8, 2018:
Dow Jones Industrial Average: 26,486.78, +39.73 (+0.15%)
NASDAQ: 7,735.95, -52.50 (-0.67%)
S&P 500: 2,884.43, -1.14 (-0.04%)
NYSE Composite: 13,000.13, +8.19 (+0.06%)

Pandit Resigns from CITI; IBM Revenue Miss; Greece Talks Stall; Farm Notes

It was a busy day on Wall Street, with stocks closing at or very near their highs of the day, the two-day rally this week nearly recouping the losses from the prior week on the Dow and S&P, though the NASDAQ, hardest hit last week, has recovered only about 1/2 of its losses.

Stocks got an early boost when Coca-Cola (KO) matched earnings estimates of 50 cents per share and Johnson & Johnson (JNJ) reported third quarter earnings, excluding special items, of $1.25 per share. Analysts, on average, expected $1.21 per share. Both companies are components of the Dow Jones Industrial Average.

Goldman Sachs (GS), the nation's fifth largest bank by assets (though even though hastily granted a commercial bank charter in the midst of the 2008 financial crisis, has yet to open a single retail branch), also beat lowered estimates, citing debt investments and underwriting fees as the main profit drivers.

Industrial production grew by 0.4%, capacity utilization increased slightly from 78.2% to 78.3% in September and the CPI ratcheted up 0.6% in September, due mostly to higher food and fuel costs, which explains why the "official" core rate of an 0.1% increase excludes those necessities. On an annual basis, the September CPI translates into 7.2% inflation, which is probably less than it actually is in the new, Fed-funded world of bizarro-finance.

The big news was the abrupt departure of Citigroup CEO Vikram Pandit and COO John P. Havens, just a day after the company reported third quarter earnings. According to published reports, Citi's board of directors had been plotting Pandit's retirement for months, though Pandit himself said it was soley his decision.

Pandit's departure sent shock waves through executive offices at Fortune 500 companies and elsewhere, as apparently, there are still some BODs that are not rubber-stamping mechanisms.

Stocks got off to a fast start with most of the gains made in the morning, with small additions in the afternoon.

After the bell, IBM reported earnings in line with expectations, but missed on revenue of $24.7 billion, down from $25.8 billion in Q2, setting up for a testy open on Wednesday. Shares of Big Blue were down five points in after hours trading.

The Euro gained sharply against the dollar, boosting US shares even more as the dollar cheapened, but, in news generally sealed off from the US, Greece's talks with the troika fell apart over further austerity measures with negotiators walking out of meetings.

That late-breaking news, combined with the results from IBM and the scoring of tonight's presidential debate will set the tone for the open on Wednesday.

Farm Notes: Did you know that the agribusiness model that the large corporate farms employ (row planting and harvesting) wastes land, water and valuable resources, besides putting harmful chemicals - through the use of pesticides and fertilizers - to produce crops that are significantly less-protein rich than vegetables grown in the average backyard garden?

Also, using intensive gardening methods such as those used for centuries in France and elsewhere, the same amount of vegetables that an agribusiness farm can produce on one acre can be produced on 1/10th or less of an acre with less fertilizer, water and no pesticides.

Gardening, in America and elsewhere, isn't just about a pasttime or a hobby. It's about reclaiming the economy and moral high ground from corporations and the wasteful practices promoted by the Department of Agriculture.

Dow 13,551.78, +127.55 (0.95%)
NASDAQ 3,101.17, +36.99 (1.21%)
S&P 500 1,454.92, +14.79 (1.03%)
NYSE Composite 8,386.47, +92.97 (1.12%)
NASDAQ Volume 1,735,765,375.00
NYSE Volume 3,539,692,250
Combined NYSE & NASDAQ Advance - Decline: 3861-1630
Combined NYSE & NASDAQ New highs - New lows: 278-40
WTI crude oil: 92.09, +0.24
Gold: 1,746.30, +8.70
Silver: 32.96, +0.216

Market Gains on Low Volume

A quick overview of Monday's trading follows. More on Tuesday after the bell.

Awaiting the 3rd quarter earnings report from Apple (AAPL), investors were encouraged by the number of S&P companies which reported earnings better than estimates (78%) last week and further weakness in the dollar as the session unfolded.

Dow 10,092.19, +96.28 (0.96%)
NASDAQ 2,176.32, +19.52 (0.88%)
S&P 500 1,097.91, +10.23 (0.94%)
NYSE Composite 7,222.21, +88.25 (1.13%)

Advancing issues led losers, 4415-1889. There were 819 stocks making new 52-week highs, to 100 new lows. Volume was exceedingly low, signaling a large degree of caution at the very start of the biggest week of earnings reports. If the low volume pattern continues through the next few days, it could be indicative of a short-term market top. However, most companies have not yet reported, so not much can be read into one day's trading volume.

NYSE Volume 3,816,968,500
NASDAQ Volume 1,725,801,875

Oil reached a new high for the year, trading up $1.08, to $79.61. Gold advanced $7.90, to $1,066.00. Silver tacked on 21 cents, to close at $17.63 per ounce.

Besides Apple reporting after the close, five Dow components will report prior to Tuesday's opening bell. Caterpillar (CAT), Pfizer (PFE), United Technologies (UTX), Coca-Cola (KO) and DuPont (DD) are the companies reporting.

Earnings, Politics Swing Markets

For the nest two weeks, market movements are likely to be a function of 2nd quarter earnings reports, though Tuesday may have been an exception.

Of the major reports flowing from corporate offices, the following:

• Forest Labs (FRX): Net income rose to $268.2 million, or 83 cents per share, in the fiscal first quarter ended June 30, from $200.6 million, or 62 cents per share, a year earlier. Analysts had expected 77 cents per share.


• Johnson & Johnson (JNJ): Net income, $3.1 billion, $1.05 a share, up from $2.8 billion, or 95 cents, earned in the second quarter last year. Analysts were calling for $1 a share.


• Merrill Lynch (MER): Net earnings rose to $2.14 billion, or $2.24 a diluted share, compared with $1.63 billion, or $1.63 a share, in the year-earlier period. Analysts sought 2.02 per share.


• Coca-Cola (KO): Profits, on a continuing operations basis, were $1.98 billion, or 85 cents a share, cleanly beating Wall Street's call of 82 cents a share.


• Wells Fargo & Company (WFC): Net revenue of $2.28 billion, or 67 cents per share for the 2nd quarter, compared with net income of $2.09 billion, or 61 cents per share, a year earlier. The numbers were in line with expectations of 0.67 per share.


• CSX Corporation (CSX): Reported earnings of $324 million, or 71 cents per share. Last year the company reported second quarter earnings of $390 million, or 83 cents per share which included a one-time 25 cent gain, so analysts were only looking for 64 cents and the company delivered handily.


• Intel Corporation (INTC): The company reported revenue of $8.7 billion and earnings per share of 22 cents in the second quarter including a tax item that boosted EPS by 3 cents. The resulting 19-cent-per-share profit figure was in line with analyst expectations.


• Yahoo, Inc. (YHOO): Net income for the second quarter fell to $161 million, or 11 cents per diluted share, from the year-earlier quarter's $164 million (0.11). Results were in line with lowered expectations of 11 cents per share.

Note that all of the companies listed above either beat or met expectations, but the overall market barely budged.

Dow 13,971.55 +20.57; NASDAQ 2,712.29 +14.96; S&P 500 1,549.37 -0.15; NYSE Composite 10,170.36 -17.82

Why? Could it be the price of crude oil, which hit a high of $75.35 earlier in the day before being hammered down to $74.02, a loss of 13 cents? Or the shifting political tides in Washington, which look to put Bush & Co. out of business in a matter of months? There's a storm brewing, and impeachment and military failure in the field (which has already occurred) are not likely to aid the mood on Wall Street.

Oil will slide to less than $60 per barrel if an end to the Iraq situation is found soon and it's looking more and more like that will be the case, but Wall Street isn't so sure, plus, the finality of the Bush administration may mean closer scrutiny of corporate governance and possibly even an SEC with real investigative and subpoena powers.

So, politics are moving the markets, even while corporate earnings are about as solid as one would like.

Decliners beat out advancing issues by an 11-9 margin and the gap narrowed again, with new highs checking in at 430 to 211 new lows.

On tap for tomorrow (company, ticker, expectations):

• CIT Group (CIT) 1.35


• eBay (EBAY) 0.32


• Gannett (GCI) 1.21


• Pfizer (PFE) 0.50


• Piper Jaffray (PJC) 0.74


• Southwest Airlines (LUV) 0.22


• United Technologies (UTX) 1.15

Gold and silver were both marginally lower. No surprise there.