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 Soar On Relief Rally; Dow Remains More Than 1000 Points Off Highs

As if last week was nothing more than an annoyance, buyers emerged in droves on Tuesday, sending stocks on a skyrocket ride throughout the session.

The relief rally left stocks still well down from previous levels, however, with the Dow more than 1000 points lower than it was earlier in the month.

Current conditions in the market suggest a wait-and-see posture.

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

At the Close, Tuesday, October 16, 2018:
Dow Jones Industrial Average: 25,798.42, +547.87 (+2.17%)
NASDAQ: 7,645.49, +214.75 (+2.89%)
S&P 500: 2,809.92, +59.13 (+2.15%)
NYSE Composite: 12,645.95, +220.27 (+1.77%)

Stocks Close Lower On Retail Sales Disappointment

Despite a sharp bounce-back rally on Friday, US stocks resumed their declines on Monday as disappointing retail sales and in-line earnings reports kept investors' animal spirits in check.

Retail sales for September were up just 0.1% on expectations of a rise of 0.6%, putting a damper on the market at the open and throughout the session.

Financial stocks were in focus as Bank of America (BAC) and Charles Schwab (SCHW) reported third quarter earnings on Monday. Bank of America said its earnings per share came in at 0.67 cents, above expectations of 0.62. Schwab's earnings were in line at 0.65 cents per share.

Globally, stocks in Europe were flat to slightly higher, as were Pacific Rim bourses. Japan's NIKKEI was down significantly, while the Hang Seng - Honk Kong's market - suffered a marginal loss.

Nothing new here. Significant developments may come later in the week as more companies report third quarter earnings.

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

At the Close, Monday, October 15, 2018:
Dow Jones Industrial Average: 25,250.55, -89.44 (-0.35%)
NASDAQ: 7,430.74, -66.15 (-0.88%)
S&P 500: 2,750.79, -16.34 (-0.59%)
NYSE Composite: 12,425.68, -13.74 (-0.11%)

Weekend Wrap: Stocks Suffer Worst Week Since February As Earnings Arrive

What should be front of mind for investors this weekend and heading into the third trading week of the fourth quarter is whether the massive slip-sliding of the past week was, a) rehearsal for a full blown bear market; b) beginnings of a normal correction; or, c) a buying opportunity.

Pessimists amongst us will surely side with answer (a), noting that the bull market, now the longest ever, has to come to an end at some point, and that the various factors leading to its demise are obvious (rising interest rates, global contagion, trade and tariff paroxysm, currency confusion and convulsion).

Realists might prefer answer (b), because inflation is still tame, jobs are plentiful, unemployment is low, and interest rates are still below historical averages.

Optimists obviously will go with answer (c) because, well, you know, the market always goes up and there's money to be made.

There's a very good chance that the optimists are over-optimistic after US markets nose-dived through the worst week since February, wiping out almost all third quarter gains, leaving investors with the kind of feeling one gets about an hour after eating at McDonald's (if you've never done it, don't start now), a blase, indecisive feeling in the pit of one's stomach, as though eating was not what one should have done. In this case, that feeling may have come on Wednesday or Thursday, with Friday providing something of an Alka-Seltzer relief rally.

Even with the sizable gains to close out the week, all of the major averages suffered badly, and the condition may only be at a beginning. It would be difficult to pinpoint an exact culprit for the crime of this week's market turbulence, though the Federal Reserve is always a convenient scapegoat. Just ask President Trump, who said that the esteemed central bankers had gone crazy.

While adding 25 basis points to the federal funds rate every quarter - especially after they'd been affixed to near-zero for seven years - may not exactly define madness, there are those (such as Money Daily) who believe the Fed has overstepped its escape from years of the other madness now known as saving the global financial system from the ruinous aspects of the 2008-09 collapse.

Certainly, credit is excessive, especially the funding of corporate stock buybacks, which have reached a crescendo this annum, with more than a trillion dollars worth of corporate malinvestment on tap. The federal government has binged on debt to ungodly proportions and is getting even worse, while your average, everyday consumer has also ratcheted up the mortgage, student loan, car payment, and credit card bills to historic heights.

One could posit the expression, "nothing says white trash like a blue tarp" has an ancillary phrase in, "nothing says bubble like a new car in front of a new house with kids in college wearing new shoes."

Have we cumulatively reached the end of the road? Probably not. But, if last week's savviest stock sellers were on their marks, the road is likely to be a bumpy one through to the end of the year.

What was witnessed not just in US markets but around the world last week raised a fair share of eyebrows and lowered even more expectations. With earnings cranking up this coming week if will be most instructive to see which companies are punished, which ones prevail, and which ones offer excuses and/or outlooks suggesting more trouble ahead.

There's a lot of money sloshing around, and none of it is without a debt burden attached to it. There will be winners and losers in the fourth quarter, and, from the looks of it, tech, financials, and consumer stocks may tend to pull all the other sectors down with them.

Or, it just could be a buying opportunity, just five percent off of all-time highs, a dubious prospect.

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

At the Close, Friday, October 12, 2018:
Dow Jones Industrial Average: 25,339.99, +287.16 (+1.15%)
NASDAQ: 7,496.89, +167.83 (+2.29%)
S&P 500: 2,767.13, +38.76 (+1.42%)
NYSE Composite: 12,439.42, +89.89 (+0.73%)

For the Week:
Dow: -1107.06 (-4.19%)
NASDAQ: -291.55 (-3.74%)
S&P 500: -118.44 (-4.10%)
NYSE Composite: -552.53 (-4.25%)

Global Rout Continues; All 30 Dow Components Lower; China A 50% Loser Since 2015

Stocks took another beating on Thursday, though not quite as extensively on the tech side as was the case in Wednesday's rout. The Dow Industrials took another two percent hit, sending the 30 blue chips down another 546 points. The combined losses in the six sessions following the all-time high close of 26,828.39 on October 3rd at 1,775.56 or 6.69%, a figure that should not, in and of itself, inspire much fear, though the rapidity, persistency, and consistency of the losses are not exactly inspiring much in the way of investor confidence.

All 30 Dow stocks finished in the red. Spared from most of the carnage was Microsoft, which closed at 105.91, down a mere 0.25 points, or 0.24%. No other Dow issue reported a decline of less than one half percent. Leading the way down was Phizer, with a 3.82% loss. Other stocks finishing down three percent or more included JP Morgan Chase (3.00%), Traveler's (3.01%), Proctor and Gamble (3.16%), McDonald's (3.21%), Cisco Systems (3.31%), Chevron (3.40%) and Exxon Mobil (3.45%). The Dow's gain year-to-date is a now a mere 333 points, or less than two percent. There was nothing even approaching good news as third quarter reporting approaches.

The NASDAQ fared much better than the three percent decline it made on Wednesday, dropping less than 100 points, though that was hardly cause for optimism. Having reached a peak of 8102.04 on October 1, the index has shed some 673 points, putting it close to correction (-10%). NASDAQ shares are down a cumulative 8.3%.

On the S&P 500, the percentage decline was almost identical to that of the Dow, losing 57.31 points, down 2.06 percent. The losing streak of the S&P has now reached six straight days. It also closed at an all-time record of 2947.25 on October 1, but has since fallen 219 points, a 7.4% loss in just eight sessions.

Year-to-date, the S&P is up by only 55 points, a gain of just over two precent.

Stocks were also being sold off in droves on foreign exchanges. In Germany, the DAX continued its descent with a loss of 173.15, another 1.48% drop, sending it further into correction. Joining the DAX in the down 10 percent or more club was Britain's FTSE, losing 138.81 points (-1.94%). France's CAC 40 is teetering on the brink, down more than nine percent off recent highs.

On Pacific Rim exchanges, Japan's NIKKEI was down 3.89%, Hong Kong's Hang Seng lost 3.54%, but both were outdone by China, where the SSE Composite Index closed down 5.22%. China's stock market is the world's basket case, down a full 50% from its all-time high of 5,166.35 in June of 2015, the chart bearing a striking resemblance to the NASDAQ's dotcom bust of 2000. The SSE closed Thursday at 2,583.46.

What comes next for markets is anybody's guess. Analysts and economists range from complacency to panic and everything in between. The losses this week rival those from February of this year, when major US indices touched briefly into correction.

Bonds firmed on the day, with the 10-year note finishing with a yield of 3.13%. Oil was hit hard again, with WTI crude losing nearly three percent, closing just a shade under $71/barrel.

The only bright spots were in precious metals. Gold had its best day in months, gaining $34 to $1,227.70 per troy ounce. Silver followed along dutifully, picking up 28 cents per troy ounce, at $14.61.

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

At the Close, Thursday, October 11, 2018:
Dow Jones Industrial Average: 25,052.83, -545.91 (-2.13%)
NASDAQ: 7,329.06, -92.99 (-1.25%)
S&P 500: 2,728.37, -57.31 (-2.06%)
NYSE Composite: 12,349.53, -272.61 (-2.16%)