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  • Volume I, Issue 11

LGR Financial Newsletter

Volume I, Issue 11 (Released On April 24, 2014)

Hello all!  I hope everyone enjoyed Easter (if you celebrate it that is) and found some time to relax this weekend.

As a reminder, going forward I will continue sending out each Issue of my newsletter to everyone on my email list, but I am hoping that more people will start reading each new Issue on this blog. Also, because of exams I will be taking a three week break from writing full Issues of my newsletter, but I may try and send out a few quick emails over the next two-three weeks if anything major takes place.  I’ll have plenty to talk about in three weeks, I’m sure.

After failing to write a newsletter for last week, I began writing a newsletter with information from both weeks, but I realized that there was no way I could do that effectively without making it extremely long. Therefore, I decided to break it up into two separate Issues based on what information is covered. This Issue relates to the period 4/14/14 – 4/21/14, so it is contains the most recent information of the two Issues. I hope you all read the other Issue as well, and find some useful information in it. You all should have received the 10th Issue of my newsletter, which relates to the period 4/7/14 – 4/11/14, shortly before you received this one. I hope you read and enjoy both of them!

To prevent this Issue from becoming too long, I chose to focus solely on keeping you all up-to-date on important news currently going on in financial markets. Earnings season is underway, and how well companies do this earnings season will likely tell us a lot about what direction the market is headed in (for the short-term at least!). This Issue contains a Summary of Market’s Performance This Past Week, a Portfolio Update, a Market Update, and a short Looking Forward Write-Up.

At two points in this Issue I included data from Wednesday, April 23, 2014, because I thought it was nice additional information, and both of these points are highlighted in red. However, at all other points in this Issue the information I talk about only goes up until Monday, April 21, 2014.

In the future, I plan to do a major write-up on confirmation signals; to discuss what early signs to look for to tell whether or not your predictions are most likely correct.

As always, I appreciate all feedback and recommendations for topics to cover in my write-ups!

Summary of Market’s Performance Last Week:

(APRIL 14 - APRIL 17)

(This past week was a shorter trading week because of Easter, and U.S. markets were closed on Friday, April 18, 2014)

All three major indexes jumped higher. The Dow Jones Industrial Average (DJIA) rose2.38% to 16,408.54; the S&P 500 surged 2.71% to 1,864.85, and the NASDAQ Composite jumped 2.39% to 4,095.52.  Although the gains were large last week, none of the major indexes recovered all of their losses from the prior week.  Regardless, last week’s gains helped put all the major indexes (with the possible exception of the NASDAQ Composite) very close to new record territory (with the DJIA, the S&P 500, and the NASDAQ closing only 1.74%, 1.36%, and 6.74% away from their all-time highs respectively).

Summary of Market’s Performance on Monday, April 21, 2014:

Markets continued their climb on Monday, withthe Dow Jones Industrial Average rising 40.71 points (0.25%) to 16,449.25, the S&P 500 gaining 7.04 points (0.38%) to 1,871.89, and the NASDAQ Composite adding 26.03 points (0.64%) to 4,121.55. Monday’s gain marked a five-session win streak for the S&P 500, which is “its longest since October 22,” and a five-session win streak for the NASDAQ Composite, “its longest since February 18” (WSJ, Link 1).

At this point, earnings season is very much underway, with “17.6% of the companies in the S&P 500” having already reported quarterly earnings (WSJ, Link 1). Additionally, “analysts have cut their expectations considerably in recent months, and profits are expected to decline 1.5% in the quarter, according to FactSet, a decline that many market observers have blamed on the harsh winter” (WSJ, Link 1). => In a WSJ article on Wednesday, April 23, 2014, it said FactSet is now claiming that first quarter profits are on track to decline only 0.5% from last year (vesus the 1.5% they said on Monday)

Portfolio Update:

(APRIL 14 - APRIL 17)

Win some, lose some.  Although my simulated portfolio saw a nice increase of 1.08% for the week, the gain was dwarfed by the 2.71% jump in the S&P 500. My portfolio’s more “adverse” allocation, which helped me outperform the market the week this one, caused the underperformance because I have a lot of my money in “adverse,” or less volatile, securities.

My top performers this past week were my more volatile Biotechnology stocks, which followed the other members of the NASDAQ Biotech sector higher. My top two performers were Gilead Sciences, Inc. (NASDAQ GS: GILD) and Abbott Laboratories (NYSE: ABT), which saw gains of 6.01% and 5.16% respectively for the week.

I am sad to say that Companhia Vale do Rio Doce (NYSE: VALE) finally saw its weekly win streak end, with a loss of 4.47% for the week. Still up 8.22% over four weeks.

This past week, various financial news websites reported that one of the Biotech stocks I own in my simulated portfolio, Gilead Sciences, Inc. (NASDAQ GS: GILD), topped Citibank’s list of their “50 top Buy-Rated Stocks” for 2014 (SeekingAlpha.com, Link 2). The list only contains stocks “with a market cap of at least $3B, at least a top-three market share in a third of their businesses, and a global reach as measured by significant revenue outside of their home market” (SeekingAlpha.com, Link 2). Businessinsider.com looked at Citibank’s list and compiled a list of their own, which highlights the top 20 stocks on Citibank’s list based on Citibank’s estimated total return (ETR) for the stocks, and GILD ranked 20/20 on that list with an ETR of 45.4% (Businessinsider.com, Link 3). Citibank has a target price of $96 for GILD, which is a 34.08% higher than GILD’s closing price on Monday, April 21st, and they cited numerous reasons for their placement of the stock on their “50 top Buy-Rated Stocks” list. All of those reasons, and the other 19 stocks that Businessinsider.com highlighted from Citibank’s list, can be found by following this link: http://www.businessinsider.com/citi-us-top-20-buy-rated-stocks-2014-4#gilead-sciences-inc-gild-20

Market Update (major events, news stories, economic data, etc.):

(APRIL 14 - APRIL 17)

(This Market Update contains information from Monday, April 21st, and all calculated figures are updated to closing prices on Monday)

News from the Federal Reserve:

The Federal Reserve released a prerecorded speech that Janet Yellen gave at the Federal Reserve Bank of Atlanta’s 2014 Financial Markets Conference on Tuesday, April 15th, and the speech was released before the market opened for the day.  Much of what she said was of little consequence to investors, but she did get investors’ attention when she spoke about how more regulation may be needed to limit the economic risks posed by large U.S. banks. Current regulations, to which all U.S. banks must adhere, were laid out by the Basel Committee on Banking Supervision after the 2008 financial crisis and are called “the Basel III capital requirements” (Federalreserve.gov, Link 4).  The problems with the current regulations stem from the fact that the “capital requirements as currently constructed…do not directly address liquidity risk” (Federalreserve.gov, Link 4), and liquidity risk is a large part of what allowed the financial crisis to be as severe as it was. Janet Yellen spoke at length about why tighter regulation may be needed, and she ended by declaring that “Federal Reserve staff are actively considering additional measures that could address these and other residual risks in the short-term wholesale funding markets” and that “we are carefully thinking through questions about the tradeoffs associated with tighter liquidity regulation that will be discussed at this conference” (Federalreserve.gov, Link 4).  The S&P 500 closed 0.67% higher on April 15th, but it is unclear how much of that was due to Janet Yellen’s speech because positive economic data for the U.S. was also released on that day. Additionally, the Exchange Traded Fund for the Financials Select Sector SPDR (NYSE: XLF) increased 0.93% on that day.

The full script of the speech can be found by following this link: http://www.federalreserve.gov/newsevents/speech/yellen20140415a.htm

Janet Yellen also spoke at the Economic Club of New York on April 16th and this time her main talking points were “Monetary Policy and the Economic Recovery” (Federalreserve.gov, Link 5).  This speech was much more controversial than the one she gave on April 15th, and Mohamed A. El-Erian, a writer for Bloomberg, believes that the speech “will undoubtedly stimulate debate on what the world’s most powerful central bank is thinking, doing and should be doing” (Bloomberg, Link 6). Janet Yellen began her speech on a quite interesting note, by saying that “the path of the economy is uncertain, and effective policy must respond to significant unexpected twists and turns the economy may take” (Federalreserve.gov, Link 5).   She also outlined “The Current Economic Outlook” for our economy, and where she believes our economy is headed in the near future.

The full script of the speech can be found by following this link: http://www.federalreserve.gov/newsevents/speech/yellen20140416a.htm

Domestic Economic Data:

Lots of positive economic data was released this past week, and most was positive. I will provide a few U.S. economic data highlights for this past week and then talk about the data overall…

       - Core Retail Sales (m/m) => 0.7% vs. 0.5% expected

       - Retail Sales (m/m) => 1.1% vs. 0.8% expected

       - Core CPI (m/m) => 0.2% vs. 0.1% expected

       - Unemployment Claims (weekly) => 304K vs. 316K expected”               (Forexfactory.com, Link 7).

This data was all very positive.  Figures with the word “core” before them tend to be seen as more important, because they are the figures that policymakers look at when making decisions.

Weekly unemployment claims came in better than expected, which marked the fourth time in the last five weeks that unemployment claims have exceed expectations, and that continues to demonstrate that labor markets in the U.S. are recovering (albeit slowly). Inflation, as measured by the month-over-month Core CPI number (0.2%), was higher than expected which is a good sign at this point because the Federal Reserve is targeting 2% inflation. Inflation is much better for financial markets than deflation, and both the U.S. and the Eurozone are currently struggling to stay out of deflation territory (the Eurozone is in much worse condition in this regard than the U.S.).

Although all the economic data was quite positive, it underscores the much larger problem the U.S. may be facing as we “recover” from the recent financial crisis. A stated in a recent WSJ article, “after almost five years, the recovery is proving to be one of the most lackluster in modern times. The nation’s 6.7% jobless rate is the highest on record at this stage of recent expansions. Gross domestic product has grown 1.8% a year on average since the recession, half the pace of the previous three expansions” (WSJ, Link 8). People are divided (mostly between political parties) over why our economic recovery has not been as impressive as history tells us it should be, but some people still believe that our economic recovery has still has “fuel” left in the tank. To that end, the WSJ quotes Michael Feroli, chief U.S. economist at J.P. Morgan Chase, as saying “ ‘Perhaps the very fact we’ve been growing slower means we haven’t burnt out all the fuel… By a lot of metrics, the expansion still has quite a bit of room to run’ “ (WSJ, Link 8).

International News and Economic Data:

The U.S. wasn’t the only country with positive news to report this past week, but it definitely had more positive news than any other country.

Canada saw its Manufacturing Sales (m/m) rise 1.4% vs. an average forecast for a 1.1% increase. Manufacturing Sales data, a measure of the “change in the total value of sales made by manufacturers,” is “a leading indicator of economic health - manufacturers are quickly affected by market conditions, and changes in their sales can be an early signal of future activity such as spending, hiring, and investment” (Forexfactory.com, Link 7). This marked the third time in the past 5 months that the Canadian Manufacturing Sales (m/m) figure has risen more than analysts forecasted, which is definitely a positive sign for Canada’s economy moving forward. The Bank of Canada (BOC) has followed the examples set by central bank officials in other countries, such as the U.S., and has held their short-term interest rates near zero for a long period of time following the global financial crisis that ended in 2009. Following that path, the BOC again decided to keep their Overnight Rate at 1.00%, which comes as no surprise seeing as the BOC has kept the rate at 1.00% since September, 2010 (Forexfactory.com, Link 7). In the BOC’s Rate Statement, where it declared that it would keep the Overnight Rate at 1.00%, BOC officials chose to largely disregarded the fact that inflation accelerated in March. For the month of March, Canada’s “headline CPI rose to 1.5% from 1.1% and the core rate rose to 1.3% from 1.2%” (Marctomarket.com, Link 9). BOC Govenor Poloz indicated that the recent decline in the Canadian dollar, which has been “the worst performing major currency over the past six months, declining 6.6% against the US dollar” (Marctomarket.com, Link 9). The BOC is targeting 2% inflation, just like the FOMC is doing, and it is interesting that both the BOC and FOMC have discounted the fact that inflation figures (as measured by CPI) accelerated slightly in March. The entire BOC rate statement can be found by following this link: http://static.bankofcanada.ca/uploads/pdf/mpr-2014-04-16.pdf and it is definitely worth taking a look at because the data is presented in a much clearer way than many central banks present their data, and it gives the most up-to-date forecasts for GDP growth (country by country).

On April 15th, China posted disappointing economic data again this past week with Industrial Production (y/y) increases only 8.8% vs. a forecast of 9.1% (Forexfactory.com, Link 7).  Industrial Production is a measure of the “Change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities,” and “it’s a leading indicator of economic health - production is the dominant driver of the economy and reacts quickly to ups and downs in the business cycle” (Forexfactory.com, Link 7). Although this is one of many Chinese economic data reports that have missed forecasts recently, it is important to keep in mind that China’s economy is still growing at a much faster pace than the economies of developed countries, even if that growth has started to slow down recently. China also reported that its economy expanded by 7.4% (q/y), as measured by Real GDP, in the quarter that goes from January to March. This marked a large decrease from last quarter’s growth of 7.7% (q/y), and it was also lower than China’s 7.5% growth figure two quarters ago. China’s growth in Real GDP of 7.4% (q/y) means that the country’s economy grew at its slowest pace in the last six quarters, mirroring the 7.4% (q/y) growth rate it had back in Q3 2012.Although the Real GDP growth figure was much lower than those of previous quarters, Real GDP growth of 7.4% (q/y) was forecasted prior to the data release so one can’t say that the data was a complete surprise (Forexfactory.com, Link 7).

The Eurozone saw some negative sentiment readings this past week, with the German ZEW Economic Sentiment reading coming in at 43.2 vs. 46.3 (expected). The sentiment reading measures the “level of a diffusion index based on surveyed German institutional investors and analysts,” and “it’s a leading indicator of economic health - investors and analysts are highly informed by virtue of their job, and changes in their sentiment can be an early signal of future economic activity” (Forexfactory.com, Link 7). The figure has been steadily declining for the past four quarters, and this month’s Economic Sentiment reading is the lowest one since it was reported at 42.0 in August, 2013 (Forexfactory.com, Link 7).

The UK saw the lowest monthly percentage change in CPI (y/y) that it has had since November, 2009. CPI (y/y) for the UK came in at 1.6% vs. a forecast of 1.6%. Declining CPI figures are “easing pressure on living standards and raising the prospect that prices may now be rising by less than wages for the first time in years” (Reuters.com, Link 10). Additionally, the UK saw its unemployment rate fall to 6.9% from 7.2% a month earlier, and beat a forecast for a 7.2% unemployment rate (Forexfactory.com, Link 7). An unemployment rate of 6.9% is the lowest unemployment rate that the UK has had since April, 2009 (Forexfactory.com, Link 7), and it helped close the gap between the unemployment rate in the U.S. and the unemployment rate in the UK. These figures help give credence to the argument that the global economy is in a period of improvement, not stagnation.

Major Earnings Reports:

(All earnings report information was found on SeekingAlpha.com, so if you see uncited quotes the information in the quote was taken from SeekingAlpha.com)

There were a lot of companies reporting earnings this past week so I just decided to focus on some of the biggest, and most important, earnings reports that were released this past week.

Netflix, Inc. (NASDAQ GS: NFLX) reported earnings on Monday, April 21st, significantly beating analyst expectations and causing the company’s stock price to rise approximately 7% in after-hours trading. The company “reported a first-quarter profit of $53 million, or 86 cents a share, up from $3 million, or five cents a share, a year ago. Revenue jumped 24% to $1.27 billion. The company in January had projected a profit of 78 cents a share” (WSJ, Link 11). Additionally, “Netflix added 2.25 million U.S. streaming subscribers in the quarter, matching the company’s projection” and “Netflix projected a second-quarter profit of $1.12 a share, above Wall Street’s forecast of $1 a share. The company expects to add 520,000 domestic streaming customers, with the paid membership for that market expected to total 35.03 million” (WSJ, Link 11).

Despite all of this good news for Netflix, the thing that I (and the rest of Wall Street to be sure) am most interested by is the fact that Netflix also said that the company “will raise the price of its streaming service for new members by a dollar or two a month” (WSJ, Link 11). This is the first time that Netflix has raised its subscriber fee since the company almost went bankrupt after doing so in 2011 (although there were other things that Netflix did that also hurt them back then). When Netflix increased subscriber fees in 2011, unexpectedly and by 60%, it caused a huge amount of their subscribers to cancel their subscriptions. Netflix is being much more conservative this time around, and they did a “dry run” of increasing subscriber fees in Ireland when they increased them by “one euro back in January, a change that it said had ‘limited impact’” (Money.CNN, Link 12). The increase in subscriber costs “would help pay for its continued investment in original programs, including series such as ‘House of Cards’ and ‘Orange Is the New Black’” (WSJ, Link 11). Netflix is being much more cautious now than they were in 2011, although it is hard to imagine how they could be less cautious than they were back then, and the increase in subscriber price will probably have a “limited impact” here in the U.S. too.  If Ireland, a country with one of the worst economies in the Eurozone, can weather an increase in subscriber costs I’m pretty sure we can too.

Citigroup, Inc. (NYSE: C) reported earnings, on April 14th, that beat analyst estimates. The company’s results are summed up as follows: “Q1 EPS (excl. CVA/DVA) of $1.30 beats by $0.15. Revenue (excl. CVA/DVA) of $20.1B (-1.9% Y/Y) beats by $730M.” Citigroup’s earnings helped to boost the financial sector as a whole for the day, and the company was up 4.36% for the day after reporting earnings pre-market. Citigroup’s revenue as a whole, and particularly in the fixed income section of their business (-18% y/y), fell year-over-year and this is a very typical outcome for companies reporting earnings this earnings season: having lower estimates but being able to beat those lower estimates and jump higher.

Coca Cola Co. (NYSE: KO) also reported solid earnings pre-market on April 15th, and KO’s stock price surged 3.74% as a result. Overall, the company’s earnings and revenue were more or less in line with analyst expectations, but the large increase in share price resulted from the fact that many investors did not believe that KO could meet, or beat, analysts’ expectations for the quarter. The company’s higher than expected revenue of $10.57B (which beat analyst expectations by $20M) resulted from volume growth of 2% for the quarter, which was driven by increased demand in developing and emerging markets. “Sales in China and Brazil accelerated after Coca-Cola increased its marketing spend[ing],” but conversely “the company saw flat volume growth in North America” (SeekingAlpha.com). The company’s Q1 EPS of $0.44 was in-line with analyst expectations (SeekingAlpha.com).

Yahoo!, Inc. (NASDAQ GS + BATS: YHOO) reported earnings after-hours on April 15th that were more or less in-line with Wall Street’s estimates.  Regardless of less than impressive earnings results, the company’s stock price soared 6.25% the day after the earnings release. YHOO’s earnings are summarized as follows: “Q1 EPS of $0.38 beats by $0.01. Revenue of $1.08B (+0.9% Y/Y) in-line.” YHOO was mainly up so much because of two things: 1) Alibaba outperformed expectations. Alibaba reported Q4 earnings results that showed huge increases in revenue (+66% y/y), which “accelerated from Q3’s 51% clip,” and net income (+110%). This is a big deal for YHOO because it owns a 24% (at current estimates) stake in Alibaba, which is going to do an IPO in the U.S. soon. YHOO will need to sell some of its shares during the IPO, but “It will sell 208 million of its shares instead of 261.5 million,” which was previously expected (Money.CNN.com, Link 13). 2) The Company’s forward guidance. YHOO released forward guidance that came in ahead of analyst estimates, and one of its struggling businesses (display ad ops sales) “staged a turnaround in Q1.” YHOO guided a higher Q2 revenue figure than analysts expected, “revenue of $1.12B-$1.16B vs. a $1.08B consensus,” but it also revised its adjusted EBITA figures “to $290M-$330M from $386M.” In terms of display ad ops sales (ex-TAC), YHOO saw a 2% (y/y) increase “to $409M after falling 6% in Q4 and 7% in Q3.” Additionally, YHOO’s “search revenue (ex-TAC) rose 9% to $444M after growing 8% in Q4” and “all other revenue fell 11% to $234M” (SeekingAlpha).

In other interesting news related to YHOO and Alibaba, Brightwire.com reported on April 20th that although Alibaba was “expected to file a prospectus with U.S. regulators for an initial public offering as early as Monday,” the company decided last minute to delay its F-1 filing (Brightwire.com, Link 14). Current estimates indicate that Alibaba’s “IPO could be worth more than $16 billion, surpassing the previous record for a technology share sale set by Facebook Inc in 2012” (Brightwire.com, Link 14), and the company could have a market cap as high as anywhere from 150 to 200 billion dollars. A valuation that high would make it bigger than both Amazon and Facebook (separately of course) and one of the biggest technology companies in the world! On a different note, “Alibaba has said it plans a major revamp of its massive Taobao marketplace (focused on consumer sales), whose UI has occasionally been criticized. Alibaba promises to improve Taobao’s navigation (making it less dependent on search activity), as well as to add interactive features for its mobile apps” (SeekingAlpha).

Google Inc. (NASDAQ GS + BATS: GOOGL – Class A) reported earnings after-hours on April 16th that missed consensus estimates in both revenue and EPS, which caused shares of GOOGL to fall in after-hours trading. GOOGL’s earnings report is summarized as: “Q1 EPS of $6.27 misses by $0.15. Revenue of $15.42B (+19.1% Y/Y) misses by $90M.” A negative earnings surprise is definitely not something that investors want to see from a market giant such as Google, and shares of GOOGL fell 3.65% the day after its earnings were released. GOOGL is now down 12.3% (as of GOOGL’s closing price on Monday, April 21st) from its 52 week high on February 26th. It is definitely a good sign that the NASDAQ Composite was able to rise 0.23% on the day that GOOGL was down 3.65%, because GOOGL has a huge weighting in the NASDAQ Composite, so it is a bullish sign that the index was able to disregard GOOGL’s decline and rise anyways. “Google represents 5% of the tech-heavy index due to its $335 billion market cap, trailing only Apple and Microsoft, according to FactSet data” (WSJ, Link 15). To put that in perspective, following GOOGL’s decline of over 12% since March 1st, “the company has accounted for 8.9% of the Nasdaq’s decline over that time frame, according to data compiled by research firm Birinyi Associates. That’s thanks to the heavy weighting the shares get in the Nasdaq” (WSJ, Link 15).

International Business Machines (NYSE + BATS: IBM) also reported earnings, after-hours on April 16th, that missed analysts’ consensus estimates. IBM’s earnings were reported as follows: “Q1 EPS of $2.54 misses by $0.01. Revenue of $22.48B (-4.0% Y/Y) misses by $450M.” IBM closed down 3.25% the day after it reported its earnings, but all of that loss took place in pre-market trading and IBM closed at $190.01 after opening at $187.25 (that’s a good sign from a technical trading perspective!). That pre-market selling may have just been impulse selling from short-term traders, because IBM has significantly outperformed its peers in the technology sector over the last month (both including and excluding its 3.25% decline) and it recovered by 1.19% on Monday, April 21st (the day after it saw a 3.25% decline). Delving deeper into IBM’s earnings report, IBM reiterated its “full-year guidance for EPS of at least $18 (consensus is at $17.84),” and the company “spent an eye-popping $8.2B on buybacks in Q1, up from $5.8B in Q4” (SeekingAlpha). IBM’s huge share buybacks have significantly helped IBM’s share price over the past two quarters (especially this past quarter, Q1 2014), and the buybacks “allowed EPS to nearly meet estimates in spite of a $450M revenue miss” (SeekingAlpha). On the flip side, “IBM’s tax rate (the subject of recent scrutiny) rose to 20% from Q4’s 11% and Q3’s 16%. A 90 bps Y/Y increase in gross margin to 47.6% also boosted EPS” (SeekingAlpha).

Pepsico, Inc. (NYSE + BATS: PEP) reported earnings pre-market on April 17th that significantly beat consensus estimates. PEP’s earnings were seen as: “Q1 EPS of $0.83 beats by $0.08. Revenue of $12.62B (+0.3% Y/Y) beats by $190M.” This was a great sign for PEP, especially considering the fact that Coca Cola Co. (NYSE: KO) also beat consensus estimates, because PEP could not afford to have a negative surprise on its earnings report after its major competitor beat its own earnings consensus estimates. Investors did not react as positively to PEP’s earnings results as they did to KO’s earnings results, and PEP increased only 0.92% after reporting its earnings (while KO increased 3.74% after its earnings report was released). Most of PEP’s gain was actually pre-market, and PEP declined throughout the day to close below its opening price (that’s a bearish short-term technical signal). Despite this fact, PEP made a new 52 week high on April 17th, at $85.94, and then made another new 52 week high the next session (April 21st because of the short trading week due to Easter) only $0.01 higher than its last high.

Intel Corp.(NASDAQ GS: INTC) reported solid earnings after-hours on April 15th, which caused the company’s stock price to rise 0.60% the following day.  In summary, INTC’s earnings were as follows: “Q1 EPS of $0.38 beats by $0.01. Revenue of $12.8B (+1.7% Y/Y) in-line.” Although INTC was only up 0.60% for the day it made a new intra-day 52 week high of $27.24, which is only $0.03 below its high back on May 03, 2012.

Johnson & Johnson (NYSE: JNJ) reported impressive earnings pre-market on April 15th, and this caused JNJ’s price to jump significantly in pre-market trading and close 2.12% higher for the day. JNJ’s earnings came in as: “Q1 EPS of $1.54 beats by $0.06. Revenue of $18.11B (+3.5% Y/Y) beats by $110M.” JNJ’s price continued its extraordinary rise throughout the week and made a new 52 week high at $100.13 on Monday, April 21st.

Halliburton Co. (NYSE + BATS: HAL) reported earnings pre-market on April 21st that barely beat EPS and revenue consensus estimates by relatively small amounts, but represented colossal improvement from Q1 2013 (especially in terms of EPS). HAL’s earnings were as follows; “Q1 EPS of $0.73 beats by $0.01. Revenue of $7.35B (+5.5% Y/Y) beats by $110M” (SeekingAlpha), but HAL’s unadjusted EPS of $0.73 represented a gigantic improvement from the company’s year-ago unadjusted EPS of -$0.02. To make sure that I don’t say all of this out of context, I should mention that HAL’s earnings last year were “weighed down by a charge related to litigation stemming from the 2010 Deepwater Horizon disaster” (SeekingAlpha). On another positive note for the company, HAL forecasted that “Q2 EPS [will] grow 25% in Q2 to ~$0.91” (SeekingAlpha). Additionally, “HAL expects North America margins to approach 20% before the end of the year,” and the company also “expects full-year Latin America revenue and operating income to be in line with 2013 levels” (SeekingAlpha). All this positive news caused HAL to spike 3.32%, on April 21st, and reach a new 52 week high at $63.88.

Looking Forward Write-Up:

Whenever the market reaches new highs, or looks like it might roll over, “Talking Heads” in the financial industry will often group together and “agree” upon a reason for why that took place. No matter what reason (or reasons) the Talking Heads choose, you can bet that it (or they) will be widely publicized and made to look “obvious” to someone with the “intellectual power” that the Talking Heads possess. I would like get ahead of them and quickly state the reasons I believe Talking Heads would use to justify why the market reaches a new high or rolls over. I will call the reason the market might reach a new high my bull case, and the reason the market might roll over my bear case. All the reasons I use have already been talked about by stock market experts, and I am just going to re-state them here. I want to keep this short, so I will not go into much detail on the specifics for the bull and bear, but I will give a brief overview on each.

Bull Case:

There are two things that I believe could justify the stock market reaching new highs. First, we are in the midst of a very interesting and important earnings season, where many companies are exceeding analysts’ estimates. I believe that if a high percentage of large cap companies continue to surpass their quarterly earnings estimates, it could cause the stock market to soar to a new high. However, a high that is reached in this manner may not be maintainable because overall corporate earnings, for Q1 2014, were expected to decline from last year’s earnings, Q1 2013, by a fairly significant amount (initially FactSet released data indicating that earnings were expected to decline 1.5% overall in Q1, but as of 4/23/14 that estimate has been revised to a decline of only 0.5%). As a result, many analysts lowered their estimates for corporate earnings, which made it easier for companies to bear their earnings estimates. While this is a good thing in the short-term, because companies usually receive a significant boost in stock price after beating their quarterly earnings estimates, it is not a good thing for the long-term if companies are seeing lower forecasted earnings and negative earnings revisions. Second, there has been a lot of talk recently about foreign countries increasing their stimulus (asset purchasing) programs, and if more news comes out about that we could see U.S. stocks rise to new highs on a wave of “global recovery” news. One country where this is particularly true is China, who is expected to begin a “unofficial economic stimulus” program. If more news surfaces in the coming days, or weeks, about China releasing a stimulus program we could definitely see U.S. stocks reach new highs. Reaching new highs in this manner is also a doubled edged sword because it could mean that investors pull money out of U.S. markets and place it instead in markets that are expected to increase their stimulus programs. This reason also applies generally to international economic data being positive.

Bear Case:

In the 9th Issue of my newsletter, I laid out quite a few reasons why the stock market might be about to roll over, so I won’t bother repeating myself any more than I need to. However, one thing that you can bet will be played up a lot by Talking Heads, if the market begins to roll over, is the old adage: “sell in May and go away.” To that effect I recently posted the following post on a new social networking website for investors called www.Scutify.com: May begins a week from tomorrow and the question on many investors’ minds is “Is the old adage ‘sell in may and go away’ really true?” Look at this chart from Geoff at Caracommunity.com to find out:

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If you have any questions about this Issue of my Financial Newsletter please fill out the form below. I also appreciate receiving any comments you might have about what you just read, and I encourage you to send me ideas for topics that you would like to see me write about in the future. Thank you for reading!

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