For the past three months, investors have been ignoring the country’s weak economic position and continued to put money into stocks. Investors are searching for a positive yield in an environment of rock-bottom interest rates. Right now there is little doubt regarding stock-market volatility: up one day, down the next.
The question is, what are you going to do with equities? Abandon them and sell out or stick with them? Most recommended stock-market exposures depend on the opportunities available in individual stocks.
Numerous financial advisers recommend keeping 10-20 percent of equity portfolios in short-term bond funds as a hedge. There is still too much volatility. But they don’t suggest getting out of stocks completely.
Next year, the Bush tax cuts and the Obama payroll-tax holiday expire and emergency unemployment benefits dry up. These changes could affect the financial status of many. The Congressional Budget Office estimates that without any political intervention, the combination of higher taxes and lower spending will reduce gross domestic product and send the U.S. economy into recession.
Not to panic – politicians will probably pass temporary measures to put off final decisions and kick the can to the next Congress.
Summaries follow of two companies that could move up or down quickly and one that may change management.
• Hewlett-Packard Co. (HPQ; $14.47) is making headlines these days. CNBC analyst Jim Cramer calls HP the next Kodak. He is not surprised about the decline of HP, because it has happened to many other technology companies that have failed to keep pace with a better mousetrap.
CEO Meg Whitman said that while recovery would take longer than anyone would like, the company is fixable. One major problem is HP’s frequent shifts in leadership. Whitman has been at the helm only a year working to right the ship. Her recent assessment caused the stock price to drop 13 percent.
HP’s financial officer added that the company’s next 12 months would offer another challenge. Forecasts for fiscal year 2013 earnings stand at approximately $2.10 to $2.30 per share. HP earnings have averaged more than $3 per share in the past.
With constant changes in leadership, HP has failed to keep pace with increasing pressure in its PC business, while new challenges from competing companies’ smartphones and tablets are eating into its market share.
• Microsoft Corp. (MSFT; $29.76) is another company beginning to experience problems. Windows 8, due out Oct. 26, is considered the best hope to revive the PC market, but sentiment has turned increasingly negative in the past month.
The Windows operating system runs 90 percent of all personal computers, but tablets keep pecking away at that market, posing a risk to Microsoft. Windows 7 generated 25 percent of company sales and 41 percent of operating profits in the fiscal year ended July 2012.
Business can be slow to adopt new technology, and many companies won’t consider upgrading to Windows 8 right now. More than 50 percent of corporate desktop computers run Windows 7 and don’t anticipate making a change immediately.
• Cisco Systems Inc. (CSCO; $18.90) CEO John Chambers said customers are reluctant to pursue capital investment because the fiscal cliff of expiring tax breaks and automatic budget cuts looms.
Chambers, Cisco’s CEO since 1995, hinted that he will probably retire within the next four years.