After four days of increasing stock prices last week, conditions didn’t warrant a surging market without a short-term pullback. Friday the market opened down more than 100 points.
Common sense would dictate that because the market is up 14 percent since June 1, it was due for a drop, so it’s time to analyze positions.
According to the early-October reading of the University of Michigan Consumer Sentiment Index, consumer confidence rose to its highest point since late 2007. These numbers can change, sometimes substantially in late-month reading, but the index remains positive.
It’s the “fiscal cliff” that will influence decisions of buying or selling into and out of the portfolio, because capital gains and dividend tax policies are in play. If you own dividend stocks, an increase in the dividend tax rate will reduce the value of the yield and also the stock. If the capital tax rate increases, consider selling and pay the lower tax rate.
Europe is still a disaster, with Greece and Spain struggling, and conditions in China have worsened – earnings will be the biggest determinant.
Other than individual stocks with a good outlook, conventional wisdom says to wait to enter the market. A 3 percent decline would make the market attractive for individual stocks again, and a 5-6 percent decline would be even more enticing. For the time being, if you are long on the market, drag your feet.
Let’s look at one Town Crier “50” stock with mixed results, Intel Corp. (INTC; $21.46).
Even with the slowdown in computer sales, Intel reported better-than-expected third-quarter earnings Oct. 16. The Santa Clara-based chipmaker reported earning 58 cents per share on sales of $13.5 billion. But the company’s $3 billion quarterly profit was down 14 percent. Intel’s third-quarter results actually came in at the high end of the company’s estimates.
Analysts have been kicking Intel down the road after its recent efforts to get its chips into smartphones didn’t go well and the sluggish sales of personal computers cut into numerous PC manufacturers’ revenue. Intel’s stock has dropped from $29.27 to $21.57 in the past 12 months. Most analysts downgraded the stock from a Buy to a Hold.
Analysts predict $13.2 billion in revenue this quarter, a decline of 7.2 percent from the same quarter last year. They forecast total revenue of $53.46 billion for the year, a decrease of 1 percent from last year’s revenue of $54 billion. With a dividend of 90 cents, showing a yield of 4.10 percent, there is no change mentioned for the dividend.
Disclosure: The author of this article maintains a small exposure in Intel Corp.