After the Dow Jones industrial averages closed higher for 10 straight days, a market pullback was not surprising, because bear markets often begin when earnings and dividends are at all-time highs.
Dividends for the S&P 500 hit a record high as well and could trend higher this year, as big banks are expected to increase their payouts soon in response to the Federal Reserve’s latest round of stress tests.
U.S. equities have pushed up their run for 10 consecutive days without a major consolidation since the start of the year, a result of funds flowing out of money markets and fixed incomes to equities. This kind of trend doesn’t change easily, and we can look for more of it.
Companies are doing better than expected and stockpiling money hand over fist. There is also hope that the Fed will continue printing money with urgency until unemployment falls below 6.5 percent. A shift from this policy could rattle the market and bring down equity prices. Sooner or later, a correction will occur – and it may be a good thing, to keep the market affordable.
Although interest rates are ridiculously low and have a bullish effect on the market, many investors remain skeptical because of continued gridlock in Washington, D.C.
Two Town Crier “50” companies made headlines last week.
• Microsoft Corp. (MSFT; $28.22) was fined $732 million by the European Union for failing to comply with an antitrust pact concerning its Internet browser. Some versions of the Windows operating system omitted a screen that allowed users to select a default Web browser. Microsoft blamed the violation on a glitch, which impacted the stock share price.
In other news, Microsoft agreed to sell its online advertising program – Atlas Advertising Suite – to Facebook for an undisclosed sum. The move highlights Facebook’s intention to overtake Google as the U.S. leader in online display ads.
Microsoft has a market cap of $233.82 million, with shares up 5.3 percent year to date. The stock currently offers a 3.3 percent dividend yield. Most analysts consider Microsoft a long-term buy or, at worst, a hold.
• LSI Corp. (LSI; $6.79), which designs, develops and markets storage and networking semiconductors worldwide, came across a new outlet for supplying chips to base stations in the disk-drive industry and is ready to break out on the upside. The company recently signed a deal with NetApp Inc. that could make it a game changer for how applications handle data in the future.
LSI boasts a projected earnings-per-share growth rate of 13 percent over the next five years. LSI stock is currently trading 25 percent below its 52-week high.
Recently analysts have downgraded the stock from “outperform” to “market perform.” The high market price is $10, with a low target of $7. While Deutsche Bank has downgraded the stock from a buy to a hold, no analyst has recommended a sell.