Every day reveals new evidence that the U.S. economy is slowing down in the second quarter. Charles Nenner, founder of the Charles Nenner Research Center, suggests that the sell-off has just begun and that anyone buying stocks now has missed the bus by four years. Stocks may “get scary” in May, he predicted.
Prices for industrial commodities have slumped, as have prices for gasoline and crude oil. The poor inflation outlook reflects worries about faltering demand.
Continued weakness in the transport sector and cyclical stocks after the quarter earnings reports could heighten the risk of a full-fledged secondary correction. There are still quality stocks available at reasonable price valuations. Sound utility stocks that pay a good dividend remain a better investment than money stuck under the mattress.
Companies on the Town Crier “50” made headlines last week.
• IBM Corp. (IBM; $188.53) reported poor earnings for the first quarter, which could indicate a rough time for the stock market. The company’s stock movement after earnings has registered a stunning 75 percent success rate in predicting market direction over the past decade.
• Google Inc. (GOOG; $800.97) reported its first-quarter profit and loss statement last week. Even if the returns don’t excite investors, they shouldn’t deter anyone from purchasing the stock for the long haul.
Numbers indicated a strong performance in the company’s core advertising business, which reported $13.97 billion in gross revenues. Net income for the quarter came in at $3.5 billion. The only major loss resulted from Google’s Motorola hardware acquisition.
CEO Larry Page told analysts that Google would continue investing in speculative products ranging from high-speed fiber networks to wearable computers and driverless cars.
When self-driving technology spreads, Google will have a monopoly on licensing. Unfortunately, the company won’t realize returns from the developments until driverless cars dominate.
Google Glass should someday replace smartphones, increasing the company’s bottom line.
• Apple Inc. (AAPL; $398.66) released its March-quarter earnings, which will be observed keenly, Tuesday, after the Town Crier’s press deadline. The company’s stock tanked to its lowest level since December 2011 amid concerns regarding its direction and near-term outlook.
Macs appear to be bucking the industrywide personal-computer sales slump, and Apple maintained a 39 percent share of the U.S. market for smartphone operating systems in February/March.
Apple sent an open letter to its customers in China, vowing to improve its customer service. A Chinese regulator promised to increase supervision. Apple – and investors – should watch this matter closely, as China accounted for $7.3 billion in sales in the December quarter.
If Apple doesn’t announce a dividend increase when it reports its earnings, expect the stock price to drop further. Despite the lower price, many investors remain bullish in anticipation of new products before the end of the year.
Apple’s strategy of manufacturing only high-end iPhones has worked well, but Samsung is killing Apple in the market, and other vendors are challenging with different price levels and sizes.