On October 2nd, when we advised readers to "Sell the Show Me Market," we're not sure whether we caught your attention or not. But with the shares of stocks damaged of late by high profile earnings reports like that from Google (GOOG), we expect investors are listening now. Stocks are not confirming the valuations investors have built into them over the course of the last year. As a result, investors are reconsidering those values, and the shares of the ETFs representing the broader indices have reflected that over the last three trading days. I would continue to sell this market at least up to a couple days before the election. Follow the column to receive that pending report.
Oct. 18 - 22
SPDR S&P 500 (SPY)
SPDR Dow Jones (DIA)
PowerShares QQQ (QQQ)
In my view, the first big hit came with Caterpillar's (CAT) earnings warning, and the trouble was confirmed by Google's fumble. There will be flashes of hope, like that presented by Yahoo's (YHOO) report at Monday's close, but I expect that the general message conveyed by stocks through this quarter's earnings season will be negative. The gains companies have made through cost cuts can only take earnings so far. At some point revenue growth must take the wheel for sustainable stock price rise. The problem is that revenue is generally lacking in the globally constrained economy.
I see no significant positive catalyst until perhaps two business days before the election, when the government will report the next unemployment number. The Federal Reserve has fired its last bullet, and so this week's FOMC meeting can only unearth its concerns about a still slumping global economy. Europe continues to deteriorate, with the German Finance Ministry Monday reporting expectations for a Q4 slowdown. The housing industry is recovering, but has been reduced so far in its importance, that it no longer has the broad power to lift all markets. Last week, the nascent labor market exuberance was tested by a new jobless claims climb. Economists see this Friday's advance reporting of third quarter GDP showing a pace improvement to +1.9%, but the last revision to Q2 was for an unexpected reduction of pace to +1.3%. So, in my opinion, earnings season will continue to dictate the pace for stocks, and the reports should not have much good to say.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.