The markets were either trading sideways or down all week after a ground shaking service sector report sent stocks plummeting. At Pinnacle Digest we believe the retail sector can be used to gage and monitor the health of an economy.
January was a very telling month for the health of the United States economy and its consumer, which in terms of economic growth is the cornerstone to the economy. Retail chains across the country have recently reported their worst monthly sales results in almost five years. We have learned that a number of major chains are preparing for a slow down as they plan to close hundreds of stores and cut thousands of jobs. It has been reported that since December, major chains have announced plans to close at least 900 locations. The International Council of Shopping Centers has predicted that 5,770 retail locations will close this year. This represents a 25% increase over 2007, and the highest increase since 2004.
Wal-Mart Stores Inc. is a perfect example of a retail chain showing distinct signs of slowing. Wal-Mart has reported that same-store sales rose only 0.5% in January compared to a year earlier. This is far below its expectation of a solid 2% gain. In the fiscal year ended February 1st Wal-Mart US same-store sales rose just 1.4%. This is the lowest increase in nearly 30 years, since they began releasing this information to the public. Being the world's largest retailer, Wal-Mart can clearly represent the fading consumer sentiment within the marketplace. We will be watching their sales very closely as the United States teeters on the brink of a full blown recession. As these figures strike fear into the hearts of many investors, it only strengthens our belief that this is an opportune moment to buy stocks which have excellent growth and demand potential in their respective sectors.
In recent years North American investors have enjoyed substantial returns from outsourced foreign markets. Stocks outside of the United States have outperformed the Dow Jones Industrial Average time and again and have done so for the fifth year in a row. According to a Morgan Stanley Capital International Index report, emerging markets increased almost 37% last year.
Investors hoping to scurry under that same shelter of foreign markets and continued global expansion have been sorely disappointed this year. In 2008, all markets have been singing the same song and it's not a happy one.. yet. There is a strong consensus that the economic turmoil originating in the United States is spreading across the globe. Let's have a look at the global indices and see how they compare to the Dow Jones Industrial Average which is down just over 7.8% this year.
It is quite clear that there is no sector or market, either foreign or domestic to hide in at the moment. With that stated, we believe the best investors in the world are positioning themselves for the turnaround of the economy.
It is very difficult to pick market bottoms, even when using history as a guide. Using the S&P 500 as a benchmark, let's have a look at the numbers.
Many financial companies and homebuilders within this index have hit rock bottom prices in the last four months. The stock market and index has not taken as bad of a beating. The S&P 500 is down about 14.8% since its October peak. Since World War II, on average, the index dropped 26% from its peak during a recession time period. So if we are in or headed for a recession, the S&P 500 would have to drop another 200 points or just over 10% more. Pinnacle Digest believes we are in a mid-cycle slowdown and that the markets will not be spiraling downward for much longer.
Mr. Warren Buffett has a unique view on the US economy which we all need to take into consideration.
Mr. Buffett at this moment is a 'Huge Bull' on the U.S. economy. He recently stated that, "I am a huge bull on the American economy." Friday morning a member of our team here at Pinnacle Digest came across an interview Warren Buffett participated in this week with the National Post of Canada, on a recent trip to Toronto. When asked about the US economy Buffett explained that, compared to 1982 when short-term interest rates were 21% "this is not a tough period." Buffett went on to state that, "We do not have an unavailability of credit to people who've got reasonable credit demands, and its not expensive. We're not in a credit crunch for those who have sound deals." When asked how bad things could get, he did confess he had no idea, but stated, "It could be pretty bad but we always come out of it."
With so many opinions, figures and negative signs spewing from the economy and government officials, the market is fluctuating greatly at the moment. Investors are in an environment of uncertainty and doubt but we believe that within the next few months they will witness the best buying opportunities of the decade.
PinnacleDigest.com
Sunday, February 10, 2008
no sector or market, either foreign or domestic to hide in at the moment
Friday, February 8, 2008
Commodities lift Canadian stocks
Market News: After the Bell
Commodities lift Canadian stocks
RTGAM
If the commodity-heavy Canadian stock market loves higher oil and gold prices, it got big doses of both on Friday which helped drive the benchmark Canadian index up even as U.S. stocks fell.
Crude oil futures traded at $91.74 (U.S.) a barrel in New York, up $3.63 or 4.1 per cent, a substantial reversal from declines earlier in the week when observers fretted over rising U.S. inventories and concerns about lower consumption in the face of a slowing U.S. economy. As well, the price of gold shot up $11.59 an ounce in New York to $922.10 in another sudden reversal that brings bullion close to its record close of $929.40, according to Bloomberg.
The Canadian index closed at 12,989.34 on Friday, up 63.97 points or 0.5 per cent, driven higher by Barrick Gold Corp., Goldcorp Inc. and Suncor Energy Ltd. The index was also given a lift by a sharp rally in Research In Motion Ltd. Its shares rose 4.6 per cent to $89.73 on speculation that the technology company may include a touch screen when it introduces its next line of BlackBerry wireless communications devices.
Meanwhile, major U.S. indexes ended the day down on more concerns about the health of the U.S. economy, despite a rally among blue-chip technology stocks. The Dow Jones industrial average closed at 12,182.13 down 64.87 points or 0.5 per cent. The broader S&P 500 closed at 1331.29, down 5.62 points or 0.4 per cent.
The S&P/TSX composite index now has the dubious distinction of being the world's best-performing major index in 2008, even though it is under water. So far this year, it is down 6.1 per cent - which would normally look bad if it were not for the 8.2 per cent loss at the Dow Jones industrial average, the 10.4 per cent loss at the U.K.'s FTSE 100, the 15 per cent loss at Japan's Nikkei 225 and the 16.1 per cent loss at Germany's DAX index.
Copyright 2001 The Globe and Mail
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