LAST CALL FOR OPTIMISM: ENTER Q4October 2 | Posted by Kevin Monaghan | Top Story
Ending on Friday, the third quarter was BRUTAL to say the least. Most major averages are down nearly 14% over the last three months, all while volatility has spiked and remains at a very high level.
The S&P 500 saw a beautifully executed head and shoulders pattern in July which sent shares lower and has since been stuck in a trading range.
In the meantime, the markets are trying to determine if there is a bright future for the world markets amid debt issues. (SEE CHART BELOW).
The markets themselves have priced in a pretty serious drop in earnings amidst calls for a global slowdown. There hasn’t been much macro news to make anyone believe otherwise, but when you dig into the micro economy, we’re not seeing such pessimism from companies overall. Many companies remain in great shape and have the balance sheets to continue doing so. As earnings season starts, it’s important to make sure you read through corporate reports to see how your stocks are doing.
- Discover Financial Services: Beat expectations, y-o-y net income more than doubled.
- FedEx (FDX): In line with expectations, lowered guidance and mentioned slowdown in Asia.
- Nike (NKE): Saw 19.3% net increase in earnings.
Not the news you’d expect to hear from companies given the pessimism in the news lately. While the “risk-off” trade has been “on”, there are still company stocks that will give you more cash flow than treasuries, bank accounts, real estate, or bonds. Investors are going to have to be in equities if they’re seeking any decent returns.
There is another alternative: Emerging market currencies like Brazil, China (RMB), and India are offering good returns on cash. For example, you can get 8-12% return at the bank in these currencies with 3 year term-deposits, but if a global slowdown happens, these currencies can lose more than your return in currency risk or force you to surrender interest if you need to exit before 3 years is up.
Disclosure; Author, Kevin D. Monaghan of Elite Investment Group, is long DFS.
Tags: Channel Trading, Currency Risk, DFS, Discover Financial Services, Emerging Markets, FDX, Fedex, Head And Shoulders, Interest Rates, Nike, NKE, Range Bound Trading, RMB, S&P500, Stock Charts, Technical Trade, Term Deposit