
Do the Math! Stocks Are Poised for a Fall
Revered superinvestor Benjamin Graham once said: "Buy not on optimism, but on arithmetic." As a new week gets underway and statistical overload starts bombarding us again, here's the simple equation you should keep in mind:
Analysts expect second-quarter earnings of the S&P 500 (SPY) - Get Report to show a blended year-over-year decline of -5.5%. In terms of current valuations, the forward 12-month price-to-earnings ratio of the S&P 500 is 17.1, higher than the five-year average (14.6) and the 10-year average (14.3).
Unless earnings come in like gangbusters (which is unlikely), stocks are due for a fall. To protect your portfolio and simultaneously seize investment opportunity, you need to tune out the fatuous prognostications and keep your eye on the actual numbers.
Friday, the broader indices hit record highs yet again. In the week ahead, investors will look for justifications to bid stocks even higher, but sources of optimism will be scant. The U.S. economic recovery is on track, but meager in the context of past recoveries. Corporate earnings so far have beaten expectations, but analysts have been grading operational scorecards on a steep curve. There's no point in being near the top of your class, when few in the class can follow basic math.
In today's fraught investment environment, triggers for a long-belated correction lurk everywhere. "Brexit" fears have eased, but traders now worry that France, Holland and Italy are next. Bloody terrorism could strike anywhere, anytime. China's debt bubble could burst.
With China in the doldrums, the United States has adopted the role of global growth engine. However, political and social turmoil in the U.S. is leaving the world aghast. The highly influential (and conservative) magazine The Economist has rated a Donald Trump presidency as among its top 10 global risks. One world leader who seems content with America's turbulent state of affairs is Russian President Vladimir Putin, an overt Trump ally who is only too happy to see a weakened West.
Make no mistake: Despite these challenges, we think the bears are wrong and overall investment prospects are mostly encouraging. But along the way, we'll have to endure continued volatility and a few corrective declines.
We're in the thick of second-quarter earnings season, which like the first quarter is expected to be weak. Here are the most important reports to watch in the week ahead, comparing estimated earnings with year-ago results:
Monday:Kimberly-Clark (KMB) - Get Report . Average analyst estimate for earnings per share is $1.48, compared to $1.41 in the same quarter a year ago. Rockwell Collins (COL) $1.59 vs. $1.33. Texas Instruments (TXN) - Get Report73 cents vs. 65 cents.
Tuesday:Apple (AAPL) - Get Report$1.38 vs. $1.85. McDonald's (MCD) - Get Report$1.38 vs. $1.26. Baxter (BAX) - Get Report40 cents vs. 19 cents. BP (BP) - Get Report28 cents vs. 43 cents. DuPont (DD) - Get Report$1.10 vs. $1.09, U.S. Steel (X) - Get Report-49 cents vs. -79 cents. Caterpillar (CAT) - Get Report96 cents vs. $1.27. Eli Lilly (LLY) - Get Report86 cents vs. 90 cents.
Wednesday: Boeing (BA) - Get Report$2.22 vs. $1.62. Coca-Cola (KO) - Get Report58 cents vs. 63 cents. Comcast (CMCSA) - Get Report81 cents vs. 84 cents. General Dynamics (GD) - Get Report$2.31 vs. $2.27. Goldcorp (GG) 2 cents vs. 8 cents. Facebook (FB) - Get Report81 cents vs. 50 cents.
Thursday: Alphabet (GOOG) - Get Report$8.02 vs. $6.99. Baker Hughes (BHI) -62 cents vs. 14 cents. Bristol-Myers (BMY) - Get Report67 cents vs. 53 cents. Colgate-Palmolive (CL) - Get Report69 cents vs. 70 cents. Dow Chemical (DOW) - Get Report86 cents vs. 91 cents. Ford Motor (F) - Get Report60 cents vs. 47 cents.
Friday:AbbVie (ABBV) - Get Report$1.20 vs. $1.08. Cigna (CI) - Get Report$2.39 vs. $2.55. Exxon Mobil (XOM) - Get Report64 cents vs. $1.00. Merck (MRK) - Get Report91 cents vs. 86 cents. Phillips 66 (PSX) - Get Report93 cents vs. $1.83. UPS (UPS) - Get Report$1.43 vs. $1.35.
Apple, Comcast, Facebook, Dow and AbbVie are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells AAPL, CMCSA, FB, DOW or ABBV? Learn more now.
Dominating the economic calendar in the week ahead will be a two-day meeting of the Federal Reserve (Tuesday-Wednesday); the S&P Case-Shiller Home Price Index, New Home Sales, and Consumer Confidence (Tuesday); Durable Goods Orders (Wednesday); Jobless Claims (Thursday); and U.S. GDP (Friday).
Economic data this week is largely expected to be positive, especially for the housing sector, but the Fed is likely to sit pat on interest rates until this carnival-like presidential election, mercifully, ends.
Terrorism, slow growth and political instability continue to threaten this overvalued market. If you'd rather avoid stocks, bonds and funds altogether during this period of extraordinary volatility, we know a way you can make money in good times and bad, regardless of economic or market conditions. It's a proprietary trading strategy that wins eight out of ten times. Click here now to learn more.
John Persinos is an editorial manager and investment analyst at Investing Daily. He also appears as a TV commentator on "Small Cap Nation." At the time of publication, Persinos held stock in Apple and Boeing. Follow him on Twitter.









