Saturday, July 5, 2014

What the 2014 Second Quarter tells us. The news is good.

"The American people are among the most productive in the world. We have the best technologies. We have great universities. We have entrepreneurs."
                   -  Ben Bernanke, former Fed chairman.

Among the interesting things about living in retirement is the ongoing challenge of managing your money. To do that well --so you can sleep at night -- requires keeping up on market trends, reading business news publications and taking advantage of (free) expert advice available online and face-to-face. Last winter, the folks at Fidelity Investments hosted a local economic outlook seminar where experts explained to a large group of retirees how shifts under way in the U.S. economy might affect stock market sectors in the coming year. Basically, what they said has proved true.
Using 80 years of prior market history, the experts explained that as a bull market moves into its later phases, share price growth shifts from discretionary retail sectors into industrial, manufacturing, energy and construction sectors. That means some of the retail stock darlings of 2013 have become the dogs of 2014 while industrial sector stocks, energy stocks and manufacturing have begun to show life. For example in my region:
Intel Corp. shares were up nearly 20 percent in the second quarter on a stronger outlook for the company’s computer chips. Greenbrier Cos., which makes rail cars in Portland, Ore. saw a share price increase of 18 percent in the second quarter on demand for new rail cars especially “safer” oil tanker cars. In the past six months, the Greenbrier share price has climbed from below $35 a share in January to $67.29. That’s a 52-week high. The company’s stock price is up 208 percent in the past 12 months.
After large gains last year in stock prices in 2013, many wondered if the rally would continue. The second quarter 2014 proved that the bull market still has strength.
Other second quarter winners:
Nike Corp. -  After seeing its stock price fall sharply in January and February, Nike shares have been moving steadily higher since April and are now near a 52-week high of $80 a share.
Hewlett-Packard Co., which at one point was declared dead, has also seen steady stock price improvement since May. At $34 a share, HP is near its 52-week high. Another steady recovery in the second quarter.
Nautilus Corp., the Vancouver-Wash.-based exercise equipment manufacturer, had a great second quarter, with a big jump in share price from $8.50 to more than $11. Again on a positive sales outlook.
A really big Northwest regional winner: Lithia Motors. Stock in the Oregon-based automotive franchise and retailer has been on a tear...up 74 percent this year. Lithia announced plans in June to pay $43 million for a dealership on the East Coast. That gave the stock a big second quarter boost.
Were there losers?
Most of our second quarter stock price losers were in the retail-consumer spending category, which typically loses momentum in the later stages of a bull market. It would be hard to repeat another year of price growth after a strong 2013.
Among our second quarter 2014  losers were:
 - Whole Foods, down 38 percent on weak sales revenue.
 - Staples, down 30 percent.
 - Bed, Bath & Beyond, down 29 percent.
You get the idea. Others in the loser category included Vancouver-based Papa Murphy's Take & Bake Pizza, which was out with an IPO in the second quarter at $12 a share. The price is now $9.50 or so.  Other retail losers included Urban Outfitters, Kohl's, Ross Stores, PetSmart. None of these declines are a surprise to the experts in terms of classic market trends. None of these declines mean that the companies are in trouble. It's just that they can't repeat year-over-year gains.
The outlook?
Meanwhile, the 2014 outlook remains positive, although markets may be more volatile. The U.S. stock market rally, now in its fifth year, is outlasting most bull markets. But the prior recession and bear market sell-off of 2007-2009 was deeper. So everything seems to be balancing out.  Thank you, Ben Bernanke!
Analysts writing in the Wall Street Journal, at and elsewhere see a stable outlook for corporate revenues through the rest of the year with stock prices, even now, only "slightly above" long-term averages.
Low interest rates and strong corporate profits mean higher dividends and higher stock prices for investors and savers.
Are there risks: Yes....the economies of Japan and China. They both are a big part of the global economy we now live in.
For a second quarter analysis and a list of winners and losers, click here to read a Barron's report.

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