The market continued its upward climb today with the transportation sector leading it. Financials were the second best today. Had it not been for the 20% decline in Washington Mutual financials might have led the market today as well extending its lead to almost a week now.
Earnings season has been good so far, with most of the major companies reporting earnings ahead of forecasts. What is killing some of those, even after reporting good earnings, is their forecast for the next quarter. The companies are feeling price pressures from rising oil prices which is a concern for the general public as well. This is a double whaamy!!!! They are reluctant to raise prices since that could move some of their customers to their competitors, and if they don't raise the prices their margins get compressed and the stock gets penalized. Costco felt the pain today when they lowered their next quarter's estimates, based on increasing inflation and inability to pass on the increased prices to consumers. The stock fell 10%.
The Fed released the Beige Book today which shows that the economy shrunk in June and July. I'm not surprised to see the consumer tightening their belts since high oil prices are eating into their day-to-day budgets. Couple that with rising unemployment, credit tightening, and depreciating home values and you have got yourself a consumer who is stretched thin from all places. Any more stretching could cause the bubble to burst. This is reflected today in an article on CNN which states most economists believe the median income has contracted over the last 5 years for a middle income family.
Is this the gloom and doom scenario? Nope.!!
There still are good areas to invest depending on an investor's risk appetite. Valuations in the financial sector are at historical lows. If you are investing and have a long time frame, it might be worth having a chunk of your portfolio dedicated to this sector. If you are hesitant to own specific names, then an ETF could be worth a look. Remember I'm not suggesting an overload of this sector in your portfolio - just a small chunk of it. Wealth is not created by earning a salary - it is created by thoughtful investing. Compounding is a magical phenomenon and could work wonders for your portfolio. So, for the young gen - start as early as possible and reap the rewards for your lifetime.
Cheers!!!!
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