Analysts blamed today's market drop on several factors. One was the potential for a European bank crisis spilling over to the U.S. banking sector. Morgan Stanley lowered its global growth forecast on fears the U.S. and Europe are on the cusp of another recession. Ironically, recession confirmation in the past has often coincided with the end of the recession. The old adage is by the time you identify the economy has been in a recession, we're often already coming out of it. The other piece of bad economic data was surrounding the Philly fed data survey of manufacturing in the region, which showed a sharp dive this month, and things certainly didn't get better for the markets.
We were already prepared for today's sell-off, and continue to help Dividend.com Premium subscribers from being blindsided by these fast-moving markets (our downgrades have come even on market rebound days - we are not looking to be heroes by telling everyone all is good when things are certainly volatile in the near-term).
Looking at some of the damage inflicted in today's action, earnings results in the retail space caused lots of red for companies like Ross Stores [[ROST], The Buckle ( BKE ), and Sears Holding ( SHLD ). The J.M. Smucker Company ( SJM ) also got hit hard on their earnings numbers. SJM is a stock we've liked in the past, but the falling dividend yield (as share prices gained substantially) became unattractive for new capital in our opinion. Meanwhile, Wall Street downgrades worked quite easily in today's weak tape. Some of these negative calls hit shares of Hess Corp ( HES ), Staples ( SPLS ), and Starbucks ( SBUX ). Also, as the afternoon rolled around, Hewlett Packard ( HPQ ) grabbed headlines as the company announced it will look to spin off its PC division and could be considering a bid to acquire a major player in the enterprise software arena (Autonomy was the company cited in the rumors). Besides those tidbits, Hewlett's management released their earnings results, which included cutting the company's profit outlook for the rest of 2011.
I've noticed the word "stagflation" has been popping up again in the business media. Stagflation is a real killer, as it indicates rising inflation and slow to zero economic growth. Plus, this morning's monthly CPI (Consumer Price Index) numbers indicated CPI for July rose 0.5 percent from June, more than the expected 0.2 number. But then we always get the economists' view when you exclude the "core" (food and energy prices), that number came in at 0.2, in line with what economists had been expecting, so they feel it's no biggie. You have to love the "excluding food and energy" part of the analysis, right? Let's just exclude the most common costs every consumer has to deal with when doing our analysis of consumer price increases!
Speaking of consumers, there was an interesting story out on Wal-Mart Stores ( WMT ) pointing to a rise in empty store shelves, as the retail giant tries to get a leaner handle on their inventory. This is not a good development for WMT, and one that the company should address sooner rather than later. Trying to squeeze as much profit out of store locations is tricky, but you can't sell what you don't have in stock. This reminds me of a story when I had been evaluating various retail businesses for acquisition in the early 90′s. I happened to be in one location where a store owner was out of Marlboro cigarettes and offered his customer another brand. Of course the customer left without buying his cigarettes (smokers are extremely loyal to their brands) at that location. When I asked the owner about running out of the #1 selling brand of cigarettes, he said he was trying to keep his expenses low and decided cutting down on his cigarette delivery bill was an area that needed shaving. So you see, leaner inventory can hurt you in the end if you have a retail location.
As gold prices continue to trend higher, my take remains that gold (I would look at SPDR Gold ETF ( GLD ) for anyone looking for a highly liquid way to gain exposure to gold) is a trade that requires one to move up their sell-stops as prices rise. Gold will eventually correct as investors, hedge fund managers, and even countries decide to cash in on the recent rise. When that happens, it tends to happen quickly and in a very short amount of time, so be careful not to get too greedy if you are in any gold positions or are thinking about getting aggressive with the yellow metal at these levels.
We continue to make changes to our "Best Dividend Stocks" List so be sure to check out our latest downgrades from earlier today if you did not read the e-mail alert we sent out this morning. There are names coming off the list that we still like, but we feel investors could get better entry points on.
We'll be sure to maintain a tight grip on what is happening in the markets as we know our subscribers look to our service as a guide to helping build long-term wealth. Income-producing dividend stocks are among a small list of areas that will get us to that point. No matter where the averages are trading, we are determined to to deliver the best "non-sugarcoated" analysis there is.
Thanks for reading, and I'll see you tomorrow! P.S. Please pass this e-mail on to someone you think can use some financial motivation as well as being kept in thefinancial newsloop that could affect them.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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