@theMarket: Another Record High

This off-again, on-again market continues to grind higher, if only by a few points, but it is the direction that counts. This week it was the S&P 500 Index's turn to chalk up another record gain. And so it goes.

If you recall last week, we were at the bottom of the trading range before the "algos" (algorithmic trading programs of high frequency traders) kicked in and took us up again. This time the cast of characters responsible for lifting the markets included a declining dollar, higher interest rates and higher oil prices.

Before you ask, no, none of those reasons make any sense, but they are not supposed to. It's simply a case of more noise in a market that is entering the summer period. It is the silly season where any lame-brained story might catch some attention and give traders an excuse to run the market up or down depending on the mood.

The fact that global interest rates rebounded from an extremely overbought condition, especially in places such as Europe, had some bond pundits predicting that interest rates in the U.S. were finally poised to start climbing. Sensational stories predicting the Fed has "lost control" of its ability to manage interest rates filled the airways and newsletters fueling further speculation in the bond pits.

The dollar's three-week decline (after a huge and unprecedented 12-month gain) was immediately interpreted as a sign that the U.S. economy is slowing and recession might be just around the corner.  My take is simply that the dollar is pulling back and consolidating after its massive gains.

Oil, of course, continues to be the excuse everyone uses when they can't come up with a reason for why the markets are doing what they are doing. Oil goes up and it's good for the energy patch. Oil goes down and it's good for the consumer, until it isn't. Gold, silver and basic materials jump in price (after 2-3 years of decline) and it supposedly says something about higher inflation expectations.

Contradictions abound among all of these stories. Oil is up on growing world economic demand, but the dollar is down because the same economies are slowing. Materials get a bid because inflation may be rising, while interest rates jump because global interest rates were too low. It is a market of extremes that simply can't abide periods where nothing much is happening.

The bottom line here, folks, is that the U.S. economy will continue to grow at a modest pace, while employment continues to gain. The rate of wage increases will also continue to make gains. That, in turn, will have a far more beneficial impact on economic growth than any temporary decline in energy prices.

At some point this year, the Fed will raise rates while the rest of the globe continues to keep their interest rates low. That differential will allow the dollar to resume its outperformance versus other currencies, but at a more moderate pace. As such, the investment environment here in the U.S. and around the world will remain benign.

Like this week, we can expect the U.S. markets to continue to grind higher, a few points at a time. However, while the gains (followed by losses) per week or month may not be that great, over time we could still see a 5 percent gain in the U.S. by the end of the summer, if this pattern continues. There's nothing wrong with that scenario, in my opinion.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Buy on the News

The worst of earnings season is behind us and it isn't nearly as bad as investors feared. Led by the tech sector, market averages are once again near their highs and appear to be on their way to even higher highs. Halleluiah.

If you recall that last week at this time, world markets looked to be at death's door and the recovery in five days has been encouraging. It is not only the U.S. market that has seen a strong recovery. The highly volatile Chinese market, after experiencing close to a 5 percent sell off in two days, rebounded nicely, erasing all losses and then some. The same can be said for Hong Kong and Japan. And now Taiwan is getting into the mix with more than a 3 percent gain in two days.

The S&P 500 Index tested its all-time intraday highs yesterday brushing 2,120, before falling back at the close. But it was NASDAQ that made history. The tech, biotech and social media index broke out of a 15-year trading range, blowing through its former high of 5,048 and ending the day at 5,056. That's not bad, given that overall company results are mired in the worst earnings season in recent memory.

Remember, however, that these earnings announcements are a scam. At this point almost 80 percent of company earnings results have "beaten" Wall Street estimates, which have been revised down so many times that even the worst of the worst results appear to at least "match" analyst's predictions.

Sifting through these results, what stands out to me are the consistent revenue misses that have been reported by so many multi-national companies. The strong dollar is to blame and company CEOs have said so. What's even more unsettling is that most managers expect this trend to continue into the second quarter of the year.

It is one of the reasons why I believe that U.S. markets, while grinding higher, will remain somewhat lackluster (compared to some overseas markets) through the summer. And lackluster is a relative term. Readers should not forget that our markets are still hitting new highs despite uncertainty over the dollar, earnings and checkered economic data.

In a convoluted twist of psychology, the rising oil price has also been good for the stock market. In a classic case of what's good for Wall Street is not good for Main Street, oil prices have been on a tear ever since they hit at low of $42 per barrel. (my target was $40 barrel, close but no cigar). The rising price alleviates concerns that the oil patch and the banks that lend to them may be facing serious financial difficulties.

As for overseas markets, the Greek Tragedy plays on in theatres, although half the seats our empty. American investors seem to be ignoring the daily "he said, she said" war of words between European finance ministers. I expect that both sides will wait until the eleventh hour, which is still a month away, (when Greece's money runs out of money again), before reaching an accommodation.

I said "accommodation" rather than solution because I am convinced that the EU will simply kick the can down the road once again. Until then, I expect European markets will continue to gain and lose (sometimes a percent or two a day) as the deadline draws near.

In the Far East, I am relieved to see that markets are consolidating a bit after a strong three days at the beginning of the week. That's encouraging. I would prefer to see more of the same, rather than these roller coaster periods of huge gains followed by 4-5 percent corrections, especially in China and Hong Kong.  

I expect the Japanese Nikkei, which recently broke out from strong resistance at the 20,000 level, will continue to climb. The fast track trade agreement between the U.S. and 12 Asian countries, including Japan, should provide impetus for further gains as will Prime Minister Abe's historic appearance before both houses of Congress this Wednesday. My advice is to keep the faith, stay invested and enjoy the ride.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Right Back Into the Range

The first week of earnings season is behind us. The results were not nearly as bad as investors feared. Some averages, such as the Russell small and mid-cap indexes, actually made new highs. However, all the indexes fell back into a trading range by the close on Friday.

As I suggested in my last column, on average 75 percent of companies actually beat earnings estimates. This quarter seems to be following the same pattern, at least so far. The money center banks reported pretty good numbers and even the worst of them got the benefit of the doubt from investors.

The really big moves came from the overseas markets. China, which has been a red-hot market all year, finally stumbled. After the Shanghai market closed on Thursday night (Friday, China time), the mainland regulatory authorities tightened margin rules. They also warned millions of individual investors (who have been the main players behind the stock boom) that they should not continue to borrow money or sell property to buy stocks. Some of these neophyte investors have no idea of what they are doing and yet they are buying and selling sometimes five or six times a day.

After the warning, the futures markets in Chinese stocks immediately plummeted over 6 percent, setting off a chain reaction throughout overseas markets. Aiding and abetting these China troubles, the economic woes of Greece continues to bedevil Europe.

As deadlines approach for various Greek debt payments to the IMF and the ECB, investors are worried that Greece will fail to make the deadlines. And if that happens, will European markets be facing a sudden and violent sell-off? Skittish investors decided not to wait for the outcome and instead sold European stocks on Friday by at least one percent or more.  Germany was down almost 4 percent for the week.

In the meantime, this weekend the International Monetary Fund and World Bank meet in Washington, D.C. for their annual spring meeting. I expect a stream of new forecasts essentially reducing global growth to around 3 percent for the year. There may also be some commentary concerning the impact of a stronger dollar upon various economies.

At the same time, expect commentary from politicians this weekend on trade. On Thursday, the Senate agreed on the wording of a deal aimed at giving President Obama "fast track" authority to negotiate a wide-ranging trade deal with 12 countries in the Asia Pacific (excluding China). The new Trans-Pacific Partnership (TPP) would go beyond the traditional trade deals that focus on cutting tariffs and quotas. In addition, it would hammer out new rules on intellectual property, services and competition between state-owned enterprises and private competitors.

Given that Japan is the largest economy in the proposed TPP after the U.S. (which also includes NAFTA members Mexico and Canada), a lot is riding on the passage of the deal for the Japanese. Prime Minster Shinzo Abe is hoping Congress and the White House can present him with a done deal by the time he visits America on April 26. If so, expect that market to rally in response.

As for the down draft in world markets on Friday, I'm not worried. Foreign markets needed a pull back, especially in Shanghai and Hong Kong, after a quarter of remarkable out performance. Problems in Greece have been triggering sell offs in European markets since 2011. Every one of them has been a buying opportunity. I don’t see this one as any different.

For those who missed putting some money to work overseas at the beginning of the year, this may be an opportunity to jump aboard. I strongly urge you to do so.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Earnings on Deck

This week launched the beginning of first-quarter earnings results for American companies. Wall Street doesn't expect much. It is bracing for a disappointing season, especially from U.S. exporters. Has the market discounted that news already?

Analysts expect that overall earnings will decline from 3 to 6 percent this quarter versus the same time last year. However, I have explained to readers how analysts play the earnings game. Well in advance of reporting, analysts revise down their earnings estimates to the point that only really out-of-touch corporate managers fail to "beat” estimates. On average, about 75 percent of companies meet or beat these lowered expectations. In which case, the markets may not experience the down draft that investors are so worried about.

Mergers and acquisitions continue to prop up the stock market and helping to keep investor's attention focused on what company will benefit from the next multibillion dollar buy out. It is a great time for corporations to acquire public assets. For most major corporations, borrowing huge sums of money is effectively free at these low to non-existent interest rates. Combined with the billions Corporate America has squirreled away on their balance sheets, it is a smart move to shop for strategic acquisitions.

Given the lead time and expense of building home grown assets, it is far easier to buy someone else's. If you throw the strengthening dollar into that equation, overseas companies seem exceptionally well-priced from the perspective of company managements on this side of the pond.

While investors fret about earnings, "Fed Heads" continue to play a guessing game on when the Fed will raise rates. Honestly, does it really matter if it is in June or September or the end of the year? In addition, economists are revising down their estimates for U.S. GDP growth for the year. In summary, the markets seem to me to be busily building a new wall of worry and you know what happens to markets when they do that. It goes up.

One reader asked if I still believe the U.S. market is the place to be, given my enthusiasm this year for buying foreign markets. The short answer is yes. Granted, year-to-date the S&P 500 Index is only up 1.6 percent, while India has gained over 5 percent, China, Japan and Hong Kong are up 14 percent, and Germany is pushing 24 percent, ex-currency.

I believe off-shore will continue to outperform, but America should see at least 5-7 percent gains by the end of the year. Most of those gains will be back-loaded toward the third and fourth quarter. But let's put this in perspective. Most U.S. indexes are only a percentage point or two from all-time highs. We need to take a break. That is all that is happening here.

All investors vacillate between fear and greed. Our natural reaction to a temporary slow-down in our market is to immediately dump it and buy what's moving, so that the feel-good euphoria of making more and more money keeps our high going. That's when you get into trouble.

It is better, in my opinion, to diversify some of your assets overseas--remembering that those are risky markets. If you have been following my advice since the beginning of the year, you already have a 10-25 percent exposure to foreign stocks, depending on your risk tolerance. Sure, in hindsight, you should have bought more so you could have scored big in just three months. But "could a, would a, should a," is a useless exercise and has no place in investing. You are doing just fine right where you are.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Will the Second Quarter Be Like the First?

By now you know that this year's first quarter was nothing to write home about. The benchmark S&P 500 Index managed to eke out a gain of just 0.4 percent for the quarter. The Dow posted a 0.3 percent loss, while the NASDAQ did gain 3.5 percent. Can we expect more of the same this quarter?

The short answer is yes. And that's not necessarily a bad thing. Investors have been conditioned to expect nothing but double digit gains in the stock market over the last few years. This "new normal," based on abnormally low interest rates, is coming to an end, at least in this country.

As I have written in the past, stock markets do not go straight up. Usually, we experience bouts of consolidation. Sometimes that means sharp sell-offs amounting to 10-20 percent and other times the consolidation is more benign. We may be in one of those times where markets digest previous gains by simply doing nothing for a few quarters. I would rather have that than a big sell-off any day.

But while most investors remain U.S.-centric, some foreign markets have done quite well. Back in January I made my investment case for China and Japan as well as Europe. At the time I believed (and still do) that these markets deserved your attention. That advice has paid off handsomely. China outperformed all other global markets. Japan, Asia's second best market, delivered an 8 percent return while Europe (ex-currency) gained double digits.  Do I believe these foreign markets have more room to run?

China's market is climbing a great wall of worry. Their economy is slowing with the latest consensus forecast at a 7 percent growth rate for 2015. That's still far better than the rosiest forecast for our own economy at 2.5-3 percent. Chinese investors are convinced that the central government will use a combination of monetary and fiscal policy to offset this slower growth. So far that bet has paid off.

Over in Japan, where a full-fledged quantitative easing program is in full bloom, investors are buying stocks. They anticipate that their financial markets will react in a similar fashion to what occurred here in the aftermath of our QE programs. Once again that bet is paying off. Ditto for Europeans markets that saw their own QE launch in January.

Here at home the endless debate on whether, when or how much our central bank will begin to raise interest rates is a contributing factor to the underperformance of the American stock market. Today's nonfarm payroll number is a case in point. Although the stock market is closed today (in observance of Good Friday), the bond, currency and futures markets indicate that on Monday the markets will probably be down.

The economy added just 126,000 jobs, while economists were looking for at least 247,000 openings. That is the weakest growth in employment since 2013. Previous months' employments gains were also revised downward. Cold weather in the Northeast, the California dock strike and job losses in the oil patch explains the disappointing job number.

After the news the dollar fell, as did interest rates on the benchmark U.S. 10-year Treasury indicating that at least some investors believe that the Federal Reserve may now extend the timetable before raising interest rates here at home. I don't think so.

The good news is that hourly wages rose 2.1 percent, and that, I believe, is far more important to the Fed than one nonfarm payroll data point that will be revised up or down in the weeks ahead. Bottom line, however, the markets will most likely be down early next week and then earnings season will begin. Hold onto your hats.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.