Both new-home and existing-home sales dropped in May, indicating to us that the housing market is still having a rough time. We are not surprised by the decline because we feel many people purchased homes within a short time period because of the $8,000 tax credit. If it were not for the tax incentive, those purchases would have been spread out over a period of months.
This week, Nike (NYSE: NKE) and Bed Bath and Beyond (NASDAQ: BBBY) both reported earnings. While Nike’s sales were down, earnings were better than expected. Bed Bath and Beyond actually beat expectations, but what drove the price down was the company saying that the consumer is still facing economic challenges, which is true.
The advance report on Durable Goods was down, although minus defense and aircraft, core capital goods were up 2.1%. The predictions for the first three months Gross Domestic Product Growth is still between 3% and 4%.
Things have certainly slowed down from where they were as even The Fed has stated they do not expect 4% GDP Growth. We think as companies begin to report earnings in the next several weeks, some will exceed expectations as estimates are for a 27% increase in profits. Then, everyone will rally behind the growth.
We recommend investing in companies that are projected to do well and have a history of good performance. We look for companies with great balance sheets. In a sense, you have to hold your nose a little bit and ignore the short-term vacillations of the market. It is not going to be a straight upward climb. We feel that if the House and Senate were to switch to Republican control in November, the markets will go up and investors will sigh with relief.
China is also floating their currency a little more. We think they are trying to diversify their base, which is good for the world economy, but perhaps not for U.S. companies. The United States may import a bit of inflation but it will eventually make our products cheaper.
Right now, earnings are growing, balance sheets are strong. The one negative we have is unemployment. Employment is not as strong as it typically is during a recovery. We feel we are looking at a jobless recovery where the economy as a whole improves, but the unemployment rate remains high or increases over a period of time. It will not be totally jobless as the economy has added 400,000 jobs this year but it does not make up for the 8.3 million jobs lost during the recession.
Overall there has been both good and bad news, but we still feel profits will be up, we predict there will be a change in the political climate and recommend that now is definitely the time to be buying stocks.