The Bulls Will Come Back
By Bryan Perry
In just the past seven trading sessions, the S&P 500 has shed 3.8%, primarily due to high-profile earnings misses that caught Wall Street off-guard. The market chose to turn a blind eye to the profit picture and focus instead on QE3. That resulted in late-September gains that have all but evaporated.
It’s important to go through the numbers, though, because the market has been discounting a tide of uncertainty and softer earnings while ignoring signs of optimism. In fact, several blue-chip companies have posted solid Q3 financials and a bullish outlook. Some of those companies include: Accenture (NYSE:ACN), Travelers (NYSE:TRV), Proctor & Gamble (NYSE:PG), Verizon (NYSE:VZ), JPMorgan (NYSE:JPM), Home Depot (NYSE:HD), YUM! Brands (NYSE:YUM), McKesson (NYSE:MCK), Costco (NASDAQ:COST), JB Hunt Transportation (NASDAQ:JBHT), Citigroup (NYSE:C) and Johnson & Johnson (NYSE:JNJ). In fact, as of last week, 62% of companies that had reported earnings beat analysts’ expectations, according to S&P. That’s right in line with the 10-year average.
I provide this lengthy list of names because many of these companies are cyclical in nature and thus more economically sensitive. These blue-chips all have very constructive technical charts and will likely be the market’s leaders in the next rally.
So against a negative investment landscape with uncertain outcomes for the elections and the fiscal cliff, there are points of daylight that will become the source of bullish sentiment once some of the present concerns pass. To sum it up, the downside risk looks limited if Congress acts swiftly to curtail sequestration and extend tax cuts until mid-2013.