Focus Shifts To Earnings


The major U.S. averages have dipped amid back-and-forth headlines on Greece, generally solid reports on the U.S. economy, and rampant takeover activity. While the Dow Industrials and S&P 500 Index are less than 3.5% from all-time highs, both are also within 4% of the closing lows reached in January.

A breakdown below the Jan. 30 closing low of 17,164.95 on the Dow Industrials would represent a bear-market signal under the Dow Theory, as the Dow Transports are in a clear downtrend. In fact, because of continued weakness in railroads and truckers, the Transports are now more than 13% from 9,217.44, the all-time high reached in December 2014.

A close above 9,217.44 is necessary for a reconfirmation of the bullish primary trend. But the Dow Theory will remain in the bullish camp until proved otherwise, and our growth-at-a-good-price approach is working nicely. For now, we have about 85% of our buy lists in stocks.

Earnings expectations

In a relatively slow period for financial news, the debt problems of Greece have dominated recent headlines. That will change in mid-July, when June-quarter earnings season gets rolling. Consensus estimates project per-share earnings for the S&P 500 Index will be down 4.5% from the year-earlier quarter, according to FactSet.

History suggests actual results will exceed current expectations. But investors are keenly interested in whether S&P 500 Index earnings will be down for the first time since 2012 — and whether consensus expectations of a return to year-to-year earnings growth in the December quarter are realistic.

For our money, a more interesting question is whether we'll be able to find enough reasonably valued growers to build a diversified portfolio. On that question there are grounds for optimism. Excluding a 60% expected profit decline in the energy sector, per-share earnings for the S&P 500 Index are expected to be up 2.1%, says FactSet. That suggests actual earnings excluding the energy sector will be up 4% to 7%.

Growth among U.S.-centric companies should be even better. Including only companies that generate more than 50% of sales inside the U.S., per-share earnings for the S&P 500 Index excluding energy are forecast to be up 5.9% for the June quarter, according to FactSet.


The reaction to June-quarter results will be crucial. For now, with reasonably valued growers available, we're maintaining a mostly invested posture. For new buying, Comcast ($62; CMCSa) and Jones Lang LaSalle ($173; JLL) are top picks.

Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at