Transports, Then Financials, Then Technology—It’s the Leadership the Stock Market Needs

We may not get such a catalyst until fourth-quarter earnings season, but I think we’ll continue to see this market tick higher as long as we don’t get a major sovereign debt event. The good news is that the earnings should be there for investors and that’s what buyers of equities are betting on. A lot of large-cap companies are now saying that the fourth quarter should be pretty good. There’s going to be some disappointments over t https://npfinancials.com.au/the coming weeks, but there always is. There still is no broad-based advance in the economy. The sectoral choppiness is here to stay throughout 2011.

 

We’re also not getting a broad-based move in the equity market. A lot of Dow stocks still aren’t doing anything in this market and it’s because these businesses don’t have the kind of exposure to Asian economies that they might like right now. Make no mistake; economic growth is Asia is keeping parts of the U.S. equity market alive.

There’s a lot of hope for the financial and technology sectors in the upcoming earnings season. The financials must perform this time around or the market will be very disappointed. I thought that large-cap technology firms would have done better this year (operationally, not on the stock market), but, in most cases, their business recovery was slow. Only now are expectations for this sector improving, and it’s being reflected in the performance of the NASDAQ. Along with the financials, if the technology sector disappoints in the fourth quarter, I think we will get a major retrenchment in stock prices. There needs to be leadership and the market is waiting for it.

Many transportation stocks are leading right now and that’s a good sign. As I’ve written before, just follow railroad stocks if you want to know where the economy and stock market are headed out of a recession.

Quite a few pro investors are musing that share prices next year might follow a similar pattern to 2010. As far as I’m concerned, anything is possible. Share prices were strong in the bottom half of 2009 going into 2010. There was a blip after 2009 fourth-quarter earnings season, then things accelerated again until May. Then we had quite a lull and investor sentiment was really awful. It’s the “sell in May” in