Reading Tea Leaves as Risk and Uncertainty Return

Last week saw the U.S. stock market take another dive lower — the S&P 500 closed the week down 2.1% — following the prior week’s 1% dip. Since the Aug. 2 peak, the S&P 500 has fallen just over 3%. There are a number of factors weighing on the market. They include corporate guidance that calls for slower earnings growth ahead, the return of layoffs from the likes of Cisco (CSCO) and AOL (AOL), and renewed concerns about the consumer amid tepid back-to-school spending and weak results from Wal-Mart (WMT), Macy’s (M) and others. We’re also starting to feel the impact of sequestration-related furlough activities. In addition to all of that, the debate over whether or not the Federal Reserve will taper its efforts to stimulate the economy in September is back on, and we soon will face more conversation about the country’s debt limit and a potential government shut down.

It seems that once again, the level of risk and near-term uncertainty has risen. Couple that situation with the seasonal dip in trading volume during the coming two weeks, and it sets the stage for a pickup in volatility. But that doesn’t mean there isn’t opportunity to be had for patient, long-term investors.

Just this past weekend, the Wall Street Journal ran several articles that speak to PowerTrend opportunities. Let me share them with you:

• Profiting from strong domestic auto manufacturing. On page A1 of the weekend edition, the Journal addressed how U.S. automakers and part suppliers are pushing factories to the limit. Nearly 40% of car factories in North America are running well past the 80-hour mark for the work week. That compares to 11% in 2008. The combination of rising production and tight capacity generated a great return for PowerTrend Profits subscribers! We booked a 30% return in less than four months last Friday when we trimmed our position in laser optic supplier II-VI (IIVI), which serves a number of industrial manufacturing activities.
• Southwestern United States to feel the pinch of declining water supplies. On the same page, another article discussed the decade of drought that is plaguing the Southwest. PowerTrend subscribers are all too familiar with the looming water scarcity that is a part of my Scarce Resource PowerTrend. During the last several months, we’ve positioned ourselves to profit from that looming pain point. Per the article, the largest reservoir in the nation — Lake Mead — is shrinking at such a rapid rate that it is likely to have severe repercussions on the Western United States — from water shortages and allocations to reduced hydroelectric power generation.
• Watching Dr. Copper. On page B4, a bullish article on copper was published. Recent economic data out of the euro zone and China points toward a better global economy in the second half of 2013, compared to the first half. Because of its use in a wide range of manufacturing and construction applications, copper is often called “Dr. Copper” and the direction of its pricing is often used as a proxy for the global economy. During the last three weeks, copper futures have climbed more than 8% — and bullish bets on copper now outnumber bearish ones for the first time since February. This area is one that I will be researching further, and I plan on making a recommendation on how to profit from this sector to my subscribers in the coming weeks.

CNBC — no help at all. The point in mentioning these three examples is that while the overall stock market may be volatile near-term, we have to keep our eyes and ears open for confirming data points, as well as ones that identify a fresh opportunity. Rather than follow the herd or listen to the bombastic chatter on CNBC, I dig deep each week to identify the right data and make sure it’s in the right context. It is hard to have a clear view of your investing mosaic if your view is somewhat askew. One suggestion I have to help improve your investing is to leave CNBC and its sound-bite reporting behind.

PowerTalking Small Business and Jobs with TD Bank

Joining me on PowerTalk this week to talk about the economy, the outlook for small business and job creation prospects, as well as the availability of credit, is Jay DesMarteau, head of Small Business, SBA, Restaurant, & Government Banking at TD Bank (TD). Jay and I talk about TD Bank, one of the 10 largest banks in the country, and what it is doing to help small business. We discuss the size and scope of Jay’s team of 150 small business relationship managers and more than 1,300 TD Bank store managers. We also touch on the economy and what Jay and his team are seeing from small business owners. Even though deposits are high, small businesses remain on the sidelines when it comes to taking on new credit, expanding and hiring.

Jay shares some of the challenges facing small business owners, including growing their business, the economic environment and cash flow. In addition to all of that, and talking specifically about what he and his team are seeing in the restaurant, health-care and government markets, Jay also introduces us to specific efforts from TD Bank and the International Franchise Association to help veterans find jobs and start businesses through the SBA Veterans program.

CLICK HERE TO LISTEN TO MY POWERTALK WITH TD BANK (TD)

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Upcoming Appearances

• Each Monday, I kick off the week with America’s Morning News as we discuss what’s on tap for the coming trading week. Click here to find a radio station near you that carries the program.
• Each Friday, I’ll be joining The Andrea Tantaros Show to dissect the latest economic and stock market news with Andrea and her listeners. You can listen to that discussion by clicking here.