Hurricane Sandy Halts Trading—But Not the Decline in Revenue Growth

Hurricane Sandy Halts Trading But Not the Decline in Revenue GrowthIn September, consumer spending grew 0.8%, after an unrevised rate of 0.5% in August, and the figure beat consensus. With Hurricane Sandy closing the stock market today, I still think the near-term trend is lower. The S&P 500 Index is right at its 100-day moving average (MA) and is likely to break it. Most blue chips have been deteriorating since the beginning of the month. The stock market is not expensively priced by any means, but revenue growth is deteriorating.

Investor sentiment is also deteriorating as investors continue to be risk-averse, buying bonds instead of stocks. Even with modestly positive gross domestic product (GDP) numbers from the U.S. and U.K. and signs of economic stability in China, investor sentiment is going downward, because the appetite for risk is dwindling. Oil at $88.00 a barrel says it all. Hurricane Sandy will no doubt keep oil prices down this week.

Price deterioration among blue chips has been significant this month. Benchmark stocks like PepsiCo, Inc. (NYSE/PEP), McDonalds Corporation (NYSE/MCD), and 3M Company (NYSE/MMM) have taken big price hits. 3M’s stock chart is below:

 mmm stock market chart

Chart courtesy of www.StockCharts.com

You could call the recent price deterioration among blue chips the consolidation that we didn’t get when expectations for a third round of quantitative easing (QE3) became a reality. (See “Warning—Apple’s Share Price a Major Red Flag.”) Regardless, the reality of declining revenue growth is substantial, and it’s difficult to imagine the stock market appreciating with business conditions so tight.

Many blue chips remain very fairly priced in this market, and because of this, I can’t see the stock market crashing without some major catalyst. Caterpillar Inc. (NYSE/CAT) is a blue chip market leader that tends to trade ahead of the broader stock market. The stock has support at $80.00 a share and, despite some major price declines this year, it has convincingly held above this level. Caterpillar currently trades with a price-to-earnings (P/E) ratio of around nine. The company’s stock chart is below:

 cat stock market analysis chart

Chart courtesy of www.StockCharts.com

Hurricane Sandy has already caused some blue chips to delay their earnings reports. This week, we’ll hear from blue chips like Exxon Mobil Corporation (NYSE/XOM), Starbucks Corporation (NASDAQ/SBUX), and Pfizer Inc. (NYSE/PFE).

The stock market isn’t going to advance without a major new catalyst, and I don’t see one on the horizon at this time. My near-term outlook is for further decline in the major stock market indices, followed by consolidation. Fair valuations will keep the decline tempered.

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