Market Lifts As Questions About Future Growth Linger

We should all be concerned about the future because we will have to spend the rest of our lives there. ~Charles F. Kettering

In Las Vegas, there are hundreds of businesses who advertise their ability to 'predict the future.' They come in various shapes and sizes with palm reading and fortune telling the most commonly available. Without question, you can only ponder why their services might be considered. For example, I am sure you have heard that in Sin City, wagering is allowed. You can certainly imagine someone paying one of these prognosticators for advice on where to gamble in the hope of getting lucky. An extension of this idea might be to even ask the fortune teller what team to wager on during a baseball playoff contest or football weekend. As thinking about what lies ahead is also a part of investing, maybe we can expect to see large pension and hedge funds consulting with Elvira the Palm Impresario in an effort to outperform a designated benchmark. In thinking about the possibilities, you have to believe this is destined to be a growth industry for my enterprising state, right? Maybe not.

With the avalanche of earnings reports streaming in from the corporate world this week, some results began the process of considering which companies were best positioned for the future, and those which may struggle. Important stuff, I'd say, especially when billions and trillions of bucks are on the line. With most of the investment world pretty firm in the belief we won't be seeing any problems on the interest rate front for quite some time, the focus is now on results. As it should be.

In the financial sector, Bank of America (N:BAC), Wells Fargo (N:WFC), JP Morgan Chase (N:JPM), and Goldman Sachs (N:GS) all reported this week. There was strength in capital markets, weakness in trading because of fixed income and currency volatility, and legal costs are subsiding. In general, pretty solid, though when interest rates rise, this group will probably be in very good shape. Next, in the technology area, Netflix (O:NFLX) posted a weak subscriber number but was not punished too hard. I guess 65 million subscribers is still a whole lot of paying customers, thank you. Intel (O:INTC) posted a better than expected .64 cents (.59 estimate) and the chip giant is looking forward to continued gains in data centers and focusing on 'the internet of things' for future growth. Notice the key term, future, eh?

Twitter (N:TWTR) announced job cuts and ex-CEO of Microsoft (O:MSFT) Steve Ballmer (also LA Clippers owner) revealed he now owns 4% of the company. I think we are going to see Steve's famous gorilla dance relatively soon, so make sure you look for it. In the IPO market, Square told us they are going to go public relatively soon, raising almost $300 million. Square's CEO is also Twitter's CEO, Jack Dorsey. I am sure Mr. Dorsey is quite capable, but from an investment standpoint, with the competitive nature of both the internet and payment processing industry, it is hard for me to believe either company is something to consider allocating capital to. Public markets are unforgiving and require one hundred percent focus, not 50%.

The main event of the week was Wal-Mart Stores Inc (N:WMT) reporting and warning of a shortfall for next year. Upon hearing the news, investors took the Bentonville behemoth down by 15% for the day, and 30% for the year. The world's largest retailer, by a long way I might add, also announced it will buy back $20 billion of stock over the next two years. In case you had forgotten, the fellows in Arkansas do a cool $500 billion in sales per year, over five times the number of big competitors Target Corporation (N:TGT) ($75 billion) and Amazon (O:AMZN) ($95 billion). For those of us who pay attention to this sort of thing, Amazon is now worth nearly 1.5 times what Wal Mart is. The thinking person might consider why this would be? The answer, my friends, lies in positioning for, you guessed it, the future. Amazon, with it's web services business and no retail presence, is considered to be perfectly positioned for the millennial era. Wal Mart? Based on this week's market reaction, just another low end retailer with no future growth prospects? Maybe, maybe not, but I would bet the c-suite in Arkansas is pretty motivated to take on all competitors. Stay tuned.

In the energy area, Schlumberger (N:SLB), known affectionately as slob, showed the pain in the oil patch continues to affect the oil services sector, with revenues down 33% to $8.5 billion. The company also predicted the tough operating environment should continue for the foreseeable future. They did expect a gradual improvement in oil prices over the next year. Where have we heard that before?

Thanks for reading the blog this week.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.