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2006-10-11 :: Earnings Season Startson Low Note

Earnings season started out on a down note, with Alcoa and Legg Mason reporting below estimate numbers.  The Federal Reserve minutes of the last meeting were released today, and the concensus reading is that the much anticipated rate cut is still several months into the future.  Then, to top it off, an aircraft crashed into a building in New York, and rumors circulated that it was a terrorist attack, sending the market down.

We’ve started seeing some strength in the cyclical names as money has begun to rotate out of the defensive companies and into those that have earnings tied to economic activity.  This is great for our portfolios as we have a heavy emphasis on those types of stocks.  There are some companies that should have significant double digit share price increases  once that flow of funds picks up steam:  United Technologies, Ingersol-Rand, Expeditors International, Fed Ex, Foster-Wheeler. 

Today we had some interesting news from Bank of America in that it was going to give online brokerage free trades for accounts above a certain size.  Add on to that the earnings news from Legg Mason and the brokerage/wealth management firms (excluding Goldman Sachs) are now viewed with suspicion.

Its a treacherous time and we are working hard to navigate the pot holes.  We’ve been executing the strategy changes discussed in earlier postings, preparing the portfolios for an autumn rally.  The strongest time of the year for stock markets is from November until May.  The revised strategy should put our portfolios in the sweet spot for above market returns during that time period.

More later!

Mark