USA Corporate Profits & Dow Jones ForecastBusiness Cycle InvestorDJIA QUARTERLY FORECAST - MAY 26, 2005 |
MAY 26, 2005 RECOMMENDATION: STAY OUT
We recommend to STAY OUT of the broad USA Stock Market following our March 30, 2005 sell signal.
Our previous March 30, 2005 Recommendation to Sell proved correct – the Dow Jones Industrials Average and S&P 500 indexes fell almost immediately after our Sell signal and only recently recovered, ending the reporting period flat at 10,538 on May 26, 2005. While we are happy with producing a very accurate forecast, we humbly remain ourselves that our Business Cycle Index was in the past often less accurate over short periods.
We also correctly anticipated the Corporate Profits trend: growth slowed from +13.5% in the previous quarter down to +4.5% (revised on June 29 to +6.0%) in the 1st Quarter 2005 according to the US Government data released on May 26, 2005 (revised on June 29) at www.bea.gov.
3 months outlook:
The Business Cycle Index remains clearly below the average level. This means continuing unfavorable economic environment for the Corporate Profits and broad USA stock market represented by Dow Jones Industrial Average and S&P 500 indexes.
High oil price (above US$50 per barrel) during the reported period have continued to depress the stock market. The impact is apparent in widening of the gap between Dow Jones (black line) and Corporate Profits (blue line) which normally trend very closely given 93% historical correlation.
The widening gap suggests that should the oil price fall significantly during the next 3 months we may see a “catching up” recovery of the stock prices. Such stocks recovery would be most likely short lived because our index suggests that growth in Corporate Profits is unlikely to meaningfully accelerate over the next 3 months. And without the Profits growth the stock market would not be able to sustain its gains for long.
Our recommended “OUT of the market” periods are typically, although not always, characterized by higher volatility and sometimes significant stock market falls. We cannot predict if the most negative scenario will be repeated in the current cycle. All we can say is that based on history, there is a 40% probability of the negative scenario.
The Chart illustrates recent performance until May 26, 2005 (Profits revised June 29).
Sincerely
The
Business Cycle Investor
May 26, 2005
_______________________________________________________________________________
Individual Investors invest directly on the quarterly buy and sell signals in the USA market DJIA or S&P500 index Exchange Traded Funds (ETF) or in an equivalent liquid USA market index mutual fund.
The ETF funds trade on the stock market just like normal stocks. One transaction in ETFs provide investors with diversified blue chip portfolio and solid dividends. Transaction and management costs are minimal.
The proprietary Business Cycle Index is an effective leading indicator of corporate profitability for the whole USA economy. The aggregate US Corporate Profits are calculated quarterly by the USA Government and published at www.bea.gov where subscribers may independently verify the forecast.
Corporate Profits have historically shown a high 93% correlation with moves in the major diversified USA stock market indexes: Dow Jones Industrial Average (DJIA) and S&P 500. Hence, the Business Cycle Index can be used as a leading indicator of the broad USA stock market.
The Corporate Profits for the whole US economy don't always move in the same direction or by the same magnitude as the profits reported by individual companies or even the DJIA or S&P 500.
More information about the research methodology can be found at www.businesscycleinvestor.com/methodology.htm
Important Legal Statement - Please read before making an investment decision
The
information provided here is for general informational purposes only
and should not be considered an individualized recommendation or
personalized investment advice. The investment strategies mentioned here may
not be suitable for everyone. Each investor needs to review
an investment strategy for his or her own particular situation before making
any investment decision.
Past results are not necessarily indicative of future
results. There is risk of loss as well as the opportunity for gain when
investing in shares and managed funds. When considering alternative
investments, including hedge funds, you should consider various risks
including the fact that some products: often engage in leveraging and other
speculative investment practices that may increase the risk of investment
loss, can be illiquid, are not required to provide periodic pricing or
valuation information to investors, may involve complex tax structures and
delays in distributing important tax information, are not subject to the
same regulatory requirements as mutual funds, often charge high fees, and in
many cases the underlying investments are not transparent and are known only
to the investment manager.
Disclaimer. This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities. The information has been prepared from a wide variety of sources that the USA based internet publisher GB Capital Pty Ltd (“GBC”) trough its website www.businesscycleinvestor.com to the best of its knowledge and belief, considers accurate. GBC does not warrant the accuracy of the information and forecasts contained here. Opinions expressed in these material may change without prior notice.
Warning. No recipients should rely solely upon the general information and/or general recommendations contained here. GBC strongly recommends that all prospective purchasers of securities should make their own enquiries and consider their own personal financial situation and objectives and, in particular, seek professional advice from a financial consultant, financial planner or stockbroker before acting on the information contained here and especially when using borrowed money and leveraged instruments for investments. GBC is not a licensed advisor.
Hyperlinks. The website contains hyperlinks and other pointers to internet websites operated by third parties ("Linked Sites"). The Linked Sites are not under the control of GBC and GBC is not responsible for the contents of any Linked Site or any hyperlink contained in a Linked Site. The inclusion of any link does not imply any endorsement of the Linked Site by GBC. You link to any such Linked Site entirely at your own risk. We are not involved in any transaction between you and a person accessed by a linked site. We exercise no control over the goods, services or financial products advertised or sold and statements made through any Linked Sites. The Material on any Linked Site, including product or service information and prices, are the responsibility of the operator of the Linked Site. Any information contained on a Linked Site is subject to change without notice by the operator of that website. GBC is not liable for the prices or price changes, including where price changes have not been reflected on the relevant site. Any purchases or dealings you have with a Linked Site are done at your own risk. GBC is not a party to any transaction between you and an operation of a Linked Site. Your use of a Linked Site is subject to the terms and conditions of that site in addition to the GBC Terms and Conditions. If there is any inconsistency, to the extent of the inconsistency the GBC Terms and Conditions prevail.
Advertisements. The website may from time to time contain third party advertisements which contain embedded hyperlinks or which include referral buttons to websites operated by third parties or their licensees or contractors ("Advertisers"). Above "Hyperlinks" Clause also applies to sites operated by Advertisers. Any claims by Advertisers are not recommendations or endorsements by GBC.
Disputes with Linked Sites and Advertisers - Since we do not and cannot be involved in your interaction with Linked Sites and Advertisers, if you have a dispute with one or more Linked Sites or Advertisers, to the extent permitted by law, you release and indemnify GBC (and our agents and employees) from any claims, demands and damages (actual and consequential, direct and indirect, in any case whether foreseeable or not) of every kind and nature known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way connected with such disputes.
Indemnification. Recipient of this information agrees, to the extent permitted by law, to indemnify and hold GBC, any other affiliated companies and their respective officers, employees, consultants, contractors and agents harmless from and against all losses, claims, damages, liabilities, costs or expenses (including those resulting from any threatened or pending investigation, action, proceeding or dispute) arising out of GBC presenting its views, or arising out of any matter referred to in this material, or out of any failure or alleged failure by the Recipient to comply with any requirements of law, regulation or regulatory authority, securities exchange, any wrongful or tortuous act or omission or breach of any duty of care by the Recipient.
Right to Cancel Subscriptions. GBC reserves the right to cancel all subscriptions after refunding the balance of money paid in case the company enters an exclusive arrangement.
Independence. Recipients and Subscribers invest directly and GBC does not receive any commissions or fees on the investments.
Disclosure and employee trading restrictions. Employees and/or associates of GBC typically follow the advice contained herein. This should not be seen as a recommendation.
Copyright © 2004-2005 GB Capital Pty Ltd www.businesscycleinvestor.com, 70 Blanchard Rd, Burlington, MA 01803 USA. No part of the material may be reproduced, except as provided by law, without prior written consent of GBC.
www.BusinessCycleInvestor.com