Markets Zero in on Profits During January

The May-Investments Index of Western Colorado Stocks slid -0.94 percent in January while the widely followed S&P 500 stock index fell -3.6 percent during the month (total return including dividends). U.S. Bancorp (USB) was the best performing stock in the index (+11.4 percent) while Airgas (ARG), which fell -11.2 percent, was the biggest laggard.

U.S. Bancorp recently reported fourth-quarter profits that were a penny better than expected and nearly double the profits reported a year ago. Revenues were also higher than analysts had anticipated. The Federal Reserve has pushed interest rates down almost to zero in an effort to bail out the banks, who are paying almost nothing for deposits but have been raising the price of loans to borrowers. U.S. Bancorp has benefitted from the Fed’s bailout policies, without having made the mistakes that many of the other big banks were making.

Airgas Inc. reported that third quarter profits dropped 25 percent, revenues fell 13 percent, and the company lowered its estimates for 2010 full year earnings as well. I’m afraid that earnings disappointments won’t stop with Airgas.  In fact, our watchword to investors for the year is, "Be prepared." Be prepared for earnings disappointments in a lot of sectors, because the analysts are expecting corporate profits to be up 25 percent this year and it’s going to be awfully difficult for companies to deliver that sort of profit growth in the current economic environment.

Over the past twelve months, the May-Investments Index of Western Colorado Stocks is up +29.5 percent through the end of January while the overall market has gained +33.1 percent over the same time period. The index began tracking the performance of local stocks three years ago and is down -8.86 percent since it launched, while the S&P 500 has declined -18.97% during the same period of time.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.