The American consumer is essentially tapped out. This isn't happening to just a few retailers, it's showing up across the board.
Washington, D.C. -- (ReleaseWire) -- 06/09/2014 --Ernest Hemingway was once asked about how he went bankrupt, he said, “Two ways, gradually, then suddenly”. It seems that way for the U.S., but take heart, the situation opens up a world of opportunity for those willing to see it and invest accordingly, says Dawn Bennett, CEO of Bennett Group Financial Services in her latest missive.
Evidence continues to pile up that the next recession has already begun, and at the very least, Americans in the lower and middle income brackets are feeling it the most. The United States is running out of steam and is bogged down by trillions of dollars in debt, increased regulation, and fewer jobs. It’s like we are all trying to swim upstream in the middle of a biblical flood! The Unites States isn’t coming to an end but it is changing dramatically in front of our eyes, says Bennett.
Here is the first piece of evidence of a recession she offers: The S&P 500 closed over 1900 on Friday, May 30, 2014, but the market is making new highs on the backs of fewer stocks. We have gone from one out of five stocks in the S&P 500 hitting new highs to one stock out of every 19 stocks that are hitting a new high. That's a tremendous amount of deterioration to the breadth of the market, which means caution is in order for investor portfolios.
The second piece of evidence was the optimism by analysts coming into the first quarter of 2014 because they said top line growth was going to grow by consensus prospective about 4 to 5% year-over-year. They missed the mark. The average top-line revenue growth came in at 0.3 percent for Dow stocks, and only 0.5 percent for non-financial stocks. Top-line lack of growth is really collapsing. This data is the single most important factor to consider when pondering the fundamentals of U.S. stocks over the remainder of 2014, because revenue growth fulfills the reasons equities are worth owning, she contends.
The third piece of evidence she points to is the apparent retail apocalypse currently happening in the United States, which will continue to escalate. The American consumer is essentially tapped out, according to Bennett. This isn't happening to just a few retailers, it's showing up across the board.
First quarter 2014 retail data points that need heeding: Walmart’s numbers across the board were all down. Their profits plunged for first quarter 2014 by $220 million. Target - their profit plunged by $80 million for this first quarter of 2014, that's 16 percent lower than in 2013. Staples - their profits have plunged by 44 percent, and they're closing hundreds of stores. American Eagle- their profit was down by 86 percent. The Gap - their income dropped by 22 percent. Dollar General- a store that's supposed to do well in recessionary times- their profit plummeted by 40 percent. McDonald's- their earnings fell by $66 million. Costco- another company that's supposed to do well during recessionary times - profits declined by $84 million. JCPenney had a total loss of $358 million for the first qua rter 2014.
Unfortunately, plummeting retail sales are not the only sign that the U.S. is in its next major economic downturn says Bennett. The fourth piece of evidence, the Department of Commerce and the BEA, which is the U.S. Bureau of Economic Analysis, reported that the U.S. gross domestic product, the GDP, in the first quarter of 2014 came in at a negative -1.0 percent. This is just the 10th time since World War II that GDP growth has been negative outside of a recession. Three of those negative quarters immediately preceded recessions.
Very few people expected a recession the last time we had it in 2008 and 2009 says Bennett. Then Federal Reserve's Chairman Ben Bernanke repeatedly promised us that we would not have a recession, but we went on to experience the worst economic downturn since the Great Depression. It may be the same this time around. Just like in 2000 and 2009, we will see an endless chorus of everything-is-just-fine-and-dandy talk from the White House, Congress and the media. Most Americans will be blindsided when reality hits. We are in a recession no matter what they tell us.
The market keeps going up on bad news because the Fed continues to put money into the market, not because they should, but because that's all they can do right now. They're just whistling past the graveyard, putting money in it trying to keep the markets up, which avoids the truth. What's going on in the U.S. stock market is unsustainable, unexplainable, and groundless concludes Ms. Bennett.
Securities offered through Western International Securities, Inc. Member FINRA & SIPC. Bennett Group Financial and Western International Securities, Inc. are separate & unaffiliated companies.
All market data references are sourced to Bloomberg terminal database.
About Bennett Group Financial Services LLC
Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients’ as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill. For more information, call 866-286-2268 or visit http://www.bennettgroupfinancial.com.
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program on http://www.WMAL.com called Financial Myth Busting http://www.financialmythbusting.com. She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org