MidnightWatcher – Prophecy in Motion

By Maria Bartiromo, CNBC – “The focus on fundamentals is about to begin.

For the last three months, investors have been ignoring the weak economic backdrop and plowing money into stocks because of the cheap money swirling from central banks around the world. Investors are searching for yield in an environment of rock bottom rates.

But judgment day is coming.

The fourth quarter has begun and the third-quarter earnings will start to flow, giving us a window on just how anemic the last three months have been in the real economy.

That doesn’t mean the chasing of the highly volatile big performers will let up. But it does mean selectivity when buying stocks will be more important than ever. And the risks of a big sell-off are higher.

Big institutions and other deep pools of capital, such as pension funds, have been playing catch up, chasing stocks even in the face of anemic economic growth, stubbornly high unemployment, and a mess in Europe that has yet to be resolved.

The Dow Jones Industrial Average is up more than 10 percent year to date, 4.3 percent in the third quarter. The S&P 500 index is more than 15 percent year to date, and 5.8 percent in the past quarter, and the Nasdaq Composite Index, the big winner of all is up nearly 20 percent year to date and 6.2 percent in the third quarter.

But as money has flowed into stocks, the backdrop for corporate earnings has worsened. Gross domestic product, the broadest measure of the economy, was revised downward to show a slow 1.3 percent growth versus an earlier estimate of 1.7 percent.

Earnings for the third quarter are seen contracting — S&P Capital IQ is expecting a negative showing for third-quarter numbers, with profits down 1.9 percent. It would be the weakest earnings picture since the second quarter of 2009, smack dab in the middle of the recession.

Revenue is seen growing just 1.4 percent. To put that in context, historically over the last 10 years, revenue has grown some 7 percent.” Read more.

Flashback: On The Verge Of Major Financial Chaos On a Global Scale, Investors Nervous – “Is the stock market going to crash by the end of this year? Are we on the verge of major financial chaos on a global scale? Well, this is the time of the year when investors start getting nervous. We all remember what happened during the fall of 1929, the fall of 1987 and the fall of 2008. However, it is important to keep in mind that we do not see a stock market crash in the fall of every year. Some years the stock market cruises through the months of September, October, November and December without any problems whatsoever. But this year conditions certainly seem to be right for a ‘perfect storm’ to develop.” Read more.