Hedge Funds’ 50 Favorite Stocks

Hedge funds overall have been lackluster performers in this bull market. In 2014, for example, they’re up just 1% so far compared with 7.5% for the Standard & Poor’s 500, according to Goldman Sachs. Goldman analyzed performance from 775 hedge funds with $1.9 trillion under management.

The reality is that the S&P 500 has been one of the world’s best-performing categories over the last five-plus years. Yet hedge funds often employ sophisticated, complex strategies in an effort to deliver outsized performance. This also may be an attempt to justify their ridiculous fees, such as the infamous “2 and 20″–2% annual management charge plus 20% of the profits.

Stick to stock picking? How boring! But hedge funds’ performance would actually improve significantly if they did just that.

Goldman Sachs periodically compiles a list of 50 stocks that "matter most" to hedge funds. These are the stocks that are most frequently among the top-10 holdings of hedge-fund portfolios. Since 2001, the lists of these 50 stocks have outperformed the S&P 500 on a quarterly basis 66% of the time, according to Goldman.

Here are the top 50 stocks in hedge funds as of the end of the second quarter:

HCA Holdings Inc.

Company	Ticker	Subsector	Market Value ($billions)	Funds   Top 10	Return %YTD
Actavis Plc	ACT	Pharmaceuticals	57	67	28
Apple Inc.	AAPL	Technology Hardware	591	57	24
Facebook Inc.	FB	Internet Software &am! p; Services	189	43	35
Allergan Inc.	AGN	Pharmaceuticals	47	41	43
American Airlines Group	AAL	Airlines	28	41	56
General Motors	GM	Automobile Manufacturers	54	41	-16
Time Warner Cable	TWC	Cable & Satellite	41	41	11
American Intl Group	AIG	Multi-line Insurance	78	40	6
Microsoft Corp.	MSFT	Systems Software	370	38	21
Hertz Global Holdings	HTZ	Trucking	13	33	5
Charter Communications	CHTR	Cable & Satellite	17	32	14
Micron Technology	MU	Semiconductors	34	32	45
Williams Companies	WMB	Oil & Gas Storage & Transportation	43	29	53
Cheniere Energy	LNG	Oil & Gas Storage & Transportation	17	28	70
Citigroup Inc.	C	Diversified Banks	148	28	-6
Delta Air Lines	DAL	Airlines	33	27	41
HCA	Health Care Facilities	30	26	42
Anadarko Petroleum	APC	Oil & Gas Exploration & Production	55	25	37
CBS Corp.	CBS	Broadcasting	31	25	-6
Ally Financial Inc.	ALLY	Consumer Finance	12	24	-0.3
Google Inc.	GOOGL	Internet Software & Services	394	23	4
Air Products and Chemicals	APD	Industrial Gases	28	22	20
NorthStar Realty Finance	NRF	Mortgage REITs	3	22	45
Bank of America	BAC	Diversified Banks	160	21	-2
eBay Inc.	EBAY	Internet Software & Services	67	21	-4
Liberty Global	LBTYK	Cable & Satellite	33	21	0
Priceline Group	PCLN	Internet Retail	67	21	9
Valeant Pharma. International	VRX	Pharmaceuticals	37	21	-4
Baidu Inc.	BIDU	Internet Software & Services	77	20	23
DIRECTV	DTV	! Cable &am! p; Satellite	42	20	22
DISH Network Corp.	DISH	Cable & Satellite	30	20	12
Dollar General	DG	General Merchandise Stores	17	20	-5
Equinix Inc.	EQIX	Internet Software & Services	11	19	22
MasterCard Inc.	MA	Data Processing & Outsourced Services	88	19	-10
Walgreen Co.	WAG	Drug Retail	59	19	9
American Realty Capital Properties	ARCP	Diversified REITs	12	18	7
Gilead Sciences	GILD	Biotechnology	153	18	32
Liberty Interactive	LINTA	Catalog Retail	14	18	-3
Monsanto Co.	MON	Fertilizers & Agricultural Chemicals	62	18	3
Twenty-First Century Fox	FOXA	Movies & Entertainment	80	18	2
Visteon Corp.	VC	Auto Parts & Equipment	4	18	20
Amazon.com Inc.	AMZN	Internet Retail	154	17	-16
Berkshire Hathaway	BRK.	Multi-Sector Holdings	331	17	13
SunEdison Inc.	SUNE	Semiconductor Equipment	6	17	64
Comcast Corp.	CMCSA	Cable & Satellite	142	16	6
JPMorgan Chase	JPM	Diversified Banks	215	16	-1
Macquarie Infrastructure LLC	MIC	Airport Services	4	16	38
Crown Castle Intl	CCI	Specialized REITs	26	15	8
Hess Corp.	HES	Integrated Oil & Gas	31	15	20
Lamar Advertising	LAMR	Advertising	5	15	-1

 

 

Will Security Problems Hamper Mexico's Energy Boom?

Mexico has attracted attention for passing secondary laws that will end its state oil monopoly and open the country's borders to new types of foreign investment. As Juan Montes explained in a recent article, "Under the new law, foreign and private domestic energy companies will be able to explore, produce and refine oil for the first time since Mexico nationalized its oil industry in 1938 and transformed oil into a symbol of national pride. State-owned oil giant Petróleos Mexicanos, or Pemex, was created that year, and has since been the only company allowed to exploit the country's oil and gas resources, turning Mexico into the world's ninth-largest oil producer."

Economic consultant Luis de la Calle explained, "This is a new, important step in that same direction of creating markets. Transforming the energy sector into an energy market should lower power costs and Mexico's industry would be unstoppable against China and even the U.S."

Mexico is now open for investment by foreign oil companies. It remains to be seen what the impact of this reform will be.  (Photo credit: Wikipedia)

There are opportunities for foreign companies both offshore and in the shale fields of northwestern Mexico, south of the Texas border. The Perdido Fold belt which is located on the U.S.-Mexican maritime boundary could contain between ten and thirty billion barrels of oil. The area is likely to be of interest for oil majors such as Chevron, BP, and Royal Dutch Shell are already operating in areas close to Mexican waters.

Mexico's state-owned oil company Pemex will likely still control the bulk of Mexico's oil and shale production. In mid-September the Ministry of Energy will decide what blocs it will open to private investment, but deepwater projects and difficult shale plays are likely to be opened to competitive biddings. These projects require expertise and funding that Pemex lacks.

In a recent article for Oil & Gas Journal Rachel Seeley explained "The Ministry of Energy will ultimately decide which geographic areas to make available for international bidding and when they will be unveiled. The ministry will also be responsible for deciding which contract types will be applied to which areas, evaluating bids, awarding contracts, and later monitoring exploration and production plans to ensure contract compliance and maximize productivity."

It is still not clear whether foreign companies will be offered production-sharing deals, profit-sharing agreements, pure service contracts, or licenses rather than concessions. Companies considering investing will wait to see how attractive the terms of the deals are. Then, the first round of bidding will likely take place after the July 2015 mid-term elections. Once the deals start taking effect, however, the impact on Mexico's economy could be quite significant. During an April 2014 visit to Washington DC Pemex chief Emilio Lozoya said, "The impact on the economy will be great."

Violence May Hamper Investment

JPMorgan Chase & Co's Broad-Based Beat Restores Some Confidence

Bulls will talk at some length about JPMorgan Chase's (NYSE: JPM  ) leadership across the banking landscape, including leading deposit share across most of its 23-state footprint, #1 share in trading, and leading share in corporate lending, but the fact remained that the bank had logged four straight sequential declines in core pre-provision profits. With a higher-quality, broad-based beat in the first quarter, JPMorgan has shored up some of the nagging concerns and remains well-placed to take advantage of any meaningful steepening in the yield curve.

The numbers are always messy, but JPMorgan beat where it mattered
Because of the numerous "one-time" costs, charges, and benefits, there is always some difference of opinion between analysts and investors regarding the real/core earnings for large banks like JPMorgan, Citigroup, and Bank of America (and to a lesser extent other large banks like US Bancorp and Wells Fargo). That said, just about every permutation of the numbers shows a strong beat, with core earnings of around $1.43/share versus the $1.29 average guess on Wall Street.

Core revenue declined 3% yoy, but did rise 2% sequentially and beat expectations by around 5%. Better still, the revenue strength (relative to expectations) was seen across the board, with all major reporting segments faring better than expected (and Consumer & Community Banking leading with 9% growth).

Net interest income ticked up 2% (and 1% sequentially), as net interest margin has stabilized. Core fee income fell about 7%, with trading revenue down 14%. While that's an ugly looking number, it was better than the 20% decline that JPMorgan had projected. Citi was even weaker in its trading operations (down 36%) and while it's early in the reporting season it looks as though JPMorgan is maintaining or building its share lead.

Core pre-provision profits were down 2% from last year's level, but up a strong 8% from the first quarter – the first sequential improvement after four straight declines. About half of the beat was due to the strength in the investment banking operations, while the consumer business supplied the majority of the remainder.

More than holding its own in lending?
JPMorgan reported that core loans grew 8% from last year and 4% from the prior quarter. That's stronger than both Citi and Wells Fargo, and JPMorgan saw balanced growth across its lending platform. Balances in the large card business grew about 1% yoy, but the company nevertheless appears to be gaining some share and credit quality continues to improve. JPMorgan is also seeing good performance in its consumer lending, while gaining some share in corporate lending.

While the loan book grows, credit quality continues to improve. The company's non-performing asset ratio improved again, to 1.16% from 1.46% last year and 1.24% in the first quarter, and the net charge-off ratio also declined (from 0.77% to 0.63%). Provisions declined 19% sequentially and while it seems improbable that large banks like JPMorgan, Citi, and Wells Fargo have much left to squeeze from improving credit, it's encouraging to see good credit numbers.

Will "normal" come back?
Comparing today's net interest margin (2.20%) to the FY 2010 figure of 3.06% gives you some idea of how the low rate environment has crimped business for major banks like JPMorgan, Citi, and so on. Low-cost capital was invaluable when banks needed to recapitalize their businesses (particularly for weaker players like Bank of America, Citi, and Wells Fargo), but it is now weighing on returns.

For JPMorgan there aren't a lot of easy answers. Aggressive expense reductions have been a big part of the plan for Bank of America and Citi, but JPMorgan has made it clear that it views its branch banking network as an asset and a driver of long-term value. Likewise, any bank can talk about wanting to grow the loan book, but with almost every bank trying to do that (particularly in commercial lending), there is a lot of competition out there and especially for the good credits.

Strength in investment banking (trading and advisory services) certainly helps, and so too does the company's strong position in cards and card services. A strong position in commercial lending (particularly large-scale corporate debt) also provides a good stream of fees and profits for the bank.

All told, though, it's going to be basic profit margin improvement that helps JPMorgan. New rules on capital ratios aren't going to let a bank like JPMorgan significantly increase leverage (though the company is fine vis a vis Basel 3 requirements), but a 0.1% improvement in NIM holding all else constant would help return on equity by more than 1 point.

The Bottom Line
I continue to value JPMorgan on the basis of an 11.5% long-term ROE and an 10.5% cost of equity, supporting a fair value of more than $65 by an excess returns model. I also use the company's near-term return on tangible equity as an alternative valuation metric; historically there is a close relationship between returns on tangible equity and the price/tangible book value multiple and JPMorgan's RoTE supports a 1.5x multiple to tangible book value, or a target of around $65.

Trading 10% below my estimate of fair value, I continue to believe that JPMorgan is one of the few bargains left in the banking sector. A flat rate curve limits near-term earnings growth potential, as does the company's commitment to a large full-service branch network, but the company's leading market position in multiple segments looks like a coiled spring that can generate good earnings leverage when the curve steepens again.

JPMorgan + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here! 

Comcast left me on hold for 3+ hours -- until it closed

  Comcast customer's frustration goes viral NEW YORK (CNNMoney) Viral recordings of Comcast customer service snafus are becoming a highly watched mini-series.

Among the most recent: A video showing a Chicago photographer on hold for more than 3 hours trying to cancel his service, only to be told in a separate call that the office that handles disconnects was closed for the day.

Aaron Spain's video on You Tube has 1.4 million views in the three days since it was posted.

In the video, Spain holds up the phone to show the original call passing the 3 hour and 25 minute mark. "That's how long I've been on hold, and they're closed," he said. "I'm pissed."

Spain said he was able to cancel the service -- in just 17 minutes -- when he called back the next day. He said once the video went viral, a Comcast (CMCSA)executive called him to apologize. "It seemed genuine," Spain said.

"Under no circumstances is this the experience we want our customers to have," said a Comcast spokesperson. "Our goal is to be respectful of our customers' time and fix any issues the first time. We take this very seriously."

Last week Tim Davis, another unhappy Comcast customer. posted a recording of his battles to get an improper charge from a service call dropped from his bill. He was told in the complaining call that the only way to have the charge removed was to have a recording of someone at Comcast telling him that there would be no charge to fix the problem.

He called the bluff, playing back a tape of the earlier customer service representative assuring him there would be no charge, and got the charge dropped. The incident was reported by The Washington Post. The video has about 770,000 views.

Last month, Ryan Block, a former editor of Endgadget, and his wife Veronica Belmont, posted a recording of an abusive Comcast customer service representative who refused to cancel their service despite repeated requests to do so. There are more than 500,000 views of the various YouTube postings of his call.

  Comcast: Poor service, good stock

Comcast issued statements apologizing for both the Davis and Block-Belmon! t calls.

"This is not the type of experience we want our customers to have. We have spoken with the customer and apologized to him," said Comcast about Davis' video.

PCLN and CTRP – How Priceline Will Take Over China

Popular Posts: 5 High-Dividend Stocks Yielding 5%-PlusWhat If the Alibaba IPO Is a Flop?11 Best Cheap Stocks Under $10 to Buy Now Recent Posts: Where’s the Market Headed From Here? GOOG and BKS – Can Google Deal Keep Barnes & Noble Alive? PCLN and CTRP – How Priceline Will Take Over China View All Posts PCLN and CTRP – How Priceline Will Take Over China

Priceline (PCLN) is one of those mega-momentum stocks that just won’t quit.

In the past five years, PCLN stock is up an amazing 880%, and that outperformance has slowed only slightly as Priceline stock has put up 39% returns in the past 12 months vs. a gain of just 13% for the S&P 500 in the same period.

But the dominance of Priceline in Western travel markets and a resurgence in consumer spending and business traveling are all old news.

For PCLN to push higher, it’s going to have to enter new markets — and that’s just what Priceline has done with its recent investment of $500 million in Chinese travel portal Ctrip.com (CTRP).

Here’s what the news means for PCLN stock investors:

Priceline Goes Global

A big trend for all Internet travel stocks in recent years has been the push overseas. Priceline, Expedia (EXPE), Orbitz (OWW) … all of these ventures have relied heavily on international growth — particularly in Europe.

Priceline in particular had been flying high thanks to the acquisition of Amsterdam-based Booking.com in 2005. The company saw continued growth even across the European debt crisis and kept beating earnings forecasts over the past few years.

But Europe is the past — Asia is the future. And that makes the timing perfect for Priceline to take a 10% stake in Ctrip.com.

Most importantly, the initial stake has some speculating about an outright buyout of CTRP by PCLN in the years ahead. After all, Priceline boasts about $6.7 billion in cash and investments — nearly enough to buy Ctrip outright; even after today’s 10% pop in CTRP stock, the company is valued at just about $9 billion.

PCLN Stock Is a Buy

This Chinese growth potential is a big reason to be bullish on PCLN stock.

But another hard-to-believe reason to like Priceline stock is that despite going like gangbusters over the past few years, PCLN’s forward price-to-earnings ratio is pretty reasonable at about 20.

Considering some sleepy consumer staples stocks are sitting on forward P/E’s of 17 right now, that’s a very good sign for those worried about overpaying for Priceline.

Bigger-picture, Priceline has long been committed to buybacks and continues to share its cash with shareholders via ambitious repurchase plans. In mid-2013, the company announced a plan to repurchase $450 million in PCLN stock.

Beyond that, sentiment tends to rule the roost on Wall Street these days … and you’d be hard pressed to find someone who thinks Priceline is a bad company with bad things in store for it anytime soon.

I say buy PCLN with confidence after this CTRP deal.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor's Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. 

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A Risk Worth Pursuing

Know Your Risk Tolerance

Given the ongoing correction in the oil and gas markets, I want to use this week's column to reflect on investment philosophy and risk. In recent weeks some master limited partnerships (MLPs) have experienced sharp corrections, a reminder of the downside risks especially inherent in high-flyers and some of the higher yielders.

I think it's critically important to understand what type of an investor you are, and the extent of your risk tolerance. This is why I usually qualify investment recommendations with descriptors such as "short-term," "long-term," "aggressive," "moderate" or "conservative." My own investment style is long-term and moderate. For me, that means I am generally making an investment that I know could take three years or longer to pay out.

My "moderate" threshold means that I am willing to withstand up to about a 20% downside on the investment either during a market correction, or if there is bad short-term news that doesn't really affect the longer-term prospects. To me, conservative investors should be prepared to accept a potential 10% downside risk on an investment, while those making aggressive investments must understand that downside risks can easily exceed 20%.  

A Recent Reminder

Consider Phillips 66 Partners (NYSE: PSXP), which owns some of the midstream logistics assets of its sponsor, the refiner Phillips 66 (NYSE: PSX). Ordinarily we might consider such a midstream MLP to be a fairly conservative investment, but PSXP exploded out of the gate after its IPO and has continued to be one of the most lucrative MLPs since its IPO. In just the first half of this year, the unit price rose 110%. As the unit price rose and the yield continued to shrink, price targets were raised again and again by brokerage houses.

We have urged caution as we felt the valuation of PSXP was reaching unsustainable levels. Last m! onth in Full Hearts, Thin Yields, I warned that investors "have very aggressive expectations of  how the partnership [PSXP] will grow its distribution" and that "anything that falls short of those aggressive expectations could result in a sharp pullback in the unit price." PSXP units are down over 16% since I wrote those words three weeks ago, and down nearly 20% over the past month.

I am not telling that story to impress you. If you held PSXP since its IPO, or even since the beginning of this year, you are still very happy with your investment. But this is a reminder that even a midstream MLP can be an aggressive investment, and anyone investing in PSXP a month ago needed to be mentally prepared for such a correction, or at least have stop-loss protections in place.   

Admittedly, midstream MLPs are not where you will tend to find the most risk. They are generally less volatile than the variable distribution MLPs such as refiners and fertilizer producers, as well as the upstream MLPs, which I expect to benefit from the continued growth of domestic oil and gas production. If you are a conservative or moderate investor, these investments are not for you in most cases. For aggressive short-term traders these investments can prove lucrative — but timing is everything.

And just as a yield depressed by a big runup in the unit price can signal trouble ahead, so can a higher yield implying higher risk. We dropped Eagle Rock Energy Partners (NASDAQ: EROC) from The Energy Strategist and MLP Profits portfolios last year shortly before declines turned it into a double-digit yielder, and haven't regretted those decisions for a second.

At this point, the trailing 13.7% yield reflects a distribution that was discontinued last quarter amid a business slump. It is no consolation to investors who have seen the unit price drop 24% year-to-date, and 35% over the past 12 months. Might EROC have an impressive showing over the next 12 months? It's possible, but you have to be pre! pared for! further downside. EROC units are trading at $4.37, and we know people who thought they were getting a bargain at $10, $8, and $6 (as it fell from its 2011 high above $12).

Don't Forget to Get Paid

Obviously, investments with higher downside risk must offer commensurately greater upside. I look for those that are out of favor but still have a bright long-term outlook. The natural gas sector fits that bill right now. I see upward pressure on prices over the next five years (despite the recent downward pressure on natural gas prices, which I view as short-term), for two primary reasons.

Liquefied natural gas (LNG) export terminals will begin operation as early as late 2015, when Cheniere Energy Partners (NYSE: CQP) completes its Sabine Pass LNG export terminal. Sempra Energy (NYSE: SRE) has also received approval for an LNG facility on the Gulf Coast in Louisiana, and there are 13 more proposals awaiting approval. As more of these terminals come online, some of the excess natural gas will find its way to more lucrative markets.

Natural gas should get another long-term boost from a US Environmental Protection Agency (EPA) rule that would cap carbon emissions on new power plants. Coal-fired power would be unable to economically meet the new emission standards, but current gas-fired power plants already do so.

However, short-term fluctuations like uncharacteristic weather can override the longer term trends, so this is a riskier bet for a short-term investor. This past winter was uncharacteristically cold, and pushed gas prices to highs that haven't been seen in years. Now an uncharacteristically cool summer is underway, and that has reduced demand and resulted in a steep drop from the highs seen in the spring.

But longer term, I believe higher gas prices are in the cards and natural gas producers should benefit. This will benefit upstream MLPs as well as midstream MLPs racing to transport new gas production to market. Over the past four years direct capital invest! ment in U! S oil and gas infrastructure has increased by 60%, reaching $90 billion in 2013. Over the next 10 years, the US is projected to spend $1 trillion on new oil and gas infrastructure.

This is a positive long-term story and there will be numerous winners. Patient investors — even patient aggressive investors — should see ample rewards. But we all need to understand our short-term risk tolerance, as short-term corrections can be steep.

Conclusions

The energy sector has been one of the top performing sectors of the year, but over the past month a correction has been underway. The Alerian MLP Index declined by more than 5% in just the past week, while some typically steady MLPs have shed even more. Given this year's gains, it may be worthwhile to reflect on the makeup of your portfolio and make sure that it still matches your time horizon and risk tolerance.    

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Fed Sees Labor-Market Slack Even as It Trims Bond Purchases

The Federal Reserve said slack in the labor market persists even as the economy is picking up, and it continued to trim monthly asset purchases that have pumped up its balance sheet to a record $4.41 trillion.

“A range of labor-market indicators suggests that there remains significant underutilization of labor resources,” the Federal Open Market Committee said today in a statement in Washington. “The likelihood of inflation running persistently below 2 percent has diminished somewhat.”

Policy makers tapered monthly bond buying to $25 billion in their sixth consecutive $10-billion cut, staying on pace to end the purchase program in October.

Fed officials led by Chair Janet Yellen are stepping up a debate over when to raise interest rates for the first time since 2006 as unemployment falls faster than expected and inflation picks up toward their 2 percent goal.

The outlook brightened today with a government report showing the economy expanded more than forecast in the second quarter. At the same time, Yellen has expressed concern about persistent signs of labor-market slack, including low wages. The FOMC repeated it’s likely to reduce bond buying in “further measured steps” and to keep interest rates low for a “considerable time” after ending purchases.

Committee’s Objective

“Inflation has moved somewhat closer to the committee’s longer-run objective,” the Fed said. Its preferred inflation gauge -- the personal consumption expenditure price index -- rose 1.8 percent in May from a year earlier. Its 12-month gain was as low as 0.8 percent in February.

“They are protecting their credibility” by flagging less risk that inflation will persist below their target, said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Inflation has moved from a reason for the Fed to be easier for longer to more of a neutral factor in policy.”

Stocks gained while bonds remained lower after release of the Fed announcement. The Standard & Poor’s 500 Index increased 0.1 percent to 1,971.75 at 2:38 p.m., while the yield on the 10- year Treasury note rose nine basis points to 2.55 percent.

Philadelphia Fed President Charles Plosser dissented, objecting that the guidance on the timing of a rate increase was “time dependent” and didn’t reflect “considerable economic progress.”

Bond purchases will be divided between $15 billion in Treasuries and $10 billion in mortgage-backed securities.

Achieving Goals

Since meeting in mid-June, the committee has come closer to achieving its goals for stable prices and full employment. Employers added 288,000 jobs last month, helping push down unemployment to 6.1 percent, the lowest in almost six years.

Today’s Commerce Department report showed gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory.

Consumers, whose spending accounts for 70 percent of the economy, have grown more confident as the labor market improves and rising share prices boost wealth.

The S&P 500 index is up more than 6 percent this year after jumping almost 30 percent last year, aided by easy monetary policy and rising corporate profits.

Almost 77 percent of companies in the S&P 500 have posted second-quarter results that exceeded analysts’ estimates, according to data compiled by Bloomberg.

Slow, Steady

The recovery in demand has “been slow and steady,” said Mike DeWalt, corporate controller for Peoria, Illinois-based Caterpillar Inc., the world’s biggest maker of construction and mining equipment.

Yellen told lawmakers this month that while her view of the economy has turned “more positive,” she’s concerned about signs of job-market “slack” such as low participation in the labor force.

“We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates,” she said in her semi-annual testimony. “There are mixed signals.”

Among them: average hourly earnings fell or were stagnant in the past four months, after adjusting for inflation.

“The most important thing is to look at what’s going on with hourly wages,” according to Brian Jacobsen, who helps oversee $232 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin.

Flat earnings will probably compel policy makers to err on the side of keeping rates low, said Ellen Zentner, a senior economist at Morgan Stanley in New York.

“This is a Fed that’s going to have to be slapped across the face with higher wage growth before they raise interest rates,” she said in a July 25 Bloomberg Radio interview. “And we just haven’t seen any kind of data that points to that yet.”

--With assistance from Tom Keene in New York.

With a 2% Thud, Stocks End Worst Month Since January, Dow Negative in 2014

Well, that wasn’t pleasant. The Dow Jones Industrial Average just closed out July with a loss of 317 points, or 1.9%. It was the Dow’s biggest single-day selloff since February. In the process, the blue-chip index breaks a five-month winning streak and is now down 13.4 points this year on a price basis.

Why a big selloff, and why today? The answer is, no reason in particular. No single factor on its own. You’ve got trouble in Argentina and …. Well, the rest is a bit murky. The economic data lately is strong. Perhaps that can be read as a negative by monetary-policy worrywarts. Stronger data certainly could give investors pause over the pace of Federal Reserve policy changes.

Agence France-Presse/Getty Images

But that’s not “news.” In the news were so-so earnings reports which didn’t have a ton of read-though for the rest of the economy. Exxon Mobil (XOM) shed 4.2% as output declined. Whole Foods Market (WFM) lost 2.3% after another warning on sales this year (the struggles of the retail sector, particularly high-end grocers, are nothing new). Akamai Technologies (AKAM) slid 2.8% after undershooting Wall Street’s expectations.

High flyers which ran into turbulence early in the year were also sharp decliners in Thursday’s session. SPDR S&P Biotech ETF (XBI), for instance, shed 3.2%.

Maybe it’s just time for a selloff, a consolidation, a correction, whatever you choose to call it. Here’s what Dow Jones Newswires had to say on the subject this afternoon:

Traders said there was no single catalyst for the selling, which came on the heels of broad losses in European shares.

U.S. traders pointed to a string of disappointing earnings reports Thursday, which disrupted what has been strong season for corporate profits. An upbeat reading from the labor market, meanwhile, sowed some concerns about the Federal Reserve moving quicker than had been expected to pull back on its easy money policies.  …

"People are taking profits and they are a little nervous," said Ian Winer, director of equity trading at Wedbush Securities. …

Recent stock gains, mixed economic signals and concerns about Fed policy changes makes it difficult to have high conviction in the stocks, said Nico Marais, head of multi-asset investments and portfolio solutions at Schroder Investment Management.

Mr. Marais said that he has been trimming some stock positions and raising cash in recent weeks.

“We’ve been through a period of relative calm in the markets and not seen a selloff for some time,” he said. “There’s a sense of complacency–This is not the time to be adventurous in the markets.”