Facebook went public on Friday. After months of build up, there were some issues with trading, and finally, no big pop in stock price. This has led some media pundits to conclude that Facebook’s IPO was a flop. But was it really?

Facebook IPO Trading

Facebook’s IPO was not necessarily typical. However, there was little typical about it before it even began. There was the sheer size of the offering, making the Facebook IPO one of the largest of all time. Then, there was the intense media interest, which, believe it or not, is not typical of initial public offerings.

The idea that Facebook’s IPO was a flop revolves around the concept that its stock price did not rise on its first day of trading. Indeed, there was ample evidence that Facebook’s underwriters were forced to step in and prop up the share price to keep it above the $38 offering price. Whether this is a flop or not depends on whose shoes you are in, and how much you care about what normally happens.

Facebook IPO Pricing

In the days leading up to the IPO, there was some concern that the price for Facebook stock was too high. After all, the top of the trading range gave the company a valuation nearly 100 times its earnings. By that measure, it was one of the priciest stocks around. Typically, a 100 times earnings valuation requires enormous growth potential. While Facebook certainly has growth potential, there aren’t many analysts out there looking for earnings to triple by next year, which would be the kind of growth that usually commands 100x pricing.

However, there was enough demand (or someone thought there was enough demand) to raise the IPO range, and to eventually price the initial shares at $38.

Here is where it gets complicated.

Read here about if Credit Karma is a scam or not.

Facebook, the company, and the Facebook investors who were raising cash by selling the shares they owned of the private company are the only people who “sell” at the $38 IPO price. These are the offering shares. As a result, the money the company makes is equal to the number of shares it sells times the IPO price.

In other words, no matter how high the stock price goes after the first trade, the company itself will get no more money. So, if the shares went to $40+ (they did for a while), the company still just got $38 per share.

The fact that Facebook shares did not go up from the IPO price suggests that Facebook, itself, got every single penny it could from its IPO. That makes Facebook a big WINNER in this IPO.

The underwriters are paid by the company issuing the IPO. This payment is a percentage of the IPO amount. It also had nothing to do with the share price after the market opens. In this respect, the underwriters are like the house in Vegas. They win no matter what happens to the stock price.

Who Got Burned By Facebook IPO

So, if Facebook and its investors did just fine with the IPO, who is complaining?

Most IPOs are not so popular. In fact, most IPOs happen without any fanfare. They are filled by institutional buyers and large clients who buy the stocks based on the fact that the underwriters (the Wall Street bankers) deliberately attempt to price the initial public offering at a slight discount to the actual value of the stock. In other words, Morgan Stanley, for example, would price an IPO at $25 per share if it though the company was actually worth $30 per share.

The reason this happens is that otherwise there would be no motivation for anyone to ever buy an IPO. After all, you can buy the same shares seconds later on the open market. The only reason to buy into an IPO is the possibility that those trades that come seconds later do so at a profitable price for those who took IPO stock.

The people buying into the Facebook IPO were, of course, hoping for this initial increase in share price, often referred to as a pop. It never really happened. These IPO buyers are the ones feeling burned right now, because they got nothing for buying into the Facebook IPO.

In fact, the underwriters had to buy shares on Friday in order to keep the price above $38 per share. This is to prevent a first day loss, which might be embarrassing and make it look like they mispriced the IPO in the first place. In this respect, the underwriters lost a little bit, but it was mostly egg on the face and not any real loss.

Keeping the stock price above the IPO price is only the underwriter’s job for the first day of trading, so it is no surprise that Facebook stock dropped on Monday without the artificial support.

Why Did Wall Street Mess Up the Facebook IPO?

Again, Facebook is not upset about its IPO. In fact, it has to be pretty pleased that it got as much money as possible out of its IPO. There is a good argument to be made that this whole thing might be Facebook’s “fault.”

Remember that Wall Street firms were tripping over themselves to get a piece of this IPO. Also remember that several reports said that Facebook got rock bottom fees from the bankers involved in its IPO. Is it too big of a stretch to think that they may have had some say in the pricing as well. Perhaps the company was not willing to take the standard “pop discount” and instead insisted on pricing its stock much closer to the actual demand.

Either way, Facebook is now a publicly traded company. Where the stock goes from here is up to future investors, not the IPO players.

Related posts:

1. Facebook IPO 2012
2. Facebook Valuation Estimates Billions Wrong?

Facebook Flop or Not? originally published at Personal Finance Blog - FinanceGourmet.com

After years of speculation, rumor and guesses as to whether Facebook stock is a good investment at all, the company has finally announced plans to go public. Facebook will trade on the NASDAQ under the ticker symbol FB following its IPO. Like many other technology IPOs of late, this offering will leave CEO and founder Mark Zuckerberg in iron-fisted control of the company. He’ll control approximately 57 percent of the voting power in the company after it goes public, leaving shareholder lawsuits as the only chance for investor control.

The company indicated and initial public offering range of $28 to $35 per share. This would value the company somewhere between $77 billion and $96 billion dollars, which is close to many technology pundit’s wishes of a $100 billion valuation. Regardless, of where within that range it prices, Facebook will be the internet IPO ever. With a $100 billion valuation, Facebook would be close in market value to long established technology companies such as Amazon and Cisco.

The IPO would raise something in the $11 to $13 billion dollar range, although the company will only get half of that. Investors in the company are cashing in a big pot of chips in order to lock in gains for their own investments and for their venture capital funds. That isn’t necessarily a bad sign, but an investor who thinks that there is a lot of upside left in Facebook’s stock price wouldn’t be so eager to sell at the beginning. However, many of the investors were early stage investors in the company who made very risky bets that have already paid off much more than can be usually be expected. No one can blame them for wanting to take some money off of the table.

Employees would face a lock-up period of around 180 days during which time they would be prohibited from selling their shares that they have earned over the years.

Although there is less concern that Facebook will end up trading underwater quickly and staying there like recent IPOs from Zynga and Groupon, there is some concern about Facebook’s lofty valuation. At the high end of the range, Facebook will trade at 99 times earnings, a multiple higher than virtually all of the S&P 500 companies according to Bloomberg.

Still, there is so much buzz around this IPO that there is little doubt investors will both swarm it under and take the shares higher in the short term. The question remains if Facebook stock will be a good investment for long-term investors. For the average investor, this trade is a gamble, but one many are willing to take. Time will tell if this is the next great thing in corporate America, or another AOL that looked like it couldn’t fail, until every realized that it couldn’t succeed.

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Facebook IPO 2012 originally published at Personal Finance Blog - FinanceGourmet.com

Apple reports earnings on April 24. This report is actually for earnings from the 2nd quarter of Apple’s fiscal year, even though corporations on a calendar year are reporting first quarter earnings right now. (Several tech companies reported earnings last week.)

After a rough week for the company in the headlines, these earnings will likely be used as a gauge for the short-term future of Apple stock.

Recently, Apple has been the subject of legal action from the Justice Department regarding alleged price-fixing for ebooks. Although this makes up a tiny portion of Apple’s revenue, it is a major key in how the Apple store works. If there is a problem with this model for books, there could conceivably be issues in other markets as well.

What is not in doubt is that Apple will continue to dominate the tablet computer market and that its prolific iPhone will continue to be a huge player in the smartphone market. There is little doubt among analysts that things in the marketplace look good for Apple in both the short and long-term.

In fact, the only real question about Apple stock these days seems to be whether the company’s shares have risen too far, too fast. The stock, which hit $600 earlier, has declined to closer to $575 per share. There are two main concerns about Apple’s stock. One, is have investors simply gotten ahead of themselves, in which case share prices would hold at this level or rise much more slowly going forward. The second is has the company’s extraordinary growth finally topped out, in which case, share prices might need an actual reset in the marketplace.

As CEO Tim Cook likes to point out, the markets Apple is in are huge and they are growing. Additionally, it isn’t like Apple has an 80 percent market share in mobile phones. There is theoretically plenty of room for Apple to grow there.

However, just because Apple doesn’t dominate the entire smartphone market, it may dominate the smaller high-end smartphone market. In other words, if everyone who wants, and can afford, an iPhone already has one, then the company’s growth is on shaky ground. There are few analysts, however, who espouse this theory.

Some technology pundits have begun suggesting that Apple will see reduced subsidies from carriers for the iPhone. However, Apple has multi-year agreements with carriers, so any impact from such a move would be down the line. In addition, unless a dazzling Windows Phone or Android phone comes to market, Apple still has remarkable leverage with carriers. In fact, some analysts question whether Sprint gave up too much to be in the iPhone market. That isn’t something that you worry about right before a company is forced to agree to less favorable terms.

Expect Apple’s stock price to move dramatically following the earnings announcement, but the expect whatever movement occurs to be tempered over the coming weeks as clearer heads prevail.

• Check Apple’s investor relations webpage to listen in on an audio webcast of the earnings conference call.

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Apple Earnings Good or Bad? originally published at Personal Finance Blog - FinanceGourmet.com

This past week featured the earnings release of several major technology companies, coming closely on the heels of major earnings announcements from other tech companies, including Google and Apple.

IBM Earnings

First up, IBM reported revenue of $24.7 billion leading to earnings of $2.78 per share. The consensus estimates from analysts were a bit higher for revenue, but a bit lower for earnings per share. The company did raise its full-year earnings guidance, but it wasn’t enough. Investor reaction wasn’t pretty with shares dropping 2.4 percent the following day, and continuing down. The technology giant closed on Tuesday before reporting earnings at 207.31 and closed Friday at just 199.55. IBM’s results have also been blamed for the general downward direction of the markets for the end of the week.

Still, IBM has a long history of boosting its share prices, primarily by buying back enormous amount of stock each year.

Intel Earnings

Intel’s earnings didn’t make investors any happier. The stock has had a pretty good run-up as of late, so anything other than a gangbusters quarter was likely to lead to a poor reaction. Intel shares got it. The stock closed before earnings on Tuesday at 28.48, but finished the week at 27.60.

The company reported revenue for the first quarter of $12.9 billion and net income of $2.74 billion. Earnings per share were 53 cents.

Microsoft Earnings

Microsoft reported earnings on Thursday. Unlike Intel and IBM, the software giant’s earnings news did not disappoint investors. Rather, the stock rallied more than five percent on Friday.

The company reported third-quarter results (of its fiscal year) of $17.4 billion in sales and a $5.1 billion, or 60 cents per share, profit. Although 60 cents is slightly lower than last year’s 61 cents a share profit, that number included a one-time tax benefit to the company’s bottom line.

The big news out of Redmond was that personal computer sales rose last year. Many technology pundits have been forecasting a decline to the rise of personal computing devices like tablets and smartphones. That data translated into a four percent increase in Windows sales ahead of next year’s release of Windows 8, which, once again, is considered a make or break product for the company.

It wasn’t all good news. The company reported lower sales in its entertainment business, which consists primarily of its Xbox gaming system. The aging platform is reaching saturation, where pretty much anyone who wants to have a current Xbox system already has one. Since the company isn’t expected to release an update to the system in the near future, this is an area where weakness will likely continue.

EMC Earnings

EMC is the world’s largest maker of corporate data storage equipment, and the owner of VMware. It’s earnings, therefore, show specific insight into how big business technology spending is going.

The company earned 37 cents per share on revenue of $5.1 billion, an increase of 11 percent. The company attributes much of that gain to continuing demand for cloud computing. However, the company’s outlook for the future disappointed investors who dropped the stock down four percent on Friday.

eBay Earnings

On Wednesday, eBay reported quarterly revenue of $3.3 billion, and a profit of $725 million or 55 cents per share.

The company, which also owns popular payment service PayPal, foretasted similar profits for next quarter.

Unlike the others, eBay’s earnings impressed investors who pushed the stock price from a Wednesday close of $35.87 to a close on Friday of $40.29.

Tech Forecast for 2012

The outlook for technology stocks for 2012 looks mixed right now. If the economy manages to maintain its slight upward growth, it looks like the tech bellwethers will be in good position to capture the upside. However, if economic growth fizzles, it looks like customers and business will have no problem quickly retrenching and quashing tech spending for the remainder of 2012.

If you are going to be investing in tech during 2012, keep a sharp eye on the economic indicators going forward. The industry does not have the momentum to rise in the face of an overall decline in the economy for the remainder of the year.

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Tech Earnings Week originally published at Personal Finance Blog - FinanceGourmet.com

Apple (AAPL) announced that after years of building up a massive pile of cash with its record earnings that it will begin to return some of that money to shareholders. Apple will pay a quarterly dividend of $2.65 per share starting in July. It will also repurchase up to $10 billion in stock over the next three years.

So, what does this Apple announcement mean for the stock and for the company?

Apple Dividend

At first blush, Apple’s announced quarterly dividend seems very large. But, how much is Apple’s dividend? It works out to $10.60 per year. That’s higher than most companies pay out in dividends. However, remember that Apple’s stock price is much higher than most companies. The stock currently trades around $600 per share. That makes the dividend approximately 1.8 percent, which, while respectable, is nothing to write home about.

Why did Apple announce a dividend now?

There are several reasons that Apple has finally decided to start paying a quarterly dividend after refusing to do so for years. First, and foremost, is that Steve Jobs is no longer around. Apple’s iconic CEO had the street cred to tell people, “No dividend,” no matter how high the companies cash balance got without getting anything other than minor push back. Although new CEO, Tim Cook, gets to claim some of that credibility as Apple’s CEO, the truth is that he is not Steve Jobs, and the larger Apple’s cash horde got, the more people would wonder whether he was doing the right things with it.

Second, Apple’s cash pile had grown very close to the psychologically important level of $100 billion. Although there is little real world difference between $99 billion and $101 billion, there is a big difference in people’s minds. Building up a cash account of greater than $100 billion would only raise more questions about what that much money could possibly be used for and when, if, such a huge transaction (or series of transactions) occurred, would they actually be worth the price.

Finally, Apple is growing up. As THE growth company of the 21st century, Apple raced ahead of former tech superstars to become the most valuable company in the world by market capitalization. It’s hard to make the claim that growth will continue to come forever when you are already so big. By moving now, while there are no questions about Apple’s state, the company establishes a sizable dividend as the normal course of business. Waiting until growth stagnated would have sent the message that the dividend came because the company ran out of room to grow. Paying a dividend also opens the company up to investment from mutual funds and other institutional investors who require dividends to allow an investment. This means Apple no longer relies on only growth investors for its stock price.

Apple’s Share Buyback

Apple’s share repurchase announcement makes much less sense. The company’s stock trades at an all-time high, making it difficult to suggest the stock is undervalued.

I’ve questioned the size of IBM share buybacks in the past, which seem designed more to allow executives an easier time of hitting financial targets than improving shareholder value. It seems odd that Apple would need to be doing such things with everything going right. However, it is possible that the directors and executives at Apple see the writing on the wall. By announcing the share buy  back now, they avoid the scrutiny of using such share repurchases to meet those all important per-share metrics that bonuses are tied to.

Ironically, the stated reason for Apple’s buyback is the most concerning. The company says that it is repurchasing stock to avoid dilution caused by future stock grants to employees and executives. $10 billion worth of stock grants in the next three years? That seems incredibly generous.

For now, there is really no downside from an investor’s point of view. Apple shares are still priced well based on projected earnings. Also, it appears that even with the new dividends and share repurchase, Apple will still be adding to it’s reduced cash pile as new earnings and profits roll in.

Overall, this is good for Apple stock, especially if the company continues to focus on dividends and not so much on share repurchases.

Related posts:

1. Apple Stock Good Investment or Passing Fad
2. Apple Stock Price Tied to Steve Jobs

Apple Stock Paying Dividends originally published at Personal Finance Blog - FinanceGourmet.com

As always, the mainstream media perked up about the stock market and investing world when the Dow Jones Industrial Average passed the made-f0r-headlines 13,000 level. The guys that write news story headlines love round numbers, maybe because everyone else does too. But, just like our infatuation with round number birthdays, such as turning 40, there is no real difference between Dow 12,956 and Dow 13,000, just like there is no real difference between being 39 and being 40 years old.

Is Dow 13,000 Meaningful?

The 13,000 number is purely psychological, but it does provide an opportunity to take a look at how the stock market and the economy are doing lately.

First, and foremost, most storied correctly noted that this is the first time the Dow has managed to gain the 13 K level since 2008. That is significant for two reasons. One, 2008 basically marks the beginning of the stock market crash caused by the bursting of the housing bubble and the subsequent financial crisis, all of which triggered what has become known as The Great Recession. Two, it means that maybe some investors should be seeing a recovery in their portfolios.

It is tempting to draw the conclusion that this means the market is back and fully recovered. However, that would be jumping the gun. While the stock market is a leading indicator, it’s pricing is currently based on pretty much everything going right in the near future. In other words, this level is precariously balanced between the Greek debt crisis lessening, the U.S. economy continuing to improve, and Washington D.C. not ruining the whole thing in a rash of election year politics.

Lost Decade Lost?

Perhaps more significant than the mental importance of a round number like 13,000 or what it means relative to 2008, is what this level is starting to represent in the bigger context.

Over the last few years, investment product marketers, particularly annuities, have made a lot of hay out of what is called, “The Lost Decade.”

The lost decade refers to the concept that if you invested some money 10 years ago, you have the same or less money than when you started. Of course, to them, the solution is an investment product with a guaranteed rate of return such as a variable annuity or equity-index annuity.

We’ll leave that discussion for another day, but let’s take a look at where we are with the recent market improvement.

The week of March 4, 2002 saw the Dow close at 10,572.49, significantly less than the market’s current 13,000 level. Now, that is hardly an eye popping return for the last 10 years, but it starts to throw cold water on that argument, particularly if the market continues to improve.

The other thing to notice is how quickly this whole thing happened. From that 13,000 of 2008 to under 7,000 in 2009 took less than a year. That scared a lot of people and many of them pulled their money out of the stock market or stopped putting money into their 401k plans or IRAs. Unfortunately, as history has shown time and again, that was exactly the wrong move.

From the 6,600 level in March, 2009 the market made a wrenching set of moves up and down shaking confidence even further. But, given the benefit of hindsight, the market essentially climbed right up from that low to over 10,000 by the beginning of 2010. 2011 started around 11,500 and now, in 2012, we are talking about 13,000.

However, there has been no “all clear.” No one says the economy is out of the woods. It is only recently that unemployment has started to come down and that other economic statistics have started to go up. In other words, if you have been waiting for things to get better or more stable before you moved back into the market, you are already too late. This is why most people never get the 10 percent historical return in the stock market. When you pull out when things are low, chances are you don’t get back in until they have already recovered.

What will the next 10 years bring? I don’t know, and neither does anyone else. What I do know is that if you maintain the proper asset allocation, rebalance  your portfolio annually, and stay invested, you’ll be richer than you are today.

Related posts:

1. 2011 Stock Market Update Q3
2. Stock Market 4th Quarter Turn Around

Dow 13,000 What Does It Mean? originally published at Personal Finance Blog - FinanceGourmet.com

The results of the stock market for 2011 are basically flat. While the Dow Jones Industrial Average can claim a small gain, the S&P 500 Index ended 2011 with a small loss. Likewise, the NASDAQ ended down for 2011 as well.

2011 Dow Jones Up

The Dow finished up for 2011 thanks in part to the makeup of the index. The stocks in the Down Jones Industrial Average contain only large U.S. companies. While financial companies make up a significant number of the stocks, their impact is limited because the Dow Jones Average is a price-weighted index. That means that higher priced stocks have more influence on the average than lower priced stocks.

Most financial stocks have very low share prices these days, and as a result, their performance doesn’t drag as heavily on the average. Bank of America was the worst performer in the Dow having lost 58.3 percent for the year.

The Dow Industrials finished up 5.5 percent for the year. That is three consecutive positive years for the Dow, although nobody is dancing in the streets over this year’s performance, where many components had flat or down years.

The top 5 Dow stocks for 2011 were McDonald’s (up 30.7%), IBM (up 25.3%), Pfizer (up 23.6%), Home Depot (up 19.9%) and Kraft Foods (up 18.6%).

2011 S&P 500 Down

For 2011, the S&P 500 Index finished down for the year, although it’s performance was essentially flat, down less than 0.1 percent for 2011.  Unlike the Dow average,t he SP500 index is weighted based upon each stock’s market capitalization. The dismal performance of the financial stocks included in the index have large market caps and weighed heavier, pulling the index down.

For example, IBM’s high share price (around $185 per share) means that it’s positive returns for the year count a lot toward the up side for the Dow versus Bank of America’s terrible performance being only a small impact thanks to its $5 a share price. On the S&P 500 Index, however, Bank of America’s $56 billion market cap gives it much more pull.

NASDAQ 2011 Performance Down

The Nasdaq Composite Index was also down for 2011. It finished the year down about 1.8 percent.

Other Stock Markets in 2011

International markets didn’t do as well as the U.S. In Europe, the growing Euro crisis has engulfed not only Greece and Ireland, but Italy and Spain as well. Britain’s main index, the FTSE dropped 5.6 percent for the year and the main German index, the DAX, was down approximately 15. That is its first down year since 2008.

Elsewhere, the Asian index, the Nikkei was down 17 percent.

For 2011 Gold was up 10.2 percent for the year (down from this summer’s +33 percent peak). Oil was up 8.2 percent for the year.

2011 Market Recap

So, what does the market performance for 2011 mean for investors?

Almost nothing.

The small gains and losses for the year hide the extreme volatility that took place during the year through bone-headed gridlock in Washington, particularly over raising the debt-ceiling, and the building financial crisis in Europe.

Overall, regular investors would be wise to take very little stock of how the markets overall performed during 2011. Instead, investors should focus on finding good companies with strong management since those are the only ones poised to benefit from what looks to be weak economic growth during 2012.

For American’s regular lives, the markets offer no real solution or problem to the ongoing economic issues. Recent economic data suggests that the economy might FINALLY be turning a corner, assuming the current my-party-is-more-important-than-the-country mentality in Washington can either be overcome, or sidelined by a nation that has grown largely disgusted with everything the comes out of the nation’s capital.

If jobs continue to get created and Congress doesn’t break the fragile economy, 2012 might see better investment performance, and more importantly, set the stage for real economic growth and investment performance in 2013.

Happy New Year, Everybody!

Related posts:

1. 2011 Stock Market Update Q3
2. Stock Market 4th Quarter Turn Around

Stock Market 2011 Results originally published at Personal Finance Blog - FinanceGourmet.com

Bloomberg has an interesting snippet about that so-called “lost decade” everyone keeps talking about. It turns out if you had invested in the stocks of the S&P 500 equally (equal weight) back at the market peak of March 24, 2000, you would have had a 66 percent gain through December 2, 2011, not a zero percent gain.

Unfortunately, most people who invest in the S&P 500 Index do so in the same way the index is calculated, capitalization-weighted. That means that you buy more of the bigger companies and less of the smaller ones. There are some index funds and ETFs that allow you to invest in the S&P 500 Equal Weighted Index.

There are actually numerous ways in which this was not a lost decade for investors, most importantly, if you KEPT INVESTING, which is what both savvy and not-so savvy investors did when they did not turn off their 401k contributions through this turbulent decade. Those investors could have much more money today than the beginning of the decade and are primed for a much bigger recovery when the U.S. economy finally pulls out of its doldrums and moves ahead.

More on this later…

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S&P 500 Equal Weight Index Not a Lost Decade originally published at Personal Finance Blog - FinanceGourmet.com

Sometimes it seems like the stock market is just messing with people. After seemingly running off of a cliff to end the third quarter of 2011, the market has recently staged a rally. Take a look at a chart for the Dow Jones Industrial Average and you’ll see a low point on October 3, 2011. It’s almost like the market wanted to make sure that your third quarter statements looked bad before any sort of upward movement.

Of course, there is a long way to go until the end of the year and pressing economic matters like the debt crisis in Europe, the joint budget cutting committee and an unemployment rate that won’t go down are still to be resolved.

For the time being, non-day trading investors should remember that short-term movements in the stock market are notoriously difficult to predict.

End of Year Portfolio Rebalancing

Many experts recommend rebalancing your long-term portfolios like retirement accounts (IRAs, 401k, and other retirement plans) once a year. Traditionally, many people do it near the end of the year. If you haven’t rebalanced your portfolio since last year, it’s a good time to start thinking about doing it soon.

Related posts:

1. 2011 Stock Market Update Q3
2. Stock Market 2011 Results

Stock Market 4th Quarter Turn Around originally published at Personal Finance Blog - FinanceGourmet.com

The third quarter just closed on September 30th and it was not a pretty sight for short-term investors. The S&P 500 closed at 1,131.42 which is down 14 percent for the third-quarter. It started the year by opening on January 3rd (the 1st and 2nd were Saturday and Sunday, respectively) at 1,257.62.  That is a drop of a little over 10 percent year to date. The Dow Jones Industrial Average is off 5.74 percent year to date.

The stock market took a huge dive starting July 21st and has never pulled itself back up. For those of you looking for the culprit, let me help you out. The debt ceiling deal was reached at the end of July, which means the 21st was pretty much the height of the shenanigans. The markets have had no truly good news since to pull themselves back up by.

Outlook for 2011 4th Quarter Stock Market

Don’t expect the news cycle to save the stock market during the fourth quarter of 2011. In the 4th quarter, we’ll see increasingly competitive rhetoric building in the Republican Presidential primary, the product of the debt ceiling committee, which most are projecting will fail, and the start of the holiday shopping season, which will likely get spun in the mainstream media as a disaster early on, no matter how it ends up going in the end. Furthermore, the Fed is out of the picture having approved its latest financial stability plan, “the twist.” And, finally, the European debt crisis has no indication that there will be any sort of grand resolution by year end.

In other words, there is not likely to be any sort of overall good news politically, economically or anecdotally. In fact, most of the news around the stock market will likely be bad news, not good news.

So, what will push the stock market up in 4th quarter of 2011?

The best answer is probably nothing. The markets may move in an upward trend over the last three months of the year if investors starting looking ahead to 2012 and liking what they see. (Remember, the stock market is a leading indicator.)

The other possible savior may come from earnings reports. With the third quarter over, companies will be reporting their 3rd quarter earnings in the coming months. If a sufficient number of companies are able to report good enough earnings, coupled with positive outlooks for next year, the markets could see a significant boost for the end of 2011. In other words, a Santa Claus rally is not out of the question. However, if this market is going to go up for the rest of 2011, it’s going to have to do it on its own.

Stock Market Outlook for 2012

How does the stock market look for 2012? That question isn’t as hard to answer as it may seem.

The news cycle has already punished the stock market, and it will continue to do so for the foreseeable future. The eventual Republican Presidential nominee will do their best to paint the economy as an unmitigated disaster and the short-term impact of billions of dollars of government spending cuts may just make that a self-fulfilling prophecy. (Don’t forget, tax-cuts and lower regulation are not short-term economic boosters, those things take time to work their way into the economy. The impact of government spending, or lack thereof, has an immediate impact, even if the full repercussions aren’t felt for many years.)

In other words, people aren’t likely to be in a big investing mood. On the other hand, most trades on Wall Street are computers talking to other computers and they might start to like what they see.

The U.S economy has been mired in a recession for longer than is typical. The boom (some say bubble) coming out of Silicon Valley may well be the last spark that is needed to push the economy forward and most economists do expect some growth next year, no matter how weak.

In other words, 2012 or 2013 is the start of the next bull market. Long-term investors may as well get in now, or wait until after the stink from the Congressional Joint Select Committee failure clears the air. Either way, buying low means buying when things sound bad but the future looks like the only way is up.

If your investing horizon is longer than the next 12 months, that time is now.

Disclaimer: This is not an offer to buy or sell securities. This is not specific investment advice and should not be relied upon for you investing decisions. Consult a financial professional for financial advice specific to your situation. Consult a tax professional for specific tax advice.

Related posts:

1. January 2009 Stock Market Update
2. Stock Market 2011 Results

2011 Stock Market Update Q3 originally published at Personal Finance Blog - FinanceGourmet.com