The news flow is incredibly quiet this morning, but will likely be overshadowed by Federal Reserve Chairman Ben Bernanke’s speech from Jackson Hole, Wyoming. Though we’re not event-driven traders by any means, we believe this speech could move stocks. As we saw a few weeks ago in the Knight (KCG) trading debacle, algorithmic trading certainly has a large impact on short-term price fluctuations. Some skeptics may cite the recent rally in stocks was based on some notion of a third quantitative easing, but ultimately, we think stocks have been driven by stronger-than-expected earnings in the second quarter.
We’ve seen currency fluctuations dampen revenue growth, but bottom lines have remained relatively strong—especially for US companies. Execution remains key, as we’ve seen this week from PVH Corp’s (click ticker for report: ) outstanding results and Tiffany’s (click ticker for report: ) lackluster performance. We’ll stick with great companies in our Best Ideas Newsletter portfolio like Apple (click ticker for report: ) and EDAC Technologies (click ticker for report: ) that have sound technicals, solid fundamentals, and attractive valuations.
We mentioned yesterday that August retail results were generally better than expected. This strength (combined with a recovery in housing) leaves us confident that the US economy remains relatively resilient. Most of the risk lies outside of the US, specifically in China, where we see industrial demand slumping and Europe—where many countries are in or near recession. Regardless, no matter the contents of the Chairman’s speech, we’ll stick to our market-beating strategy used in our Best Ideas Newsletter, rather than resort to panic selling or catch-up buying.