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Actionable news in INTC: Intel Corporation,

Why I Love Nvidia, Lam Research and a Dozen Other Stocks

As July turns into August, the broad U.S. stock-market indices are either at or close to all-time highs. But these indices' components are seeing week-to-week or even the day-to-day mini-rotations based on investor expectations for U.S. monetary policy, fiscal policy, debt-market yields and currency valuations. Folks, there's a lot on our plates.

I've long believed that the perceived current loftiness of equity valuations is indeed proper for today's environment. Although valuations are (broadly speaking) well above historic norms, remember that historical norms have nothing to do with current stock prices. Supply and demand for a specific name are all that really matters.

And while historic valuations are a useful guide, they're just one of many things to consider. Are the rest of the factors that impact stock prices hovering around historical norms? No? What a surprise!

So, as we move forward to "grill" a fine August meal of stocks, let's check on the quality of our ingredients, shall we?


Earnings results and analyst expectations are the bread and butter of equity valuations (at least relative to each other). And while Aug. 1 arrives only a few weeks into second-quarter earnings season, results have come in pretty sharp overall so far.

There have been some rough spots for sure. But broadly speaking, corporations are running at a 72.3% beat rate vs. analyst expectations for second-quarter earnings per share. Earnings growth at this early stage of the season is also skating along at a 10.3% year-over-year clip, with revenue growing 5%. (Pre-season consensus was for the likes of 9.5% EPS gains and 4.6% revenue increases.)

Comparisons will likely get tougher later in 2017, but for now, comps aren't tough.

Macro / Monetary Policy

U.S. macroeconomic data have been both hot and cold. We've recently seen slightly better numbers for items like industrial production and inventory building, which should support overall gross domestic product. But what we need to see is sustained improvement in numbers that impact the Federal Funds rate's perceived trajectory.

I believe a shrinking of the Federal Reserve's balance sheet is written in stone at this point. The Federal Open Market Committee would like to make this a reality as soon as September (and basically told us so in its latest policy statement).

The uncertainty lies in what the central bank should do with the Fed Funds rate. With consumer inflation running well below the Fed's 2% target, the data points to watch going forward are obviously the Consumer Price Index and the Personal Consumption Expenditures data.

Additionally, wage growth is now far more important than job creation. Also key will be data on retail sales from a demand perspective, and for core capital goods on the...