Stocks Point to a Flat Open Ahead of Earnings, Fresh Data

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By Sreeja VN

U.S. stock index futures point to a flat open Tuesday, as investors wait and watch for a raft of economic indicators scheduled to be released during the day, and quarterly earnings reports from Wall Street majors such as Yahoo, Coca-Cola and Goldman Sachs.

Futures on the Dow Jones industrial average (^DJI) were up 0.06 percent, while futures on the Standard & Poor's 500 Index (^GSPC) were flat and those on the Nasdaq 100 Index were up 0.1 percent.

Investors are expected to focus on the Department of Labor's Consumer Price Index, or CPI, for June to be released Tuesday at 8:30 a.m. Eastern time. The CPI, which measures the change in the price of goods and services from the consumer's perspective, is estimated to have registered a 0.4 percent gain in June, in comparison to a moderate 0.1 percent gain in May. The Core CPI for June, also released by the Department of Labor on Tuesday, which measures the changes in the price of goods and services, excluding food and energy, is likely to remain flat at 0.2 percent.

Investors will also focus on the Industrial Production and Capacity Utilization report to be released at 9.15 a.m. Eastern time. Industrial production, which measures the change in the total inflation-adjusted value of output produced by manufacturers, mines and utilities, is expected to show a reading of 0.2 percent in June against a "zero" percent growth recorded in May. Industrial production had declined by 0.4 percent in April.

The capacity utilization rate, the percentage of production capacity being utilized in the U.S, is expected to nudge up to 77.7 percent in June from 77.6 percent registered in the previous month.

The National Association of Home Builders, or NAHB, housing market index is expected to remain unchanged at 52 points in July. The index had recorded a sharp gain of 8 points -- the largest gain since 2002 -- to 52 points in June. A reading above 50 indicates a favorable outlook on home sales, while a reading below 50 indicates a negative outlook.
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In addition, investors are also expected to keep a close watch on corporate earnings reports as Goldman Sachs Group (GS), Johnson & Johnson (JNJ) and Coca-Cola (KO) are expected to post earnings reports before the opening bell, while companies such as CSX Corp. (CSX) and Yahoo (YHOO) are scheduled to report earnings after market hours.

In Europe, the ZEW Economic Sentiment Index for Germany, which measures the six-month economic outlook for the country among investors and analysts, clocked in at 32.8 for July, beating expectations of a 31.8 reading, and up from the previous reading of 30.6 in June.

The CPI for the 17-nation eurozone stayed flat month-on-month, but matched expectations of a 0.1 percent reading in June. Core CPI too remained flat month-on-month in June, but matched expectations at 1.2 percent. Annual CPI for the eurozone too rose in line with expectations -- rising by 1.6 percent year-on-year in June, and up from 1.4 percent in May.

The Stoxx Europe 600 index was trading down 0.3 percent, London's FTSE 100 was up 0.1 percent, Germany's DAX-30 was down 0.3 percent and France's CAC-40 was trading down 0.4 percent.

In Asia, most markets were up, tracking gains on Wall Street, which ended at record highs Monday after better-than-expected earnings from Citigroup (C). In China, the Shanghai Composite index ended up 0.3 percent while Hong Kong's Hang Seng Index ended up 0.04 percent.

Japan's Nikkei ended up 0.6 percent and Australia's S&P/ASX 200 closed up 0.1 percent, while South Korea's KOSPI Composite index ended down 0.5 percent.

In India, the benchmark BSE Sensex was trading down 0.89 percent in late-afternoon trade, after the Reserve Bank of India, on Monday night, raised key interest rates to curb volatility in the Indian rupee, giving rise to concerns it would hurt growth in Asia's third-largest economy.


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Stocks Point to a Flat Open Ahead of Earnings, Fresh Data

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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