Beware the rising NASDAQ

Google’s better than expected earnings and promise to control expenses resulted in a 16% rise on Friday.  No one seemed to notice that revenue missed expectations and that price-per-click continues to decline.

I think Google’s rise had more to do with a promise to curtail spending than it did with improved earnings.  Their new CFO is a Wall Street insider and she told investors exactly what they wanted to hear.  Google & Amazon have the reputation of spending like a proverbial drunken Congressman.  While fiscal discipline is a virtue, it’s usually not an attribute of a “growth” stock.  So perhaps the appointment of Ruth Porat as CFO is an indication that Google’s growth will be slowing.

Google’s spectacular stock rise this week has investors also looking favorably on Facebook, LinkedIn & Twitter.  I’m not a fan of any of these, and hold no position long or short.

Facebook, LinkedIn & Twitter will report earnings in the coming weeks and their valuations are rich compared to Google’s paltry 25 PE.  Facebook is 50, LinkedIn is 100, and Twitter is an astronomical 160.  An earnings miss could cause a plunge on these stocks and a consequential negative effect on the NASDAQ.

Unrelated, but also of note, the Russell 2000 (small cap sector) seems to be encountering resistance just above its 50 day moving average.  This index has fared better than both the DOW and S&P500, so a slowdown in small cap stocks could be an indicator of an idling economy.

The coming weeks could be turbulent with most companies reporting Q2 earnings and the continuing drama from Greece & China.  As always, invest with caution.

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