More Evidence of a Cyclical Recession AheadThe pharmaceutical industry isn’t particularly a favorite of individuals, but many of the large players within it make for excellent retirement holdings. With high yields and good visibility, a large pharmaceutical company is a welcome addition in equity market portfolios.

Pfizer Inc. (PFE) represents the typical performance we’re seeing from many corporations. The company beat on earnings, missed on revenues, and reaffirmed full-year guidance.

Second-quarter sales dropped seven percent to $12.97 billion, of which three percent was due to foreign exchange.

The company had a major gain in earnings, but income from continuing operations was $0.50 per share, up 28% from $0.40 a share.

On the face of it, the company’s lack in top-line growth was a disappointment. But in the stock market, things are always relative, and the stock still went up on what can only be described as weak earnings news. Pfizer is currently yielding 3.3%, with a price-to-earnings ratio of approximately 14.

Another company that announced disappointing results was E. I. du Pont de Nemours and Company (DD), or DuPont, whose share price was particularly strong in July.

DuPont’s second-quarter sales dropped one percent to $9.8 billion. Once again, the company’s agriculture division was the strongest with an 11% increase due to seed price gains and volume growth in corn and insecticides. Two-thirds of the company’s other divisions experienced a drop in business.

Earnings also fell to $1.03 billion, down from $1.17 billion in the second quarter last year.

So as you can see, there really is a trend of lackluster numbers, but stock market-wise, these blue chip positions aren’t coming apart. The monetary expansion is helping with an earnings multiple expansion, but from my perspective, I wouldn’t be buying these lackluster results.

Some corporate earnings have been solid among big brand names. A pharmaceutical holding is definitely a worthwhile component in a balanced equity portfolio, but it very much continues to be a zero-growth environment for many companies. Mature companies, despite significant cost controls, just can’t grow their businesses. (See “Earnings Reports Masking the Rest of the Equation: Risk Remains High.”)

The stock market is very much a hold near-term. The mediocrity in company earnings is just more ammunition for the case for a cyclical recession.

I’d really like the stock market to experience a meaningful pullback before investors consider taking on new positions. It might take a full-blown recession to make this happen. The market’s been due for a major correction, but the Federal Reserve has been just too accommodative.

I feel that many individual stocks are well ahead of their own specific fundamentals. Anything is possible in a market like this, but I wouldn’t be buying it with the numbers we’re seeing now.

It can still be the beginning of a secular bull market in stocks, with the equity market very much a leading indicator. But company earnings right now are not strong enough. It really is a Fed-maintained equity market.