Tag: earnings results

Genie in a bottle

Worries about the Fed’s policy objectives have added volatility and caused many to question their confidence in their positions. From Asia to Europe and back here in the U.S., the chatter concerning the Federal Reserve’s easing intentions took hold and markets tumbled. The message however is clear, the Genie is coming out of the bottle and the measures of monetary stimulus used to support sustainable improvements in economic trends will be varying soon. The US equity markets last week stumbled in reaction, sending the Dow Jones lower with a 1.17% drop to 1507, reducing the year-to-date gains to 15%; the NASDAQ sliced off 1.32% to 3,424 for 13.38% on the year; the S&P500 pitched 1% lower to 1627 and 14.06% year to date. The CBOE VIX rose 28.5% to 17.15 as further proof of investor trepidation. This uncertainty has left some investors shell-shocked before this week’s two-day policy meeting that will climax on Wednesday with an interest rate announcement, including the Fed’s latest disclosure on economic growth, inflation and employment.

Bernanke has been rather eloquent in previous testimony that the Fed’s policy will be purely driven by economic data. The latest monthly employment report showed 175K jobs added in May, beating the forecasts of 164K and more job-seekers are re-entering the marketplace. Should the employment outlook indicate a sustainable improvement, I would expect at least a vague pronouncement from Bernanke as to a target period where the Fed intends to begin its move.

I remain optimistic. This week could possibly reveal whether all the scuttlebutt has any validity or not. And if so how would an unwinding take place and realistically limit a severe reaction to that news. Also this week, there will be significant manufacturing and housing data as well as the quadruple witching options expiration on Friday. The potential for news to move the markets is certainly present this week. Uncertainty isn’t the optimum word that would work; now is not the time to be complacent. If you haven’t begun drilling down on your own portfolio and asset allocations, get on it, now. Second quarter is coming to an end in little less than two weeks and monetary stimulus programs are in the crosshairs; don’t let yourself become that target silhouette. Don’t discount the unknown. I remain positive, optimistic and confident. The sky isn’t going to fall but at the same time, I’d much rather be in position to make 3% than lose 8% any day of the week.

Have a great week!

Everything went better than expected…

After Wednesday’s 217 point loss on the Dow, it came back impressively with a 207 point gain on Friday as the monthly nonfarm payroll report provided just enough positive spin to raise all the indexes. The Dow Jones eked a .88% advance, the NASDAQ squeaked out a gain of .39% and the S&P 500 rounded out the week with a .78% achievement. Heck, I always say it’s always better to make 3% than lose 8%, okay, so we didn’t even get past 1%, but you know what I’m saying, right! A little volatility and a little positivity make for a seemly market moving experience.

The jobs number held ominous implications for both US growth and Fed policy matters and Investors relaxed just enough to exhale, for the time being. The unemployment rate showed a continued steadying of the economy but not enough improvement to bring on a hurried end to the Fed’s economic support via its monthly, $85 billion bond buying program. The ADP numbers a few days earlier in the week held an ominous suggestion that a potential disenchantment was on the Friday horizon; however the numbers were just enough to dissipate some anxiety, for the time being at least. A September-December timeframe looks to be more demonstrative of a Fed move to the lessor number of $65 Billion, but then again, I don’t really see the Fed making that significant of a movement right before the holiday season. My guess is that we’ll see something in Q1 of 2014.

I remain optimistic. The US economy added 175K jobs in May, all in the private sector, and conversely the unemployment rate ticked higher to 7.6% from 7.5% as more workers returned, encouraged that a hiring phase will continue a while longer. Much better than anticipated economic growth in Japan overshadowed China’s wavering Q2 growth; the volatility of the Dollar/Yen currency pair notwithstanding. The European situation remains mixed, with Germany’s DAX moving higher on improved industrial production results that seem to suggest growth is returning and an improving Eurozone growth expectation, if you minus Spain, Greece, Italy, etc. In the economic sea, some boats are floating, some remain tied to the docks and others are taking on a surge of water and have no life jackets to speak of. I’ll remain optimistic and cautious, regardless.

Have a great week and have a happy upcoming Father’s Day.

Brutally efficient head fake?

Reader Tabitha S. (like me, an avid San Francisco 49er fan) so adored my conclusion to last week’s newsletter, that she remarked that “the U.S. markets ankles must have ruptured, Achilles tendons exploded and knees buckled, as Friday’s market collapse was like seeing a linebacker destroyed by an opposing teams wide receiver, who just tossed him aside with a head fake and stiff arm as he charged down the field.” What a great summation Tabitha, and thank you for the reminder that the NFL season begins afresh in less than 100 days. 

The US equities bobbed and weaved last week as the economic data didn’t impress and the markets reacted to the downside. Friday’s gut punch, in my opinion, was the last opportunity to “sell in May and go away” and that’s exactly what transpired when investors pent up anxiety finally decided to make an appearance based upon concern that the Fed is considering to wind down its Quantitative Easing(QE)program and shareholders took their profits and headed for the door. Last week’s market pullback sent the Dow Jones 1.2% lower, leaving the May gain at 2.8%; the S&P500 down 1.1% on the week, for a 2.1% monthly gain; and the NASDAQ 0.1% lower for a 4.8% monthly ascent.

The first half of 2013 has provided some very noteworthy numbers for the U.S. markets with the Dow reporting a solid 15.35% gain, the NASDAQ registering 14.45% and the S&P 500 sitting at 14.34%. All fine representations for performance, and as we begin to close out Q2 and enter into the second half of the year. A dose of uncertainty is making headway into the overall picture with doubts over the Fed’s monetary direction, enduring, tepid manufacturing growth and continued high unemployment are being matched with a number of negative global circumstances: the appearance of waning Chinese growth, sharp decline in Japanese shares, continued European recession and record high unemployment of 12.2% and Middle East turmoil. Has the first half of 2013 been just a brutal head fake?

I remain optimistic. Fatigue within the markets would be expected and to be honest, welcomed, as we enter the summer. A shallow pullback to allow the overheated indexes to recoil and allow the sweltering temperatures of summer to replace the red hot equity markets wouldn’t necessarily be a bad thing. To use an automotive analogy; check the radiator fluid, hoses and gaskets, replace the plugs and wires, change the oil and filters, rotate the tires; we’ve got another seven months to go. Nobody wants to break down on that desolate highway, 500 miles into the desert, with buzzard’s and coyotes circling around for an easy kill. May’s monthly nonfarm payroll report that may decide the fate of Federal Reserve’s policymaking regarding its aggressive bond buying program; given its importance, Friday release will perhaps have more than the usual interest. I remain cautious, confident and optimistic.

Have an outstanding week!

Shrugging off the slowdown

The year’s robust start faded late in the first quarter across many key economic indicators, but the recent set-back is likely a temporary one as the U.S. markets continues to show little resistance and indeed have moved higher. The US economy continues showing a renewed capability to shrug off fiscal chains and respond favorably with higher stock prices and rising home values. Smells like…optimism. New home sales saw their strongest increase since July 2008 as a 2.3% jump in April put sales 29% ahead of April 2012, according to the Commerce Department. Also, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, said prices on homes bought with loans from the two companies were up 1.3% in March.

No, we are not out of the woods yet and no the economy hasn’t reached any clear ‘break free’ momentum to surge forward without further central bank accommodation and assistance. Ongoing fiscal drags including the sequesters spending constraints and the impending debt ceiling are contributing factors as retail and professional investors agonize over monetary policy plans, and they question whether rising stock prices and bond yields signify increased market economic optimism and an ability to withstand a moderation of Fed asset-buying plans. Short-term ups and downs in overall economic activity are to be expected and increased volatility in the markets will corroborate the economic activity, positive or negative.

I remain optimistic. The remainder of the week’s economic data will provide substantiation regarding if the 2.5% initial estimate of Q1 economic growth holds, and whether consumer spending was affected in April by payroll taxes and federal budget cuts. Will we see a pullback of any significance if the data arrives not so positive? That remains to be seen; it does, on the surface appear that economic demand has been awakened and that more jobs are being added each month, but that could also be a brutally efficient head fake.

Have a great week!

Is everything subjective?

With 89 percent of the S&P 500 companies having reported earnings so far, 66.7% have surpassed profit expectations, above the average of 63% since 1994. However, only 46.4% have beaten revenue expectations, well under the average of 62 percent since 2002. (Factset) As I mentioned last week, when sales revenue continues to be reported as less than spectacular and earnings data are above estimates, something is incongruous here. Correspondingly, when the number of Americans filing new claims for unemployment insurance falls to its lowest weekly level in more than five years, it’s a fantastic signal that the job market is improving, but still not at the speed and breadth needed to jumpstart the U.S. economy.

Last month’s string of weak economic numbers were a disappointment, to say the least, but they were to be expected, as the sequestration has been making a very prominent appearance in regards to the day to day life of millions of Americans. This week will bring a new batch of prominent economic reports and with options expiration at week’s end, I would expect a fair amount of whipsawing volatility, but I’ve been proven wrong before. The Dow and the S&P 500 carry on setting another string of record closing highs, it’s anybody guess what the outcome will actually be.

I remain optimistic. I’ll continue to have concerns regarding a technical pullback as we move through this quarter. The market’s strong performance thus far this year has increased the probabilities of equities rallying throughout the year, but I ‘m ever so cautious about the fundamentals. The market is driven by good fundamentals from corporate earnings and with sales revenue being unimpressive in our consumer based economy, I’m forced to think of it like a lingering bad taste in your mouth after eating something that was pleasant, you’re searching for a sweet lozenge to cover up that flavor.

Have a great week!

Short term thinking

The inevitable market pullbacks are out there. As we’ve seen over and over for the past few weeks and months, the whipsawing natures of the markets are keeping investors on the edge of their seats. Today’s up, tomorrow’s down…what’s the current correlation of commodities to the dollar? Europe’s finally behaving, um wait a minute, no they are not…. Asia’s recession is a headache; HA! What Asian recession? The emerging markets are leading the charge to prosperity! It’s enough to bruise your eyeball sockets and send you into a fit of misperception. Unfortunately, I see nothing that would lead us to believe that the markets won’t continue to repeat this pattern in the short term. While the Dow Jones and S&P 500 closed out on an all-time highs last week, residential housing is surging accompanied by record low mortgage interest rates, employment numbers are curiously receding to near pre-crisis levels; what does all this really tell us? Have the collective brain trust gone nutters believing that all has returned to the better?

Markets will inevitably go higher and they also, inevitably, will go lower. American industries are driven by earnings; they are the growth engine of the country. But corporations and the analysts who study them are lowering earnings expectations for Q2 2013. In terms of preannouncements, 63 S&P 500 companies have issued negative EPS guidance for Q2 2013 as noted by FactSet. Of the 400+ S&P 500 companies that have reported earnings to date for Q1 2013, 72% have reported earnings above estimates. This percentage is marginally above the average of 70% detailed over the past four quarters. Conversely, merely 47% of companies have reported sales revenue above estimates. Yup, you read that correctly, earnings are up but sales are down. No, I also haven’t become a Doom and Gloom card carrying member, but it’s hard not to notice that something is incongruous here.

Companies and analyst have lowered earnings expectations so dramatically that it’s become predictable that companies can inevitably beat them. Sales, you know, people coming in the doors and plunking down hard cash, are lower and are continuing to confirm a long term weakness. To paraphrase one of Sen. Marco Rubio’s favorite modern poets, Rakim… the American worker keeps digging into their pocket, all their money’s spent. So they dig a little deeper but still coming up with lint. 47% is below the average of 52% recorded over the past four quarters (Factset). If 47% is the final percentage, it will mark the third time in the last four quarters that the percentage of companies reporting sales revenue above estimates finished below 50%. Short term thinking and solutions aren’t solving our long term problems.

I remain optimistic. Trying to assess whether equities can continue their mighty upward run versus the reality of the Q1 earnings reports are fraying the few hairs I have left on my head. Things are getting better; they aren’t getting better rapidly however. A little less short term exuberance and a lot more long term solutions are my prescriptions for the U.S. economy. Will the market take notice and the U.S. Government get serious in treating our economies ailments? Dunno, but I remain cautiously optimistic.

Itchy Trigger Finger

The preordained question of seasonality arrives once again. ‘Sell in May and go away’ has become such a common viewpoint, that in the words of Homer J. Simpson…’You say that so often, it’s lost all meaning’. Or has it? Last week’s economic calendar events were disappointing, especially in regards to existing home sales, durable goods and gross domestic product (GDP). New home sales showed strength but they certainly were not a catalyst to ward off an encroachment of bearish sentiment. The finalized GDP figure for Q4 2012 was a miserable 0.4%. Friday’s initial estimate, the Bureau of Economic Analysis reported that GDP posted a weaker-than-expected 2.5% uptick in the first quarter of 2013 and the Census Bureau also reported that durable goods orders dropped 5.7% in March. D’oh!!!

As we reach the peak week of the Q1 2013 earnings season, 69 percent of the S&P 500 have beaten forecasts, but let’s be honest…when you lower expectations enough that a stink bug can crawl underneath, having number’s that ‘exceed’ expectations isn’t all that remarkable. On the flip side of all the exuberance regarding positive personal consumption expenditures, private inventory investment, exports, residential investment, last Friday’s GDP report was attributable to a fall in government spending at the federal, state and local levels.

I remain optimistic. U.S. stocks have had a pretty good run thus far. The Dow recorded an all-time high in March, erasing all of its losses since October 2007 and the S&P 500 managed its own new record close. The tech heavy NASDAQ struggled in Q1 while the Russell 2000 came blasting out of the gates, and it has begun to show some fatigue as we entered into Q2. U.S. Treasury yields pushed up over the quarter and the U.S. dollar gained more than 4% against the six major foreign currencies. All fantastic news, but then again, the realist in me shouts out that the U.S. economy hasn’t fully recovered from the Great Recession as high unemployment and slow wage growth have become the new normal. Second quarter is establishing a reality check, we aren’t out of the morass just yet. There’s still a way to go, my finger isn’t on the sell trigger for May, but I’m also not so cavalier as to entrench myself deeper without justification.

Have a great week!

Tell-tale signs

The Doom and Gloom crowd are crowing that the economy appears to be dramatically decelerating, as data point after data point indicates that a likelihood of economic slowdown has appeared over the last several months. This past week, unfortunately, presented some catalyst to that via some released earnings reports.  Regrettably, that news isn’t to be ignored (I absolutely loathe hearing ‘I told you so’) as the market recorded the worst week of 2013.  For the week the S&P 500 was down -2.11%, the Dow Jones followed with -2.14%, the NASDAQ fell -2.70% and the Russell 2000 registering a whopping fall of -3.22%.

Last week’s tell-tale feebleness also showed that most of the disappointing numbers came from within the Manufacturing Sectors.  The Empire State Manufacturing Survey, Philly Fed Survey and the Industrial Production Report all indicated slowing growth or downright contraction.  I’m not joining the ‘Recession is coming’ brigade but these facts should cause some reflection as to what the Sequestration (read as abject US government incompetence) has in store for us this quarter.

A number of reporting corporations are either reporting weaker than expected results or have already warned of developing turbulence. Justified skepticism of the U.S. economy has remained at the forefront, as the warning signs were varied last week across sectors of the economy.  Unquestionably Europe continues to weigh on multinational companies, and growth was again, made known to be sluggish in China last week as they continue to reform their economy from an external to an internal model.

I remain optimistic.  Even with continued U.S. economic weakness as well as lowered consumer expectations; strength remained in areas where the Fed and the government provide synthetic support. It’s not the best of news, but I’ll take it for what it’s worth.  Also noteworthy in our current slowdown is the expiration of the payroll tax break from the start of the year.  Decreased personal income is directly attributable to our current economic conditions.  The Doom and Gloom throng enjoys proclaiming that the U.S. economy is deteriorating.  I don’t buy it; one month does not substantiate a trend.  I’m confident and optimistic that the D&G bunch has arrived too soon for a second quarter pity party, and I’m giddy that it gets shut down before it even begins.

Have a great week!