Earnings Season Is Off To An Ugly Start
With 33% of the S&P 500 market cap having reported, earnings season has had mixed results thus far. Earnings are pacing 4.1% ahead of expectations – 2.8% excluding financials; company guidance was generally negative leading into earnings season, and thus companies are beating lowered estimates and “clearing low hurdles.” Early revenue results have been weaker than bottom-line numbers with revenues missing already lowered expectations by [...]
As we noted last night, inventory destocking is the great unknown as far as consensus expectations and the wholesale inventories data this morning just confirmed that this is a worrying trend. With thefirst drop MoM since September 2011 and dramatically missing expectations, inventories dropped 0.2% and perhaps more worryingly – given the drop in inventories – is the critical inventory-to-sales ratio has now risen two months in a row as clearly sales are [...]
With 86% of the S&P 500’s market cap reported, 2Q earnings growth has been negative, with profits down 1.6% excluding Financials. This marks the first quarter of year-on-year profit declines since 2009. Moreover, while EPS surprises have been positive, they have been the weakest of the current recovery cycle, and revenue surprises have been negative. Following 2Q announcements, companies have issued weak guidance, resulting in increasingly rapid downward revisions to analyst estimates. At [...]
Following the now long-gone LTRO induced risk ramp through March, many of the C-grade economists out there predicted that housing would bottom in March (this time for real) and it would be smooth sailing from there. Alas, the just released March Case Shiller data puts this latest speculation very much in doubt (once again), following a miss of consensus expectations in the Top 20 Composite of a 0.20% increase, printing [...]
Back in early 2011, even as the global economy was at best flatlining, the one goalseeked explanation to justify a levitating stock market (which was rising solely due to the short-term effect of transitory QE2 liquidity), was soaring corporate profitability (which only lasted as long as companies could trim some residual SG&A fat; they have now cut into the bone in terms of layoffs). This time around, with corporate margins having peaked, [...]
Image: Daniel Goodman / Business Insider
Earlier we mentioned how retail sales growth of 0.5% was well ahead of expectations of 0.3%.
Excluding autos the gap was even better: 0.6% vs. 0.2%.
What drove the strong performance?
Retail sales increased by 0.5% (month-over-month), more than expected. Sales ex-autos increased by 0.6%, and “core” sales (ex-autos, gasoline and building materials) also gained 0.6%. The better than expected results suggest upside risk to our 2.0% Q4 [...]
While the market continues to look forward to the latest Eurosummit on Wednesday (which rumor is may be postponed once again) with mouth-gaping expectations, the truth is that Europe “may have already entered a recession” as Goldman predicted some weeks ago, a prediction which was confirmed by today’s miserable manufacturing and services PMI numbers. From Goldman: “The Euro-zone flash composite PMI came in at 47.2 in October, down from [...]
As opposed to what many talking Pollyannas have been broadcasting for the last month or two, companies are progressively downplaying their earnings outlooks. It would appear that along with every 401(k) holder, TBTF CEO, and CNBC anchor, even CEO/CFOs are now hoping for more QE.
If earnings are ‘the mother’s milk of stock returns’, then management are increasingly reducing that flow [...]
It is still not too late to short that consumer discretionary basket, albeit with a footnote: whatever you do don’t short the ultra luxury retailers. Those will be doing very good, courtesy of all their shoppers having the Amex Discount Window credit card. Everyone else: better luck next time. As the chart below from BofA shows the May retail SSS data turned very sour with 12 [...]
It seems at least UK retailers have reached their margin breaking point and have no choice but to hike end prices at this point. From Goldman: “CPI inflation rose from 4.0%yoy to 4.4%yoy in February (vs. Cons. and GS: 4.2%). This is the highest rate of inflation since 2008 and was driven by a sharp increase in clothing price inflation (from 1.3%yoy to 2.8%yoy). [...]
The following two takes on this morning’s ADP number are from two opposites: Goldman, with its transition to a permabull, and Knight Capital, with its far more balanced outlook on the economy.
From Knight’s Brian Yelvington:
ADP, the best (and really only) predictor of Fridayâ€™s monthly jobs data, printed at a very high 297K gain for December versus expectations of a 100K gain.Â We have [...]