Monthly Archives: May 2014

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of May 16, 2014:

from page 18:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 

S&P500 earnings forecasts

from page 19:

Calendar Year Bottom-Up EPS Actuals & Estimates

S&P500 annual earnings

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1888.03 as this post is written

S&P500 Earnings Estimates For Years 2014, 2015, And 2016

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings tag)

The following estimates are from Exhibit 12 of “The Director’s Report” (pdf) of May 21, 2014, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:

Year 2014 estimate:

$119.60/share

Year 2015 estimate:

$133.09/share

Year 2016 estimate:

$147.11/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1888.03 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2014 & 2015 – As Of May 15, 2014

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings tag)

For reference purposes, the most current estimates are reflected below, and are as of May 15, 2014:

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $119.71/share

-From a “top down” perspective, operating earnings of $120.94/share

-From a “top down” perspective, “as reported” earnings of $114.40/share

Year 2015 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $137.34/share

-From a “top down” perspective, operating earnings of $148.18/share

-From a “top down” perspective, “as reported” earnings of $144.60/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1888.03 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Here are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on May 21, incorporating data from January 5,1973 to May 16, 2014, on a weekly basis.  The May 16, 2014 value is -.92:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 21, 2014:

http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on May 21, incorporating data from January 5,1973 to May 16, 2014, on a weekly basis.  The May 16, 2014 value is -.26:

(click on chart to enlarge image)

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 21, 2014:

http://research.stlouisfed.org/fred2/series/ANFCI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1881.09 as this post is written

Additional Thoughts Concerning Retail Sales

On May 1, 2014 I wrote a post titled “Retail Sales – Various Thoughts” concerning various notable changing aspects of retail sales, including aspects of rising stress in retailing.

Subsequent to that post, there have been additional noteworthy developments concerning retail sales and retail stocks.

As many are aware, April advance retail sales were considered to be disappointing.  In addition, various individual retailers have posted quarterly results that either have been below estimates and/or otherwise were found to be disappointing.

As well, various retail stocks seem to be exhibiting notable “price action,” with many under pressure.  Among these stocks include Amazon (AMZN).  A broader selection of prominent retail stocks – as well as the Retail SPDR, XRT – appear to be flagging in price momentum.

AMZN and XRT are seen depicted on a daily basis below since 2008, compared against the S&P500, in green.  For reference purposes, I have added the 200dma to each chart:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

retail stocks

Additionally, the ratio between “consumer discretionary” stocks and “consumer staples” stocks has lately taken on a different tone.  Many view this ratio as an indicator of the vitality of consumer spending.  I view the XLY (consumer discretionary SPDR) and the XLP (consumer staples SPDR) as proxies for the consumer discretionary and consumer staples stocks.  The chart below shows the XLY, the XLY:XLP ratio, and the XLY as a ratio to the S&P500, all with 200dma lines added.  As can be seen, the XLY:SPX ratio has recently significantly broken below the 200dma, and the XLY:XLP ratio – even though it is still at high levels – lately has been undergoing a significant decline, one of only a few since mid-2009:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

consumer discretionary stocks

Other notable aspects in retailing include increasing price discounting, which appears to be intensifying in many segments.  I have frequently discussed these pricing issues in my profitabilityissues.com site.

While – all told – retail sales and retail stocks still (especially from a long-term perspective) generally appear to exhibit various degrees of growth, many of the changing dynamics will continue to present challenges both for retail sales as well as the broader economy in general.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1872.83 as this post is written

Zillow Q2 2014 Home Price Expectations Survey – Summary & Comments

On May 16, 2014, the Zillow Q2 2014 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

Two excerpts from the Press Release:

The survey of 106 economists, real estate experts and investment and market strategists asked panelists to predict the path of the U.S. Zillow Home Value Indexi through 2018 and solicited opinions on the main cause of declining home affordability. The survey was sponsored by leading real estate information marketplace Zillow, Inc. and is conducted quarterly by Pulsenomics LLC.

also:

On average, panelists said they expect nationwide home value appreciation of 4.4 percent through the end of this year, to a Zillow Home Value Index of$176,380. Panelists said they expect home value appreciation to slow to 3.8 percent by the end of 2015, on average, and to 3.4 percent through 2016. During the pre-bubble years from 1987 to 1999, home values grew at 3.6 percent per year.

The most optimistic groupii of panelists predicted a 5.8 percent annual increase in home values this year, on average, while the most pessimisticiiipredicted an average increase of 3.2 percent. On average, panelists said they expected U.S. median home values to exceed their pre-recession peaks by Q1 2018. The most optimistic panelists predicted home values would rise roughly 12.6 percent above their 2007 peaks by the end of 2018, on average, while the most pessimistic said they expected home values to remain about 5.9 percent below 2007 peaks.

Various Q2 2014 Zillow Home Price Expectations Survey charts are available, including that seen below:

Zillow Home Price Expectations Survey

As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the U.S. Zillow Home Value Index, will continually climb.

The detail of the Q2 2014 Home Price Expectations Survey (pdf) is interesting.  Of the 106 survey respondents, only one (of the displayed responses) forecasts a cumulative price decrease through 2018; and even that one does not foresee a double-digit percentage cumulative price drop.  That forecast is from Mark Hanson’s prediction, which foresees a 5.11% cumulative price decrease through 2018.

The Median Cumulative Home Price Appreciation for years 2014-2018 is seen as 4.50%, 8.54%, 12.37%, 15.85%, and 19.33%, respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in Mark Hanson’s above-referenced forecast) will prove too optimistic in hindsight.  From a longer-term historical perspective, such a decline is very mild in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, (even) from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post titled “What’s Ahead For The Housing Market – A Look At The Charts.”

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1877.86 as this post is written

Philadelphia Fed – 2nd Quarter 2014 Survey Of Professional Forecasters

The Philadelphia Fed Second Quarter 2014 Survey of Professional Forecasters was released on May 16, 2014.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.

The survey shows, among many measures, the following median expectations:

Real GDP: (annual average level)

full-year 2014 : 2.4%

full-year 2015:  3.1%

full-year 2016:  3.1%

full-year 2017:  2.8%

Unemployment Rate: (annual average level)

for 2014: 6.4%

for 2015: 5.9%

for 2016: 5.6%

for 2017: 5.5%

As for “the chance of a contraction in real GDP” in any of the next few quarters, mean estimates are 8.3%, 10.1%, 10.8%, 12.2% and 12.8% for each of the quarters from Q2 2014 through Q2 2015, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2023) with the median expected inflation (annualized) of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in the 1.5%-2.3% range.

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1869.85 as this post is written

Walmart’s Q1 2015 Results – Comments

I found various notable items in Walmart’s Q1 2015 management call transcript (pdf) dated May 15, 2014.  (as well, there is Walmart’s press release of the Q1 results)

I view Walmart’s results and comments as particularly noteworthy given their retail prominence and focus on low prices.  I have previously commented on their quarterly conference call comments; these previous posts are found under the “paycheck to paycheck” tag.

Here are various excerpts that I find most notable:

comments from Doug McMillon, President and CEO, page 4:

Walmart’s first quarter consolidated net sales increased to more than $850 million or 0.8 percent over last year.  Like other retailers in the United States, the unseasonably cold and disruptive winter weather negatively impacted our U.S. sales and drove operating expenses higher than expected for the company.  This, coupled with the higher than anticipated tax rate, resulted in earnings per share of $1.10.

comments from Claire Babineaux-Fontenot, EVP of finance and treasurer, page 7:

Severe weather in our U.S. businesses negatively impacted EPS by approximately $0.03.  Additionally, the company’s effective tax rate for the quarter was higher than anticipated in the full-year guidance we provided on February 20.  We continue to believe our full-year tax rate will range between 32 and 34 percent.  We may experience quarterly fluctuations in our effective tax rate, as it may be impacted by a number of factors.

comments from Bill Simon, president and CEO of Walmart U.S., page 9:

For the first quarter, we added approximately $1.3 billion in net sales, with relatively flat comp sales.  As we indicated in February, we realized negative comp sales during the first two weeks of the fiscal year from severe winter storms.  A solid start to the spring season and a strong Easter holiday drove positive comps over the remaining 11 weeks of the quarter; that’s despite additional severe weather and about 50 basis points of continued SNAP-related headwind.  Weather impacted Q1 comp sales by approximately 20 basis points.  Overall, our comp sales were down 8 basis points, in line with our guidance.

comments from Bill Simon, president and CEO of Walmart U.S., page 10:

And, of course, we also continued to invest in price, resulting in a net 17 basis point decline in gross profit rate.

comments from Bill Simon, president and CEO of Walmart U.S., page 11:

Neighborhood Markets continue to perform well, delivering approximately a 5 percent comp sales increase for the quarter, driven by a nearly 4 percent increase in comp store traffic.  We’re seeing strength across the box, particularly in produce, meat, adult beverages, and pharmacy.

comments from Bill Simon, president and CEO of Walmart U.S., page 12:

In grocery, we’ve seen a trend improvement despite approximately 90 basis points of headwind from the reduction in SNAP benefits.  Overall grocery inflation is tracking at approximately 120 basis points.  While our consumables business had a low single-digit negative comp, partly due to modest price deflation and overall industry softness, our food business delivered a positive comp.  We’re seeing the strongest results in areas such as meat, produce and dairy, where we’re investing to keep our prices low for customers despite pressure from cost inflation.  Additionally, food delivered strong Easter results, with double-digit sales growth in Easter candy and strength across other categories such as meat and eggs.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1867.43 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

Each week I have been posting two charts of the St. Louis Fed’s Financial Stress Index (STLFSI), which is supposed to measure stress in the financial system.

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Here are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on May 14, incorporating data from January 5,1973 to May 9, 2014, on a weekly basis.  The May 9, 2014 value is -.91:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 14, 2014:

http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on May 14, incorporating data from January 5,1973 to May 9, 2014, on a weekly basis.  The May 9, 2014 value is -.27:

(click on chart to enlarge image)

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 14, 2014:

http://research.stlouisfed.org/fred2/series/ANFCI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1897.45 as this post is written

Charts Of Equities’ Performance Since March 9, 2009 And January 1, 1980 – May 13, 2014 Update

In the March 9, 2012 post (“Charts of Equities’ Performance Since March 9, 2009 And January 1, 1980“) I highlighted two charts for reference purposes.

Below are those two charts, updated through the latest daily closing price.

The first is a daily chart of the S&P500 (shown in green), as well as five prominent (AAPL, IBM, WFM, SBUX, CAT) individual stocks, since 2005.  There is a blue vertical line that is very close to the March 6, 2009 low.  As one can see, both the S&P500 performance, as well as many stocks including the five shown, have performed strongly since the March 6, 2009 low:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

S&P500 and stocks since 2005

This next chart shows, on a monthly LOG basis, the S&P500 since 1980.  I find this chart notable as it provides an interesting long-term perspective on the S&P500′s performance.  The 20, 50, and 200-month moving averages are shown in blue, red, and green lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

S&P500 monthly since 1980

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1896.65 as this post is written