Monthly Archives: May 2015

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  8, 2015:

from page 23:

(click on charts to enlarge images)

S&P500 earnings forecast trends

from page 24:

S&P500 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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2132.37 as this post is written

S&P500 Earnings – Estimates For Years 2015 Through 2017

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 20, 2015, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2013 value is $109.68/share:

Year 2014 estimate:

$118.78/share

Year 2015 estimate:

$119.27/share

Year 2016 estimate:

$133.96/share

Year 2017 estimate:

$149.44/share

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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 2132.05 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2015 & 2016 – As Of May 12, 2015

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 12, 2015:

Year 2015 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $116.16/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $106.54

Year 2016 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $133.28/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $124.77/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 2132.10 as this post is written

Walmart’s Q1 2016 Results – Comments

I found various notable items in Walmart’s Q1 2016 management call transcript (pdf) dated May 19, 2015.  (as well, there is Walmart’s press release of the Q1 results(pdf))

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 management 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 5:

Walmart U.S. again delivered positive comp sales, and I’m encouraged by the customer traffic trends. I’m particularly pleased by the customer response to our Neighborhood Markets, driving strong comps again this quarter. Based on recent surveys, we know that many of our U.S. customers are using their tax refunds and the extra money from lower gas prices to pay down debt or put it into savings. They’re also using these funds for everyday expenses like utilities and groceries. That’s where we can be their destination of choice. We’re not where we want to be in every store, but I’m pleased with the progress that I’m seeing.

comments from Claire Babineaux-Fontenot, EVP and treasurer, page 8:

The last item I’ll leave you with today is share repurchases. The company repurchased approximately 3.5 million shares for $280 million during the quarter. Market conditions, general business trends and a focus on maintaining our AA credit rating, among other factors, influenced our share repurchase activity. We have approximately $10 billion remaining on our existing share repurchase authorization.

comments from Greg Foran, president and CEO of Walmart U.S., page 9:

This quarter we began executing this plan. We took the initial steps in April towards a stronger investment in our associates by raising the minimum starting wage for all hourly associates to $9.00 per hour. As a part of our $1 billion investment in our associates we also raised the floor and ceiling on pay bands in our stores creating raises for many full and part-time hourly associates at every level. More than 500,000 associates benefited from this change. We’re also restructuring the management teams in the stores adding back almost 8,000 department managers. These department managers will have responsibility for a smaller area of the store ensuring that they have the knowledge and the time to engage with both the customers and store associates driving an overall better experience. The $1 billion investment in our associates this year includes training programs as well.

comments from Greg Foran, president and CEO of Walmart U.S., page 10:

With these steps in mind, let’s move on to our first quarter results. Net sales grew $2.4 billion, or 3.5 percent, versus last year. For the 13-week period ended May 1, comparable stores were up 1.1 percent, which was within our guidance. Comp sales were driven by solid growth in traffic, which was up 1 percent. Customers continue to see the benefit of lower gas prices versus last year and are responding favorably to some of our new assortments for the spring and summer selling seasons.

All formats had positive comps for the quarter, including our traditionalformat Neighborhood Markets, which posted approximately a 7.9 percent comp. A focus on customer service and in-stock position drove strong traffic in this format. Customers continue to see the benefit of Neighborhood Markets to meet their everyday needs, including convenient access to services such as drive-thru pharmacies and fuel stations.

comments from Greg Foran, president and CEO of Walmart U.S., page 11:

Moving on to the remainder of our financial results…In the first quarter, gross profit rate declined 13 basis points driven primarily by a headwind from shrink, half of which was in food. We are addressing this increase immediately, bringing a high level of focus and visibility to this concern by adding it as a key urgent agenda item this year. In addition to shrink, the ongoing mix shift in pharmacy, incremental expenses related to the west coast port congestion, and cost inflation in consumables contributed to the decline. Somewhat offsetting this was a continued focus on the urgent agenda items laid out last year, including managing throwaways in fresh and reducing inventory that is no longer active in the stores.

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2125.85 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.  Its reading as of the May 14, 2015 update (reflecting data through May 8) is -1.099

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

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

The NFCI chart below was last updated on May 20, 2015 incorporating data from January 5,1973 to May 15, 2015, on a weekly basis.  The May 15, 2015 value is -.77:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 20, 2015:

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

The ANFCI chart below was last updated on May 20, 2015 incorporating data from January 5,1973 to May 15, 2015, on a weekly basis.  The May 15 value is .75:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 20, 2015:

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 2127.03 as this post is written

Markets During Periods Of Federal Reserve Intervention – May 19, 2015 Update

In the August 9, 2011 post (“QE3 – Various Thoughts“) I posted a chart that depicted the movements of the S&P500, 10-Year Treasury Yield and the Fed Funds rate spanning the periods of various Federal Reserve interventions since 2007.

For reference purposes, here is an updated chart (through May 15, 2015) from Doug Short’s blog post of May 18  (“Treasury Snapshot: …“):

markets during intervention

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2129.17 as this post is written

Philadelphia Fed – 2nd Quarter 2015 Survey Of Professional Forecasters

The Philadelphia Fed 2nd Quarter 2015 Survey of Professional Forecasters was released on May 15, 2015.  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 2015:  2.4%

full-year 2016:  2.8%

full-year 2017:  2.8%

full-year 2018:  2.5%

Unemployment Rate: (annual average level)

for 2015: 5.4%

for 2016: 5.0%

for 2017: 4.8%

for 2018: 4.8%

Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 11.2%, 11.0%, 12.0%, 14.8% and 15.2% for each of the quarters from Q2 2015 through Q2 2016, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2024) 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 .7% to 2.3% range.

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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 2130.10 as this post is written

The May 2015 Wall Street Journal Economic Forecast Survey

The May Wall Street Journal Economic Forecast Survey was published on May 14, 2015.  The headline is “Economists’ Forecast:  Here We Grow Again.”

I found numerous items to be notable – although I don’t necessarily agree with them – both within the article and in the “Economist Q&A” section.

Two excerpts:

The survey of 62 economists, not all of whom answered every question, showed a widespread expectation that consumers would start spending again after several months of avoiding the mall. The May survey was conducted before the Commerce Department reported retail sales were flat in April, but some economists played down the number.

also:

The economists’ first-quarter rethink brought down the forecast for all of 2015 to 2.2% from 2.7% expected in the April survey. That means growth for all of 2015 is expected to be another disappointment, falling below 2014’s 2.4% rate instead of eclipsing it as many economists originally expected.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 11.62%; the average response in April was 11.23%.

The current average forecasts among economists polled include the following:

GDP:

full-year 2015:  2.2%

full-year 2016:  2.8%

full-year 2017:  2.5%

Unemployment Rate:

December 2015: 5.1%

December 2016: 4.8%

December 2017: 4.7%

10-Year Treasury Yield:

December 2015: 2.60%

December 2016: 3.32%

December 2017: 3.74%

CPI:

December 2015:  1.2%

December 2016:  2.3%

December 2017:  2.4%

Crude Oil  ($ per bbl):

for 12/31/2015: $61.44

for 12/31/2016: $68.09

(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)

_____

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 necessarily 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 2120.69 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.  Its reading as of the May 7, 2015 update (reflecting data through May 1) is -1.208.

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

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

The NFCI chart below was last updated on May 13, 2015 incorporating data from January 5,1973 to May 8, 2015, on a weekly basis.  The May 8, 2015 value is -.78:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 13, 2015:

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

The ANFCI chart below was last updated on May 13, 2015 incorporating data from January 5,1973 to May 8, 2015, on a weekly basis.  The May 8 value is .81:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 13, 2015:

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 2101.54 as this post is written

Zillow Q2 2015 Home Price Expectations Survey – Summary & Comments

On May 12, 2015, the Zillow Q2 2015 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

An excerpt from the Press Release:

Most of the 111 panelists who participated in this survey expect home values to level off in the next several years. The panel expected home values to rise 4.3 percent in 2015, to a median of $184,615. They expected that the average annual growth rate through 2019 would slow to 3.6 percent.

“The overall outlook for U.S. home values is largely unchanged compared to last quarter, and the expectations gap between the least optimistic and most optimistic experts continues to narrow,” said Pulsenomics founderTerry Loebs. “However, the most optimistic panelists still expect home values to grow at more than twice the average annual pace of the least optimistic panelists. The gap between the two groups is significant, and amounts to a 2 ½ year difference in when the two groups expect U.S. home values to eclipse their pre-recession peak.”

Various Q2 2015 Zillow Home Price Expectations Survey charts are available, including that seen below:

Zillow 5-12-15 - Home Price Expectations

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 2015 Home Price Expectations Survey (pdf) is interesting.  Of the 111 survey respondents, only one (of the displayed responses) forecasts a cumulative price decrease through 2019; and even that one does not foresee a double-digit percentage cumulative price drop.  That forecast is from Mark Hanson, which foresees a 8.16% cumulative price decrease through 2019.

The Median Cumulative Home Price Appreciation for years 2015-2019 is seen as 4.30%, 8.37%, 12.04%, 15.58%, 19.12%, 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, 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 2098.76 as this post is written