Monthly Archives: February 2018

S&P500 “Bottom Up” EPS Forecasts Years 2017, 2018 And 2019

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 23 of the “S&P500 Earnings Scorecard” (pdf) of February 20, 2018, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share, the Year 2015 value is $117.46, and the Year 2016 value is $118.10/share:

Year 2017 estimate:

$132.55/share

Year 2018 estimate:

$157.67/share

Year 2019 estimate:

$173.52/share

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2716.26 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2018 And 2019 – As Of February 16, 2018

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 February 16, 2018:

Year 2018 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $156.25/share

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

-From a “bottom up” perspective, “as reported” earnings of $145.67/share

Year 2019 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $172.10/share

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

-From a “bottom up” perspective, “as reported” earnings of $156.40/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2734.89 as this post is written

Walmart’s Q4 2018 Results – Comments

I found various notable items in Walmart’s Q4 2018 management call transcript (pdf) dated February 20, 2018.  (as well, there is Walmart’s press release of the Q4 results (pdf) and related presentation materials)

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 1, wrt Walmart U.S.: 

For the quarter, Walmart U.S. delivered strong comp sales growth of
2.6 percent due primarily to improved comp traffic growth in stores of 1.6
percent. Strength was broad-based across merchandise categories,
formats, and regions, and holiday sales were solid. In addition, comp store
inventory declined again for the eleventh consecutive quarter, so we’re
well-positioned as we begin the year. Sam’s Club comps improved 2.4
percent and in International, nine of eleven markets posted positive comp
sales. So overall, we were pleased with most aspects of the quarter and
confident in the foundational aspects of the business as we enter this new
fiscal year.

comments from Doug McMillon, President and CEO, page 2, wrt Walmart U.S.: 

Looking ahead, we expect eCommerce growth to increase from the
fourth quarter level as we enter the new year with about 40 percent growth
for the year.

comments from Doug McMillon, President and CEO, page 5:

Moving to Sam’s Club, you will remember that we made a decision
to close 63 Sam’s Club locations in the U.S. We’ve talked about
transforming the Sam’s business, and part of this transformation means
managing the club portfolio to include clubs that are both financially viable
and that fit within the strategic framework for the future. Closing stores and
clubs is difficult. It’s obviously difficult for our impacted associates and there
is never a good time to do it. John and the Sam’s team are working to place
as many of them as possible at nearby locations. These closures will help
us run a healthier business.

comments from Brett Biggs, EVP & CFO, page 8:

Before we get to the results, I’d like to highlight some
accomplishments for the full year.
 Total revenue surpassed $500 billion for the first time and increased
$15.1 billion, or 3.1 percent in constant currency.
 Walmart U.S. comp sales grew 2.1 percent – the highest growth rate
since fiscal 2009 – led by traffic growth of 1.4 percent.
 Walmart U.S. eCommerce sales grew 44 percent, reaching $11.5
billion.
 We made good progress on expenses, especially in Walmart U.S.
stores and International. Without the discrete items mentioned in
arriving at adjusted EPS, we would have leveraged expenses.
 Adjusted EPS increased 2 percent.
 Operating cash flow was $28.3 billion.
 The company returned $14.4 billion to shareholders through
dividends and share repurchases, and
 Strong working capital improvements continued.

comments from Brett Biggs, EVP & CFO, page 9:

Consolidated gross profit margin declined 61 basis points.
Approximately two-thirds of the decline was driven by price investments in
certain markets and the mix effect from our growing eCommerce business.
The remaining one-third was driven by Sam’s Club inventory markdowns
associated with closures, and other international items, including the winddown
of our Brazil first-party eCommerce business. Looking ahead to fiscal
2019, we’ll continue to make investments that will pressure the rate some,
but not to the extent of this quarter.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2727.56 as this post is written

“Taylor Rule” Chart – February 14, 2018 Update

On January 9, 2017 I wrote a post (“Low Interest Rates And The Formation Of Asset Bubbles“) that mentioned the “Taylor Rule.”  As discussed in that post – and for other reasons – the level of the Fed Funds rate – and whether its level is appropriate – has vast importance and far-reaching consequences with regard to many aspects of the economy and financial system.

For reference, below is an updated chart depicting the “Taylor Rule” prescription and the actual Fed Funds rate, provided by the Federal Reserve Bank of Atlanta, updated as of February 14, 2018:

Taylor Rule chart

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2698.63 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 February 8, 2018 update (reflecting data through February 2, 2018) is -1.353.

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 February 14, 2018 incorporating data from January 8, 1971 through February 9, 2018, on a weekly basis.  The February 9, 2018 value is -.82:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 14, 2018:

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

The ANFCI chart below was last updated on February 14, 2018 incorporating data from January 8,1971 through February 9, 2018, on a weekly basis.  The February 9 value is -.61:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 14, 2018:

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 site 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 2675.31 as this post is written

Charts Indicating Economic Weakness – February 2018

U.S. Economic Indicators

Throughout this site there are many discussions of economic indicators.  At this time, the readings of various indicators are especially notable.  This post is the latest in a series of posts indicating U.S. economic weakness or a notably low growth rate.

While many U.S. economic indicators – including GDP – are indicating economic growth, others depict (or imply) various degrees of weak growth or economic contraction.  The Gross Domestic Product Q4 2017 Advance Estimate (pdf) of January 26, 2018 was 2.6%, and as seen in the February 2018 Wall Street Journal Economic Forecast Survey the consensus among various economists is for 2.8% GDP growth in 2018.  However, there are other broad-based economic indicators that seem to imply a weaker growth rate.  As well, it should be remembered that GDP figures can be (substantially) revised.

Charts Indicating U.S. Economic Weakness

Below are a small sampling of charts that depict greater degrees of weakness and/or other worrisome trends, and a brief comment for each:

Total Private Construction Spending

Various measures of construction continue to show weak growth and/or contraction.

“Total Private Construction Spending” through December had a last value of $963,247 Million.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with value 2.1%, last updated February 1, 2018:

TLPRVCONS Percent Change From Year Ago

source:  U.S. Bureau of the Census, Total Private Construction Spending [TLPRVCONS], retrieved from FRED, Federal Reserve Bank of St. Louis accessed February 9, 2018:

https://fred.stlouisfed.org/series/TLPRVCONS

Total Federal Receipts

“Total Federal Receipts” growth continues to be intermittent in nature since 2015.

“Total Federal Receipts” through January had a last value of $361,038 Million.  Shown below is  displayed on a “Percent Change From Year Ago” basis with value 4.9%, last updated February 12, 2018:

Monthly Total Federal Receipts

source:  U.S. Department of the Treasury. Fiscal Service, Total Federal Receipts [MTSR133FMS], retrieved from FRED, Federal Reserve Bank of St. Louis February 12, 2018:

https://fred.stlouisfed.org/series/MTSR133FMS

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Commercial And Industrial Loans, All Commercial Banks

“Commercial And Industrial Loans, All Commercial Banks” through January had a last value of $2126.943 Billion.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with value 1.2%, last updated February 9, 2018:

BUSLOANS_2-9-18 Percent Change From Year Ago

source:  Board of Governors of the Federal Reserve System (US), Commercial and Industrial Loans, All Commercial Banks [BUSLOANS], retrieved from FRED, Federal Reserve Bank of St. Louis February 9, 2018:

https://fred.stlouisfed.org/series/BUSLOANS

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Employment

I have written extensively concerning unemployment, as the current and future unemployment issue is of tremendous importance.

The consensus belief is that employment is robust, citing total nonfarm payroll growth and the current unemployment rate of 4.1%.  However, my analyses continue to indicate that the conclusion that employment is strong is incorrect.  Of particular note is the unemployment rate, which indicates that unemployment is (very) low.  Closer examination indicates that this metric is, for a number of reasons, highly misleading.

My analyses indicate that the underlying dynamics of the unemployment situation remain exceedingly worrisome, especially with regard to the future.  These dynamics are numerous and complex, and greatly lack recognition and understanding, especially as how from an “all-things-considered” standpoint they will progress in an economic and societal manner.  I have recently written of the current and future U.S. employment situation on the “U.S. Employment Trends” page.

While there are many charts that can be shown, one that depicts a worrisome trend is the Civilian Labor Force Participation Rate for those with Bachelor’s Degrees and Higher, Ages 25 and Above.  The current value as of the February 2, 2018 update (reflecting data through the January employment report) is 73.4%:

LNS11327662

source:  U.S. Bureau of Labor Statistics, Civilian Labor Force Participation Rate: Bachelor’s Degree and Higher, 25 years and over [LNS11327662], retrieved from FRED, Federal Reserve Bank of St. Louis, February 9, 2018:

https://fred.stlouisfed.org/series/LNS11327662

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Productivity Measures

While I have expressed concerns about the overall definitions and value of productivity measures in the past, I do find the current-era trends to be disconcerting.

One such chart that shows a subdued level of a productivity measure is that of “Manufacturing, Real Output Per Hour.” Through the fourth quarter the last value was 109.101.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with value 1.1%, last updated February 1, 2018:

OPHMFG Percent Change From Year Ago

source:  U.S. Bureau of Labor Statistics, Manufacturing Sector: Real Output Per Hour of All Persons [OPHMFG], retrieved from FRED, Federal Reserve Bank of St. Louis February 12, 2018:

https://fred.stlouisfed.org/series/OPHMFG

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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate economic weakness or economic contraction, if not outright (gravely) problematical economic conditions.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2656.00 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – February 9, 2018 Update

As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):

For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.

Below are three long-term charts, from Doug Short’s ECRI update post of February 9, 2018 titled “ECRI Weekly Leading Index Update:  Yet Another Record High for WLI.”  These charts are on a weekly basis through the February 9, 2018 release, indicating data through February 2, 2018.

Here is the ECRI WLI (defined at ECRI’s glossary):

ECRI WLI

This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:

This last chart depicts, on a long-term basis, the WLI, Gr.:

ECRI WLI,Gr.

_________

I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site 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 2546.75 as this post is written

Philadelphia Fed – 1st Quarter 2018 Survey Of Professional Forecasters

The Philadelphia Fed 1st Quarter 2018 Survey of Professional Forecasters was released on February 9, 2018.  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 2018:  2.8%

full-year 2019:  2.5%

full-year 2020:  2.0%

full-year 2021:  1.7%

Unemployment Rate: (annual average level)

for 2018: 4.0%

for 2019: 3.8%

for 2020: 3.9%

for 2021: 4.0%

Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 5.8%, 9.1%, 11.4%, 13.6% and 16.8% for each of the quarters from Q1 2018 through Q1 2019, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2027) 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 1.7% to 2.7% range.

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2552.37 as this post is written

Deflation Probabilities – February 8, 2018 Update

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”

As stated on the site:

Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2022.

A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.

As for the current weekly reading, the February 8, 2018 update states the following:

The 2017–22 deflation probability has been 0 percent since December 18. The 2016–21 deflation probability was 0.5 percent on February 7, down from 1.6 percent on January 31. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2016 and early 2017, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2016 and April 2017 and the 10-year TIPS issued in July 2011 and July 2012.

_________

I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site 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 2608.32 as this post is written

The February 2018 Wall Street Journal Economic Forecast Survey

The February 2018 Wall Street Journal Economic Forecast Survey was published on February 8, 2018.  The headline is “Economists Stick With Optimistic U.S. Outlook Despite Market Turmoil.”

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.

An excerpt:

Forecasters see the U.S. economy gathering steam this year and the Federal Reserve raising short-term interest rates three or perhaps four times by the end of 2018.

Economists surveyed in recent days by The Wall Street Journal on average predicted U.S. gross domestic product would rise 2.8% in 2018, accelerating from 2.5% growth in the fourth quarter of 2017 versus a year earlier, supported by the recent package of tax-code changes.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 13.97%. The individual estimates, of those who responded, ranged from 0% to 35%.  For reference, the average response in January’s survey was 13.11%.

As stated in the article, the survey’s respondents were 63 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted February 2 – February 6, 2018.

The current average forecasts among economists polled include the following:

GDP:

full-year 2018:  2.8%

full-year 2019:  2.3%

full-year 2020:  2.0%

Unemployment Rate:

December 2018: 3.8%

December 2019: 3.8%

December 2020: 4.1%

10-Year Treasury Yield:

December 2018: 3.13%

December 2019: 3.46%

December 2020: 3.54%

CPI:

December 2018:  2.2%

December 2019:  2.3%

December 2020:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2018: $61.00

for 12/31/2019: $60.19

for 12/31/2020: $59.39

(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 site 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 2626.82 as this post is written