zaterdag 8 juli 2017

Weekend Reading: Oil And Retail Send A Warning

There are two important areas of the market that have historically been good leading indicators of the strength, or weakness, of the markets and the economy. Oil and retail. Currently, both areas are sending warning signs that should not be readily dismissed. First, with respect to oil, the bounce in oil following the crash in prices that began in 2014 resulted not only in the bulk of the decline in earnings initially but also the recovery in earnings with the bounce. However, that bounce has now faded but forward earnings expectations have likely not been revised lower. Per FactSet, the energy sector is expected currently to post a 396% gain in earnings on a year-over-year basis. Given the recent fall in oil prices, there is a huge risk of disappointment...

The biggest issue facing S&P 500 earnings going forward is the analyst community’s “miss” on oil price estimates for the bulk of 2017, not just the second quarter. According to FactSet’s estimates, analysts are expecting the following average prices per barrel for WTI crude for the yet-to-be-reported final three-quarters of 2017:
*2Q17: $51.96
*3Q17: $54.29
*4Q17: $55.72
With oil prices closer to $45 than $50, this could be a problem as, according to FactSet, analysts made the smallest cuts to Q2 earnings-per-share estimates in three years ahead of the reporting season. Retail is also sending a warning that, despite surging consumer confidence surveys, consumers are not rushing out to “crack open” their wallets. Per Bloomberg Intelligence survey: Retail 2Q sales results may be impaired by weak traffic, as consumers still prefer digital, and they swap shopping for travel, dining out or outdoor recreation Shopping less in-store continues to hurt retailers’ ability to prompt unplanned purchases In the week ending July 1, footfall at luxury retailers was down 9.7%, 8.3% weaker at apparel stores Considering that retail sales make up roughly 40% of Personal Consumption Expenditures (PCE), which is roughly 70% of the GDP calculation, you can understand why this may well be an issue for the markets going forward.
As Tom Lee from BofA noted: “We have a nominal GDP problem. If real growth is only 2 and inflation expectations are falling, that means nominal growth is only going to be 3. Earnings growth is really essentially going to be 3%, and I think when you see estimates out there that look for 12% growth next year, it’s grounded on this view that inflation picks up and real growth picks up and if neither takes place, then earnings are too high, which is the reason we think estimates are actually way too high out there.” The risk of disappointment is rising as the hopes for “tax cuts/reform” continue to fade. As Lee concluded: “I think the problem today is that market growth, the rise in the market has way been ahead of GDP growth.” Yep. It’s a problem.
# Politics/Fed/Economy
- Central Banks To Investors: I Know Nothing! via Money Strong
- CBO Gets Obamacare Reform Estimates Wrong, Again by Diana Roth via MI
- Tax Collections Point To Weaker Growth by Lee Adler via Daily Reckoning
- No, The Fed & Bond Market Aren’t Interchangeable via MarketWatch
- The Fed Follows Script That Doesn’t Play by Daniel Moss via Bloomberg
- 4-Signs The Economy Is Stalling by Stephen McBride via Mauldin Economics
- The False Premise Of GOP Tax Cuts by Editorial via New York Times
- The Big Problem With The “Stress Tests” by Craig Wilson via Daily Reckoning
- FOMC Minutes Say Nothing New by Peter Boockvar via The Boock Report
- Minimally Convincing by Bryan Caplan via Econolog
- Confidence Boomed, Economy Hasn’t by Neil Irwin via NYT
- Fed Has No Ability To Manage Outcomes by John Tamny via Forbes 
# Markets;
- Dr. X’s Bubble Detector by Steve Hanke via Forbes
- Bond Market Signals Trouble by Jeff Sommer via NYT
- Has U.S. Shale Wrecked Its Own Recovery via Oil Price
- S&P, A New Price Regime by Sam Ro via Yahoo Finance
- First Step Toward End Of The Bull Market by Akin Oyedele via BI
- Stocks Don’t Look Very Expensive by Gary Smith via RCM
- Oldest Stock Market Indicator Sends Buy Signal via MarketWatch
- Markets Are Blindly Ignoring History by Joe Ciolli via BI
- Tech Weakness Hasn’t Killed The Bull Market by Michael Kahn via Barron’s
- Yusko: Get Out Of Index Funds Now Mark Yusko by Via Harvest
- Show Me The Money by Ed Yardeni via Yardeni Research
- Might Not Have Seen The Peak, But We’re Close via Real Clear Markets
# Research / Interesting Reads;
- The Fast Track To “Carmageddon” by David Stockman via Daily Reckoning
- Residential Rental Vacancy Inflection Point by Mark Hanson via
- Replies To Questions Not Asked Enough by Joe Calhoun via Alhambra Partners
- 2017 First Half Takeaways by Macroman via Global Macro Monitor
- Investors Have Lost Sight of Purpose Of Indexes by Aaron Brown via Bloomberg
- Low-Income Families Spend 40% On Luxuries by Leslie Albrecht via MarketWatch
- Sovereign Debt: The Next Minsky Moment by Alberto Gallo via Bloomberg
- Old Age & The Need For Savings by Ben Stein via The American Spectator
- More Unsurprising Minimum Wage Evidence by Eric Fruits via Truth On The Market
- Leverage Will Make Any Correction Quick! by Jared Dillian via Maulding Economics
- Nope, You’re Not Ready To Retire (Signs) by Katie Brockman via Motley Fool 
- Speculators Ignoring Reality by John Hussman via Hussman Funds
- Small Change In The Market? by Dana Lyons via Tumblr