S&P 500 still flaky
By Colin Twiggs
February 22nd, 2016 3:00 a.m. EDT (7:00 p.m. AEST)
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From Howard Silverblatt at S&P Indices:
"With almost 90% of the Q4 2015 earnings reported, 67.6% of the issues are beating estimates (the historical rate is two-thirds), but only 36.8% beat As Reported GAAP rule based earnings estimates and less than half, 46.8%, beat sales estimates.
Explained 'responsibility' for any short fall on the cost side includes currency costs and a growing list of special one-time items (never to be repeated, of course). On the income side, helping earnings, are the 'difficult decisions made' by companies under the heading of cost-cutting (as layoffs and location changes appear to be on the rise)."
As Reported 12-Month Earnings Per Share (EPS) for the S&P 500 has fallen 12.5% from its Q3 2014 high, with 88.5% of companies having reported.
While same-quarter sales will fall an estimated 2.6% in December 2015.
Manufacturing activity is declining, with the PMI Composite index below 50 signaling contraction.
Growth in the Freight Transportation Services Index has also slowed.
But electricity production recovered from its alarming downward spike in December last year.
The jobs market remains bouyant, with annual manufacturing earnings growth rising 2.5%.
Inflation has kicked upwards as a result.
While profit margins are likely to remain under pressure.
Light vehicle and retail sales are holding their own.
And bank lending continues to post steady growth.
But net interest margins have fallen below their 2007 lows.
With rising spreads warning of a credit squeeze.
Conclusion
Sales levels are reasonably healthy, but rising wages and competition from imports is putting pressure on profits. Rising credit spreads and falling margins suggest all is not well in the banking sector, which could impact on broader economic activity.
Housing starts remain slow.
Only when the housing sector (eventually) revives can we expect to see a full recovery.
I am more scared now that I was at any point since I began trading, because I recognize how ephemeral success can be in this business. I know that to be successful, I have to be frightened. My biggest hits have always come after I have had a great period and I started to think that I knew something.
~ Paul Tudor Jones
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