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.

S&P 500 EPS

While same-quarter sales will fall an estimated 2.6% in December 2015.

S&P 500 Quarterly Sales

Manufacturing activity is declining, with the PMI Composite index below 50 signaling contraction.

PMI Composite index

Growth in the Freight Transportation Services Index has also slowed.

Freight Transportation Services Index

But electricity production recovered from its alarming downward spike in December last year.

Freight Transport Index

The jobs market remains bouyant, with annual manufacturing earnings growth rising 2.5%.

Annual Change in Hourly Earnings

Inflation has kicked upwards as a result.

CPI and Core CPI

While profit margins are likely to remain under pressure.

Nonfinancial Profit Margins

Light vehicle and retail sales are holding their own.

Light Vehicle Sales Retail Sales (ex-Gas and Automobiles)

And bank lending continues to post steady growth.

Bank Loans and Leases

But net interest margins have fallen below their 2007 lows.

Bank Interest Margins

With rising spreads warning of a credit squeeze.

10-year Baa minus Treasury Spreads


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.

Housing Activity

Only when the housing sector (eventually) revives can we expect to see a full recovery.

Cement and Concrete Production

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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