All that’s left for investors now when it comes to earnings season is the shouting, but if the rest of the retailers post results anything like Kate Spade did on Tuesday, the shouts will be screams of terror rather than anything that assuages investors over the state of the overall economy. Kate Spade’s executives went into some detail on its conference call as to the nature of its margins shortfall – which Belus Capital chief equity strategist and longtime retail analyst Brian Sozzi said are not likely to improve until the middle of 2015 – and the company then did itself no favors by declaring that it wouldn’t be discussing the margin issues any further on the call. (Craig Leavitt, the CEO, violated that rule to some degree, but basically, investors don’t like it when you tell them flat-out that you’re not going to talk about your problems, and when you’re a company with a forward price-to-earnings ratio of 77.5 and a price-to-book value of 119, that’s going to be particularly true.)
We’re deep into a period where the earnings calendar has basically dried up and the news flow overall is pretty slim, so the market will hang whatever gains it can on thin reeds – deals involving master-limited partnerships here, results from the likes of Sysco (the food services company there), and maybe Priceline.com in the mix too. The broader economic signals remain the more important ones for markets right now, and while they’re not uniformly outstanding, there are some hopeful signs for those finally looking for an acceleration in activity.
Disney is expected to report third-quarter results after market close and is likely to beat average analyst estimates, according to StarMine. The media company’s results could get a boost from “Maleficent”, its revisionist take on “Sleeping Beauty” featuring Angelina Jolie, but the company’s prowess doesn’t end there, not with “Captain America: Winter Soldier” also a box-office champ in 2014 – which was also released during its most recent reporting period.
The ingredients have been in place for some time for a correction – it’s only taken some kind of spark to ignite them, and yes, it’s a bit early for such mixed metaphors. The market has dipped 3.2 percent from its highs, and while that’s not all that much, it’s enough, as Dan Greenhaus of BTIG puts it in late Sunday commentary, to generally result in a bit of dip-buying. That said, the softness of late in auto sales and some really ugly housing data does point to the possibility that the economy’s direction is just squishy enough to warrant a bit more of a pullback, and Greenhaus, one of the Street’s more reliable bulls right now, says even his firm doesn’t “have high conviction right now” as far as a rally.
To paraphrase Kevin Costner in Bull Durham, we’re dealing with a lot of stuff here. The U.S. economy did end up rebounding in the second quarter, with a 4 percent rate of growth that’s much better than anyone anticipated – and the first-quarter decline was revised to something less horrible, so investors worried about the economy are a bit less freaked out at this particular moment.
One of the market’s more well known short bets, Herbalife, reports earnings after the close on Monday. The company is most notable as the target of activist investor Bill Ackman, who has had plenty of choice words for the company and yet has not been able to make good on his short position just yet, despite his fervent belief it is defrauding investors and taking advantage of poor people.
The day brings another run of earnings reports in what’s overall been a steady and admittedly staid earnings season – many of the high-fliers that investors counted on for volatile trading post-earnings haven’t delivered on that promise, an angle we’ll be exploring in more detail later in the day. Facebook went out with results that weren’t terrible or even all that amazing and shares meandered their way to a 2 percent gain in post-close trading Wednesday (it has since risen and is up 8 percent in premarket action Thursday, so that one has at least panned out for some). Shares of Gilead Sciences bucked the trend among more volatile biotechnology shares and really didn’t do all that much at all.
The next several hours will bring a handful of important consumer names that may give investors some idea of the progress the consumer economy is making. This only works as a barometer to some degree. Sales at S&P 500 companies far outpace the growth of the overall economy, which in part explains why the market itself is doing as well as it is (we’re in the 1980s now on the S&P, so crank up the Def Leppard) and the rest of the economy is lagging behind.
Apple’s been the two-ton behemoth of the stock market for so long that it is going to be surprising, in a way, to see that the company isn’t really pulling its weight anymore when it comes to its percentage of S&P 500 earnings. This sort of thing can be a bit silly, but Howard Silverblatt, the index guru over at S&P Dow Jones, points out that Apple right now is about 3.2 percent of the total market value of the S&P while at the same time accounting for an expected 2.8 percent of earnings in the S&P – the first time since 2008 that Apple hasn’t delivered a percentage of S&P earnings equivalent to its market value.
Shares of Hewlett-Packard fell late in Thursday’s session after the company inadvertently released results just before the closing bell, but the year hasn’t been so bad for HPQ at least where its stock is concerned – shares are up about 13.6 percent so far in 2014, part of solid performance by a group of stocks Goldman Sachs identifies as “weak balance sheet” companies, the kind of phenomena that occurs when the economy seems to be in recovery and financial conditions are favorable, which they are right now – low rates, high levels of borrowing, reduced covenants in loans and further appetite for risk.