The week opened with the earnings of a number of high-profile corporate names that disappointed investors. Most notable of these was International Business Machines, which really ought to be called International Buyback Machines, given Big Blue’s penchant for driving earnings through financial engineering rather than, y’know, the real kind of engineering.
IBM fell short on revenue estimates, saw shrinking demand in part because of reduced government spending (China’s government, not the US), yet exceeded net income estimates because of – what else – a lower tax rate, now at 11 percent vs 14 pct a year ago.
The week brings a slew of earnings, and then anticipation of the following week, which will bring the Federal Reserve’s last meeting chaired by Ben Bernanke, with media reports already starting to concentrate on the Fed and look past results a bit.
That’s a mistake, of course – the outlook for corporate America vs. a predetermined outcome from the central bank is a no-brainer – but the Fed’s continued exit underpins the shifting sentiment in the market right now.
The first couple of weeks of the year have caused some investors to examine the hyper-bullishness that closed out 2013 – the most successful year for equity-market investing in more than 15 years. Still, a few weeks of softness this year didn’t stop the S&P 500 from hitting a new record Wednesday, however briefly.
Short of the perma-bears, who only see the market as a walking disaster, some notes of caution have rung from those who expect stocks to continue higher, yet struggle through what’s been a mixed start to earnings season.
Thursday’s earnings will be headlined by Intel’s report after the closing bell. The longtime supplier of chips to personal computer makers will likely confirm, once again, that the market for PCs just ain’t so hot right now, even if it improved a bit at the end of 2013, and that it will mostly keep driving shareholder value by, well, buying those shares itself.
Morgan Stanley analysts note that Intel’s forecast for overall unit declines is “more negative than a year ago, and is, in fact, the most negative full year forecast they have ever given,” with an expected decline of 4 percent for the year. While the stock hasn’t been hurting, with a 26 percent advance in 2013, its recent gains put it in range of resistance from $28 to $30 that has acted as a ceiling since early 2004. So, for such a prominent company, Intel has basically been dead money for the better part of a decade now. (It trailed the S&P last year, even with those gains. )
Among the BRIC nations, Brazil’s the one that’s been repeatedly whacked with a brick in the last couple of years, seeing its currency depreciate and its stock market trashed as it steadily ratchets up interest rates to an expected 10.25 percent this evening (or perhaps even 10.50 percent).
Most emerging nations were hit hard in the last year as the Federal Reserve announced it would start changing its strategy toward reduced bond buying, which will reduce some liquidity among dealers and result in less cash sloshing around in the vast ocean of world markets.
This earnings season is front-loaded, per usual, with financial companies, which bring out the big guns this week (JP Morgan, Wells Fargo, American Express, Bank of America and Goldman Sachs), at a time when valuations are under a bit more scrutiny for a few reasons.
For one, the outperformance of financial shares throughout 2013 has been based, in part, on expectations of more lending activity (not just in the shadow banking system, which has seen a pickup since 2012, according to KBW, but also in bank lending). Improved economic growth in the U.S. provides a bit of a lift as well, in terms of net interest margin to big lenders.
The market’s meandering performance so far in January has brought out a bit of the worrying (the first down 5 days of the year since 2005, and all the other various “indicators” that point to things not working out in 2014, even though it’s early for this sort of thing).
But the December jobs figure, however weather-addled, holds investors back a bit and adds to the bit of malaise of late because investors are staring at the priciest market in about seven years (trailing P/E ratio is near 15, per Thomson Reuters I/B/E/S) as earnings start to come down the pike. Of course, the S&P is only down 0.3 percent so far this month, so it’s not a full-blown selloff.
NEW YORK/LONDON (Reuters) – U.S. bond prices jumped and global equity markets pared gains on Friday, after a surprisingly weak month for jobs growth in the United States that was somewhat affected by bad weather.
U.S. nonfarm payrolls rose just 74,000 in December, the smallest increase in nearly three years and far below the 196,000 forecast by economists. The unemployment rate fell 0.3 percentage point to 6.7 percent but this in part reflected people leaving the labor force.
The dollar’s performance hasn’t been anything to write home about in the last few years. It has weakened against major currencies like the euro and the Swiss franc, and been held back by lower interest rates thanks to the Federal Reserve’s triple-dose of quantitative easing, but there’s been a turn of late, though it’s too early to say whether it will have lasting power.
In 2013, the dollar was at least better than the yen, amassing a 35 percent move against the Japanese currency, which countered the Fed’s QE with Abenomics and a massive monetary dose of its own.
December’s last salvo before going into holiday mode was the surprise Federal Reserve decision to trim its monthly $85 billion in bond buying to a more modest (but still enormous) $75 billion, that helped balloon its balance sheet to north of $4 trillion.
Suffice to say, on some levels, there was a bit of a disconnect here: The Fed’s inflation outlook showed inflation not getting back to its 2 percent target for a long time (like, forever; several years out, it was seen as just sneaking its way over 2 percent, never mind what Charles Plosser of Philly says).