Friday, October 9, 2015

Earnings Stumble Out of the Gate

Earnings season kicked off this week with the traditional first reporter, Alcoa. Not only is Alcoa always the first to report its earnings each quarter, but its reports are considered something of a bellwether for the quarter ahead, Some studies show that it does project the overall direction of the market: When Alcoa beats expectations, the market tends to rise.

If that's the case, the news is not good. For the quarter, Alcoa earned $44 million, or two cents a share; a year ago, it earned $149 million, or 13 cents a share. Excluding certain items, the company earned $109 million, or 7 cents a share. That was well below the Wall Street consensus of 13 cents a share.

But expectations were very low to begin with. S&P 500 profits are expected to contract 5.6 for this quarter, which would be a second consecutive down quarter. The good news is, that makes upside surprises a little easier to come by.

Thursday, October 8, 2015

What's Driving the Trade Deficit

The U.S. trade deficit widened to $48.3 billion in August, a 15.6 percent increase from the prior month. Except for one fulky labor-drive reading from this spring, the trade deficit was the largest it's been since March 2012.

U.S. exports of goods and services fell to $185.1 billion, the lowest level since October 2012, and  shipments of goods were the weakest they'd been in more than four years. Industrial supplies – led by big drops in exports of fuel oil, plastics and crude oil – had their worst performance since October 2010. Exports of autos and consumer goods were also down.

On the other side of the ledger, imports climbed in August, benefiting from the stronger dollar. Smart phones were the biggest driver: Imports of cell phones and other household goods totaled $2.1 billion in August, accounting for more than half the $4 billion increase in imports of consumer goods.

Wednesday, October 7, 2015

Are Profits Stronger Than We Think?

Are corporate profits much stronger than we think? Although earnings for the S&P 500 have been down roughly 2 percent on the year, a report from the Fed indicates a different trend. The Fed's measure of “Nonfinancial Corporate Business” profits before taxes for the quarter that ended in June shows them increasing by 11 percent year-over-year. That's the strongest growth by that measure since the fourth quarter of 2012.

Even in the S&P, though, the real earnings weakness inheres almost entirely in energy companies, which are projected to fall more than 60 percent in both the third and fourth quarters. Excluding them, S&P 500 profits are estimated to rise 0.1 percent and 3.9 percent in the final two quarters of the year.

Looking at raw figures rather than growth, earnings in the S&P 500 are still above the record level they first reached in 2011, despite the weakness in the energy sector. The S&P 500's net income has roughly doubled since 2009.

Tuesday, October 6, 2015

Crisis of Confidence

We've talked about how rough the third quarter was for stock market investors. A new survey from John Hancock confirms the notion that individual investors have lost confidence in this market: The Investor Sentiment Index set a record high at the end of the second quarter - but that's all gone now.

For the third quarter, the Investor Sentiment Index fell back to its lowest level since the third quarter of 2014. Confidence in stock investing fell to 51 percent from 60 percent in the second quarter, in balanced mutual funds to 53 percent from 63 percent, and in bonds to 19 percent from 25 percent.

Looking forward, those investors are getting doubtful about blue-chip stocks. Twenty percent of investors said blue chip stocks would be the top-performing asset class over the next six months, down from 29 percent who said this in the fourth quarter of 2014. Sixteen percent of respondents chose small-cap stocks as their other top choice, and 11 percent said emerging markets.

Monday, October 5, 2015

Introducing the College Scorecard

It's the time of year when many high school kids start thinking in earnest about where they'd like to go to college, and when many parents start wondering how they're going to pay for it. The Department of Education has just released a new tool to help with this situation: The College Scorecard.

One nice thing about this site is that the emphasis is on finances. You can find the average cost to attend a college, the average debt that the students have accumulated upon graduation, and their future earnings power based on the degree they've earned. So it's not just about paying for school, but making the most out of it.

There are also plenty of links to resources on financial aid and scholarship information. It's a handy place to stop and check out each school on your student's wish list, and temper their expectations accordingly.

Friday, October 2, 2015

September's Jobs Report

September's employment report, just out this morning, was a somewhat disappointing one, showing that the American economy added just 142,000 jobs on the month. The headline unemployment rate remained unchanged at 5.1 percent.

After a year of averaging more than 200,000 new jobs added, the economy appears to have slowed a bit over the summer. The average over the past three months has been 167,000 new jobs. After an average of 260,000 new jobs added per month in 2014, September's figures bring the 2015 average down to 198,000.

The biggest culprit appears to be the oil & gas industry, a victim of falling oil prices. While most industries have added jobs to a greater or lesser extent over the past year, employment in oil & gas is down 3 percent since August 2014.

Thursday, October 1, 2015

End of a Rough Quarter

The stock market broke the curse of September 30 yesterday, but that was about the only good thing you could say about the quarter that just came to an end. The S&P 500 rose by 1.9 percent on the day, but that wasn't enough to prevent if from being down overall for the second straight quarter.

The S&P lost 6.9 percent over the third quarter. With commodity prices plummeting, the materials sector was down 17 percent and the energy sector 18 percent. Among the index's ten sectors, only the utilities sector posted a gain for the quarter.

Overall, it was the S&P's biggest quarterly decline since September 2011. But it could have been worse: The Dow Jones Industrial Average had its worst quarter since 2008.