For those who don’t do well with motion sickness, I hope this week did not do you in. It is a wild ride out there as the market finds its way into 2014. TGIF is all I can say.
Now, where do we go from here in the market? Mostly, it is forward, but as I have written many times, ultimately, the market cares about one thing – earnings. But before getting to that, let me point out a potentially big wave heading the market’s way.
- Congress now has around six weeks to lift or suspend the $16.7T debt limit.
My guess about this is the clowns who can will, meaning there is some political hay to be made with the debt ceiling, so we will see full-blown puffery probably sooner rather than later. My further guess is that in the end, those who want re-election this fall will quietly slink away from shutting down the government and causing yet another market pullback. And if I am wrong, see the idiocy as a buying opportunity. Keep some powder dry, just in case.
- Industrial output rose at a 6.8 percent annual rate in the final three months of last year, the most since the second quarter of 2010. Manufacturing will be a source of strength for the economy as factory floors stay busy filling orders for home-construction materials, appliances and automobiles, while overseas markets expand.
Okay, back to current earnings, but don’t let the above get to far away from your brain, as the data signals what the market looks for six months down the road – the potential for increased earnings. Of course, future earnings depend on the consumer buying up the product that is now being manufactured.
- The preliminary reading for the University of Michigan’s Consumer Sentiment Index for January was reported at 80.4. The reading was below both the consensus for 83.2 and last month’s final reading of 82.5.
Even though the consumer seems less enthralled with the current economic reality, the difference between last month and this is not worrisome. January is a bleak month throughout most of the US, and following such a horribly cold and snowy December, it is reasonable the consumer sees things through a slightly foggy lens. Back to earnings …
One interesting thing about earnings is the interpretive aspect to them. Often they leave an impression that can be seen as a glass half full or half empty.
- General Electric reported a fourth-quarter industrial profit margin of 18.3%, up 100 basis points from a year earlier. Revenues for the quarter were reported at $40.38 billion, which was above the estimate of $40.27 billion.
The above seems to presents a glass half full, right? As well, the numbers jibe with the data I presented earlier about the best industrial output since 2010. GE’s earning picture looks good, yet …
- General Electric lost 2.5 percent as margins at its manufacturing units fell short of guidance.
Now, the above surely suggests shareholders are not happy with GE’s report, and one does not fight the tape, so to speak. It is what it is, but, are the earnings bad?
- General Electric (GE) reported Q4 earnings per share of $0.53, which was in line with the FactSet consensus estimate of $0.53.
GE’s earnings came in as expected, along with an increase in revenue, yet, as a bell whether stock, the market did not accept its decent earnings report. Instead, it looked to UPS and Intel for its clues. UPS turned in numbers not so good and Intel, even though its numbers showed an increase in the PC market over last quarter, it handed out tepid guidance for next quarter. And yet …
- American Express’ Q4 profit doubled to $1.31B and adjusted EPS of $1.25 was in line with consensus, as were sales, which rose 5% to $8.5B.
As always, we have to wait until all the reports are in before assessing the value of the numbers, but, in the meantime, let’s go back to looking down the road a bit, which is, after all, what the market does.
- One of the most important indicators when looking at global economy and forecasting upcoming trends is the Baltic Dry Index (BDI). This index measures the demand for shipping capacity versus the supply of dry bulk carriers. The ETF went up almost 30% in 2013 and is currently trading at its highest level in more than two and half years. The strong volume and the recent breakout above resistance levels gives us to understand that SEA will continue in an upswing during the first half of 2014.
So, the dry bulk ETF is telling us global shipping of goods increased in 2013 and is looking forward to that continuing into 2014. Interesting, for sure, especially since it appears most of the product went to the UK.
- U.K. retail sales rose at the fastest pace in nine years in December, climbing 5.3% on year vs. +1.8% in November and blowing past consensus of +2.6%.
Okay, so maybe all that dry bulk did not go to the UK, but, still, one of the harder hit economies in Europe is reporting a huge increase in retail sales, which means the consumer in the UK id feeling better and had the money to spend. Something good is going on there. Remember, keep some powder dry.
Trade in the day; Invest in your life …
