Home Depot topped the mark on earnings by a penny, but the “news” is hardly bad for the giant retailer.
- The results came in short of expectations but the home improvement retailer said May sales were “robust” and raised its full-year earnings forecast.
When I first came across the “story,” it seemed the news was bad, another data point that suggested retailer earnings are not supporting the positive economic data points that have come out recently. A quick look at more than the headlines points to a different story, one not so “bad” after all.
- Home Depot reported Tuesday that sales and net income for the first quarter rose despite a slow start to the spring selling season following the severe winter weather.
It is interesting to note that Home Depot’s sales increase and raised full-year earnings forecast flies in the face of a Wall Street Journal story this morning that suggests the negative equity issue will be a problem for the real estate sector for some time to come.
- At the end of the first quarter, some 18.8% of U.S. homeowners with a mortgage—9.7 million households—were “underwater” on their mortgage.
I grant that almost 10 million homes “underwater” is bad news, but is the number something we should be concerned about?
- While that is an improvement from 19.4% at the end of last year and a peak of 31.4% 2012, those figures understate the problem.
The 18.8% number, relative to the 31.4% number just two years ago, suggests the number of folks with negative equity is dropping fast. Now, that should be the lead of the story.
The point is this – the above, along with Home Depot’s rising sales, is good news for the US economy and the market. Yet, the pessimism persists, and with that comes more bad “news.”
- Global money managers raised cash holdings to a two-year high this month and said America is the worst place to invest, a recent Bank of America survey showed.
Really? America is the worst place to invest in the market, which is the focus of the global money managers Bank of America surveyed, some 538 of them across the globe. The basic fear is that the US market is tapped out, overvalued, and it has nowhere to go as future earnings look bleak.
Well, Home Depot does not think it earnings future is bleak. It raised its full-year forecast and, BTW, a quick reminder, it increased both sales and net income in a winter of major discontent across America.
- Fear is a poor motivator, as those who advocate exercise and smoking cessation know. Environmentalists have also figured this out. One study found that the more catastrophic the prediction about climate change, the more skeptical listeners became. Dire scenarios often cause people to give up, throwing up their hands in the face of a seemingly insurmountable challenge.
The above might well be true in a broad socio-cultural context, but in the context of the market, it is not true, at least not true in the near term market context. Plenty of times we have seen the market tumble on irrational fear coming from the breathless media. Think China, Cypress, emerging markets, and “mo-mo” stocks.
Yet, here we are, in the midst of technology/small cap sell-off and the market is still near all-time highs. It simply refuses to buckle under the pressure of the pessimism rampant in the talking-head and celebrity analyst circles.
So, relax, if you are overly concerned right now. The market is about balance, and right now it is seeking its level, given what the world is offering. Even if a survey of the global money managers points to the US as the “worst” place to invest in the market (at least in their minds), don’t listen. Home Depot is telling us its present is good and its future is bright. Apparently, the company is not seeing and does not see a major impact from the 10 million homes underwater in the US. This is a good sign for market players.
Trade in the day; invest in your life …
