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Wednesday, February 15, 2017 9:09:30 AM
Sales and Earnings Back At Highs, But So Are Valuations
By Urban Carmel
* Tuesday, February 14, 2017
Summary: In the past year, S&P profits have grown 46% yoy. Sales are 4.5% higher. By some measures, profit margins are back at their prior highs. This is a remarkable turnaround from a year ago, when profits had declined by 15% and most investors interpreted this as a sure sign that a recession and a new bear market were underway.
The critics were wrong because they confused a collapse in one sector - energy, where sales dropped by 60% - with a general decline in all sectors. But in the past two years, sales in the other sectors have continued to grow and margins have mostly remained strong. A rebound in oil prices (and only modest appreciation of the dollar, another headwind in the past two years) bodes well for forward sales and earnings growth.
Where critics have a valid point is valuation: even excluding energy, the S&P is now more highly valued than anytime outside of the 1998-2002 dot com bubble. Valuations rise with investor sentiment; that sentiment is now very bullish. With economic growth of 4-5% (nominal), it will likely take outright exuberance among investors to propel S&P price appreciation at a significantly faster rate.
* * *
A year ago, profits for companies in the S&P had declined 15% year over year (yoy). Sales were 3% lower. Margins had fallen more than 100 basis points. The consensus believed all of this signaled the start of a recession in the US.
These dire prognoses for the US have not worked out. Jobless claims are at more than a 40 year low (first chart below) and retail sales are at an all-time high. US demand growth, measured a number of different ways, has been about 4-5% nominal yoy during the past two years (second chart below). There has been no marked deterioration in domestic consumption or employment.
The resilience of the US economy in the face of deteriorating sales and profits is not a surprise. We wrote about this a year ago, saying that there was little in corporate reports to suggest that a recession was imminent (that post is here). Events since then bear this analysis out (as summarized here).
Let's review the latest corporate reports. More than 80% of the S&P 500 has reported their sales and earnings for 4Q16.
Overall sales are 4.5% higher than a year ago. This is the best sales growth since 3Q14 - more than 2 year ago. On a trailing 12-month basis (TTM), sales are 2.1% higher yoy (all financial data in this post is from S&P). . .
* * *
http://fat-pitch.blogspot.com/2017/02/sales-and-earnings-back-at-highs-but-so.html?spref=tw
• DiscoverGold
Click on "In reply to", for Authors past commentaries
By Urban Carmel
* Tuesday, February 14, 2017
Summary: In the past year, S&P profits have grown 46% yoy. Sales are 4.5% higher. By some measures, profit margins are back at their prior highs. This is a remarkable turnaround from a year ago, when profits had declined by 15% and most investors interpreted this as a sure sign that a recession and a new bear market were underway.
The critics were wrong because they confused a collapse in one sector - energy, where sales dropped by 60% - with a general decline in all sectors. But in the past two years, sales in the other sectors have continued to grow and margins have mostly remained strong. A rebound in oil prices (and only modest appreciation of the dollar, another headwind in the past two years) bodes well for forward sales and earnings growth.
Where critics have a valid point is valuation: even excluding energy, the S&P is now more highly valued than anytime outside of the 1998-2002 dot com bubble. Valuations rise with investor sentiment; that sentiment is now very bullish. With economic growth of 4-5% (nominal), it will likely take outright exuberance among investors to propel S&P price appreciation at a significantly faster rate.
* * *
A year ago, profits for companies in the S&P had declined 15% year over year (yoy). Sales were 3% lower. Margins had fallen more than 100 basis points. The consensus believed all of this signaled the start of a recession in the US.
These dire prognoses for the US have not worked out. Jobless claims are at more than a 40 year low (first chart below) and retail sales are at an all-time high. US demand growth, measured a number of different ways, has been about 4-5% nominal yoy during the past two years (second chart below). There has been no marked deterioration in domestic consumption or employment.
The resilience of the US economy in the face of deteriorating sales and profits is not a surprise. We wrote about this a year ago, saying that there was little in corporate reports to suggest that a recession was imminent (that post is here). Events since then bear this analysis out (as summarized here).
Let's review the latest corporate reports. More than 80% of the S&P 500 has reported their sales and earnings for 4Q16.
Overall sales are 4.5% higher than a year ago. This is the best sales growth since 3Q14 - more than 2 year ago. On a trailing 12-month basis (TTM), sales are 2.1% higher yoy (all financial data in this post is from S&P). . .
* * *
http://fat-pitch.blogspot.com/2017/02/sales-and-earnings-back-at-highs-but-so.html?spref=tw
• DiscoverGold
Click on "In reply to", for Authors past commentaries
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Your Due Dilegence is a must!
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