U.S. markets are closed on Monday in observance of Presidents' Day. Hopefully, consumers will use this day off to do some shopping.
Here's your Monday Scouting Report:
Top StoriesIt's About More Than Weather: There's little doubt that the unusually harsh winter weather has had a negative (and hopefully temporary) effect on the economy.
However, one detail has economists worried it might be about more than just weather. In January, nonstore retail sales (i.e. online sales) fell 0.6% month-over-month in January. Perhaps this is something that'll eventually get revised away.
Earnings Estimates Are Coming Down: "At the mid-point of the first quarter, analysts have lowered earnings estimates for companies in the S&P 500 for the quarter," said FactSet's John Butters. "The Q1 bottom-up EPS estimate (which is an aggregation of the estimates for all 500 companies in the index) has dropped 3.0% (to $27.45 from $28.28) since December 31... During the past year (4 quarters), the past five years (20 quarters), and the past ten years, (40 quarters), the average decline in the EPS estimate during the first half of the quarter has been 2.6%. Thus, the decline in the EPS estimate recorded during the first half of the Q1 2014 quarter has been higher than the trailing 1-year, 5-year, and 10-year averages."
Forecasting earnings is a funny business. On one hand you have investor relations reps who appear to be incentivized to manage expectations in a way so that they can beat them when the announce quarterly results. On the other hand, you have the Wall Street analysts who probably want to be as accurate as possible, but more often than not, they find themselves being too bearish. Through Friday, 399 of the S&P 500 companies announced Q4 earnings, and 71% have beaten estimates. That's just a hair below the 4-year average of 73%.
Record high corporate profit margins continue to be on every stock market watcher's radar. While analysts and chief financial officers expect margins to remain high, the commentary from this earnings season's conference call suggest we should think about margins with caution.
"Companies once again presented mixed outlooks for margins, but many indicated that expansion will be difficult," said Goldman Sachs's David Kostin citing the calls. "Consistent with our forecast that profit margins will remain roughly flat near historical peak levels for the next two years, managements highlighted difficult pricing and higher input costs as key factors offsetting operating leverage, efficiency gains, and continued cost controls."
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