Best S&P 500 sales since 2012 displays economy triggers bull market
February 19, 2014 8:18 am
Standard & Poor’s 500 Index firms are surpassing analyst sales projections by the most since 2012, an indication increasing consumer demand is firing up economic development as the bull market approaches its sixth year.
Led by banks, utilities and drugmakers, sales topped analyst estimates by 1.2 percent this profits season, the topmost margin in almost two years, according to data gathered by Bloomberg. The performance came as economists increased their projection for GDP expansion to 2.9 percent in 2014, up from 2.6 percent at the beginning of the year, even after snowstorms helped lead to lower-than-projected data on retail sales and payrolls.
The combination will boosts profits enough to fuel more advances for the S&P 500 as manufacturing progresses and employment recovers, according to Jonathan Golub, the chief U.S. market strategist at RBC Capital Markets LLC. He sees the S&P 500 skyrocketing 13 percent from last week’s close to 2,075 this year. Companies from Regeneron Pharmaceuticals Inc. to Nvidia Corp. surpassed revenue projections in the fourth quarter by twice the rate as the previous period on stronger-than-predicted demand for everything from drugs to computer chips.
“We’re starting to see revenue growth in a lot of companies as we sift through all the rubble,” Dan Veru,chief investment officer who helps oversee $5 billion at Palisade Capital Management LLC, said by phone. “The best news in that is that those sales expectations are low. And when expectations are low companies have a tendency to beat those expectations.”
The S&P 500 soared 2.3. percent last week as comments by Federal Reserve Chair Janet Yellen fueled optimism the economy can weather further stimulus trims and Congress voted to spike up the nation’s debt ceiling. The index rallied 0.1 percent today and depreciated 0.4 percent this year after a 30 percent increase in 2013.
Broad Development
The economy has strengthened and there is “broad improvement” in the labor market, Yellen said last week in her first public remarks as Fed chair. Should GDP increase by 2.9 percent, it would be the fastest gain in almost a decade, according to data compiled by Bloomberg.
While the increase in payrolls trailed economists’ estimates in the first two reports of the year and retail sales excluding automobiles and gasoline unexpectedly decreased in January, the U.S. has added jobs for 40 straight months and that measure of sales has increased in every month but two since the middle of 2012.
Revenue growth is more important than at any time since the bull market began as profit margins at American companies climbed to all-time highs above 9 percent, limiting the potential earnings boost available from cost cuts. McDonald’s Corp., the world’s biggest restaurant owner, and Nike Inc., the largest sporting goods company, signaled margin gains will be harder to come by this year.
Sales Pressure
At the same time, sales growth slowed to 3.6 percent in 2013 from 8.5 percent in 2011, according to data compiled by Bloomberg. The U.S. economy has expanded by an average rate of 2.3 percent per quarter since 2009, the weakest recovery since World War II, according to data compiled by Bloomberg.
Revenue has exceeded analyst predictions in the fourth quarter for nine of 10 industries in the S&P 500 as utilities, health-care companies and financial firms beat estimates by at least 2.2 percent for the best performance. Consumer staples was the only group to fall short of revenue projections.
Revenue Projections
Regeneron, in Tarrytown, New York, has climbed 18 percent this year after reporting fourth-quarter sales 5.2 percent above estimates, helped by a boost in demand for its eye drug Eylea. Santa Clara, California-based Nvidia (NVDA) has advanced 6.4 percent since reporting Feb. 12 that demand for graphics processors used in high-end gaming computers helped it beat revenue estimates by 8.6 percent last quarter.
“This becomes increasingly a revenue game,” Stephen Wood, New York-based chief market strategist at Russell Investments, said by phone. His firm oversees more than $256 billion. “Companies that can increase pricing power through active management should be favored by the market. Companies that tend to perform on the top line will outperform.”
Revenue for companies in the U.S. benchmark will climb 1.1 times GDP growth this year, the lowest ratio since 2008, according to analyst estimates compiled by Bloomberg. Sales rose 2.5 times faster than economic growth on average in the past four years, the data show.
International Markets
Analysts’ sales estimates are tied to forecasts from chief executive officers who are reluctant to bet on accelerating growth after the economy expanded 1.9 percent last year, the slowest since 2011, according to RBC’s Golub.
“They’re reflecting how uncomfortable things have been through this weak recovery, and that’s going to mean that ultimately there’s going to be a surprise to the upside,” Golub said in a February 12 phone interview. “In an improving world, underestimating things because looking backwards growth looks weak, is a great story.”
Golub’s year-end S&P 500 target of 2,075 is the second-highest in a Bloomberg survey of 21 Wall Street strategists. The average forecast calls for the benchmark gauge to advance another 6.4 percent to 1,956 this year.
Revenue projections are trailing GDP predictions because of turmoil in international markets, according to Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees $160 billion.
Chinese Manufacturing
The S&P 500 lost 5.8 percent between January 15 and February 3 amid indications of a contraction in China’s manufacturing and as the Argentinian government’s decision to allow the peso to devalue triggered a rout in emerging-market currencies. A Chinese manufacturing gauge fell to a six-month low in January as output and orders slowed amid government efforts to rein in excessive credit, and a report last week showed Brazil’s economy contracted more than forecast in December.
“That tonic that came from overseas — that’s gone, that’s not part of the math anymore,” Caron said by phone. “We got very much used to having a weak dollar provide a conversion benefit, but we’re not getting that tailwind anymore either.”
The Bloomberg Dollar Spot Index has gained 11 percent since reaching a five-year low in July 2011.
Companies from Oakbrook, Illinois-based McDonald’s to Nike in Beaverton, Oregon, warned profitability growth may wane.
Pressuring Margins
“We’re diligently managing restaurant expenses, but we expect cost increases to continue pressuring margins,” Peter Bensen, chief financial officer for McDonald’s, told investors on a January 23 conference call. Higher labor expenses will limit Nike’s profitability in 2014, Donald Blair, the company’s chief financial officer, said on a December 19 conference call.
Should the relationship between sales and economic growth hold this year, S&P 500 companies will see revenue climb 7.2 percent, twice the rate in 2013, according to data since 2010 compiled by Bloomberg. That’s the second-fastest expansion of the bull market behind 2011, when revenue rose 8.5 percent for companies in the benchmark.
“It implies that expectations for the future of companies may be too low,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $367 billion, said by phone. “It’s a great blessing to begin with low expectations and then to subsequently exceed them.”
The material has been provided by InstaForex Company – www.instaforex.com
Standard & Poor’s 500 Index firms are surpassing analyst sales projections by the most since 2012, an indication increasing consumer demand is firing up economic development as the bull market approaches its sixth year.
Led by banks, utilities and drugmakers, sales topped analyst estimates by 1.2 percent this profits season, the topmost margin in almost two years, according to data gathered by Bloomberg. The performance came as economists increased their projection for GDP expansion to 2.9 percent in 2014, up from 2.6 percent at the beginning of the year, even after snowstorms helped lead to lower-than-projected data on retail sales and payrolls.
The combination will boosts profits enough to fuel more advances for the S&P 500 as manufacturing progresses and employment recovers, according to Jonathan Golub, the chief U.S. market strategist at RBC Capital Markets LLC. He sees the S&P 500 skyrocketing 13 percent from last week’s close to 2,075 this year. Companies from Regeneron Pharmaceuticals Inc. to Nvidia Corp. surpassed revenue projections in the fourth quarter by twice the rate as the previous period on stronger-than-predicted demand for everything from drugs to computer chips.
“We’re starting to see revenue growth in a lot of companies as we sift through all the rubble,” Dan Veru,chief investment officer who helps oversee $5 billion at Palisade Capital Management LLC, said by phone. “The best news in that is that those sales expectations are low. And when expectations are low companies have a tendency to beat those expectations.”
The S&P 500 soared 2.3. percent last week as comments by Federal Reserve Chair Janet Yellen fueled optimism the economy can weather further stimulus trims and Congress voted to spike up the nation’s debt ceiling. The index rallied 0.1 percent today and depreciated 0.4 percent this year after a 30 percent increase in 2013.
Broad Development
The economy has strengthened and there is “broad improvement” in the labor market, Yellen said last week in her first public remarks as Fed chair. Should GDP increase by 2.9 percent, it would be the fastest gain in almost a decade, according to data compiled by Bloomberg.
While the increase in payrolls trailed economists’ estimates in the first two reports of the year and retail sales excluding automobiles and gasoline unexpectedly decreased in January, the U.S. has added jobs for 40 straight months and that measure of sales has increased in every month but two since the middle of 2012.
Revenue growth is more important than at any time since the bull market began as profit margins at American companies climbed to all-time highs above 9 percent, limiting the potential earnings boost available from cost cuts. McDonald’s Corp., the world’s biggest restaurant owner, and Nike Inc., the largest sporting goods company, signaled margin gains will be harder to come by this year.
Sales Pressure
At the same time, sales growth slowed to 3.6 percent in 2013 from 8.5 percent in 2011, according to data compiled by Bloomberg. The U.S. economy has expanded by an average rate of 2.3 percent per quarter since 2009, the weakest recovery since World War II, according to data compiled by Bloomberg.
Revenue has exceeded analyst predictions in the fourth quarter for nine of 10 industries in the S&P 500 as utilities, health-care companies and financial firms beat estimates by at least 2.2 percent for the best performance. Consumer staples was the only group to fall short of revenue projections.
Revenue Projections
Regeneron, in Tarrytown, New York, has climbed 18 percent this year after reporting fourth-quarter sales 5.2 percent above estimates, helped by a boost in demand for its eye drug Eylea. Santa Clara, California-based Nvidia (NVDA) has advanced 6.4 percent since reporting Feb. 12 that demand for graphics processors used in high-end gaming computers helped it beat revenue estimates by 8.6 percent last quarter.
“This becomes increasingly a revenue game,” Stephen Wood, New York-based chief market strategist at Russell Investments, said by phone. His firm oversees more than $256 billion. “Companies that can increase pricing power through active management should be favored by the market. Companies that tend to perform on the top line will outperform.”
Revenue for companies in the U.S. benchmark will climb 1.1 times GDP growth this year, the lowest ratio since 2008, according to analyst estimates compiled by Bloomberg. Sales rose 2.5 times faster than economic growth on average in the past four years, the data show.
International Markets
Analysts’ sales estimates are tied to forecasts from chief executive officers who are reluctant to bet on accelerating growth after the economy expanded 1.9 percent last year, the slowest since 2011, according to RBC’s Golub.
“They’re reflecting how uncomfortable things have been through this weak recovery, and that’s going to mean that ultimately there’s going to be a surprise to the upside,” Golub said in a February 12 phone interview. “In an improving world, underestimating things because looking backwards growth looks weak, is a great story.”
Golub’s year-end S&P 500 target of 2,075 is the second-highest in a Bloomberg survey of 21 Wall Street strategists. The average forecast calls for the benchmark gauge to advance another 6.4 percent to 1,956 this year.
Revenue projections are trailing GDP predictions because of turmoil in international markets, according to Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees $160 billion.
Chinese Manufacturing
The S&P 500 lost 5.8 percent between January 15 and February 3 amid indications of a contraction in China’s manufacturing and as the Argentinian government’s decision to allow the peso to devalue triggered a rout in emerging-market currencies. A Chinese manufacturing gauge fell to a six-month low in January as output and orders slowed amid government efforts to rein in excessive credit, and a report last week showed Brazil’s economy contracted more than forecast in December.
“That tonic that came from overseas — that’s gone, that’s not part of the math anymore,” Caron said by phone. “We got very much used to having a weak dollar provide a conversion benefit, but we’re not getting that tailwind anymore either.”
The Bloomberg Dollar Spot Index has gained 11 percent since reaching a five-year low in July 2011.
Companies from Oakbrook, Illinois-based McDonald’s to Nike in Beaverton, Oregon, warned profitability growth may wane.
Pressuring Margins
“We’re diligently managing restaurant expenses, but we expect cost increases to continue pressuring margins,” Peter Bensen, chief financial officer for McDonald’s, told investors on a January 23 conference call. Higher labor expenses will limit Nike’s profitability in 2014, Donald Blair, the company’s chief financial officer, said on a December 19 conference call.
Should the relationship between sales and economic growth hold this year, S&P 500 companies will see revenue climb 7.2 percent, twice the rate in 2013, according to data since 2010 compiled by Bloomberg. That’s the second-fastest expansion of the bull market behind 2011, when revenue rose 8.5 percent for companies in the benchmark.
“It implies that expectations for the future of companies may be too low,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $367 billion, said by phone. “It’s a great blessing to begin with low expectations and then to subsequently exceed them.”
The material has been provided by InstaForex Company – www.instaforex.com
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