A few days ago Ed Yardeni gave a summary of some good news as well as some bad news as it pertains to S&P earnings.
All of these points are worth monitoring on an ongoing basis.

On the good news side there is:
(1) “Rebounding M-PMI. The good news is that the US M-PMI rebounded during January after taking a dive during December, as we discussed yesterday. This business indicator is highly cyclical and also highly correlated with S&P 500 aggregate revenues. The M-PMI is also highly correlated with the yearly percent change in the S&P 500.” M-PMI is the Manufacturing Purchasing Managers Index.

(2) Rebounding new orders. That’s not surprising since both the S&P 500 and the new orders sub-index of the US M-PMI are among the 10 components of the Index of Leading Economic Indicators (LEI).

(3) A surprisingly good year. S&P 500 aggregate revenues rose 9.0% y/y during Q3, and 10.7% on a per-share basis. Joe and I previously have marveled at the strength of revenues growth last year despite all the chatter about a slowdown in the global economy. A rebound in oil prices helped to boost revenues. However, the S&P 500’s aggregate revenues was up 7.5% even excluding the S&P 500 Energy sector.”

On the bad news side however:
(1)” Global M-PMI falling. The global M-PMI fell to 50.7 during January. That’s down from a recent peak of 54.4 at the end of 2017 and the lowest since August 2016. (Excluding the US, the global M-PMI slumped to the 50.0 breakeven point.)

(2) Global leading indicators weakening. As Debbie and I observed last week, the LEI in the US stalled at a record high during the final three months of 2018. We expect it made a new record high last month, led by the S&P 500 and the M-PMI’s new orders index. The bad news is that the LEI for the 36 member countries of the OECD continues to weaken, as it has been doing since February when it was at 100.4. It was down to 99.3 during November. This global business cycle indicator is also highly correlated with the growth in S&P 500 aggregate revenues, and does not augur well for revenues growth. However, the two series have diverged from time to time.

(3) Commodity prices get a boost from the Fed. The one bright spot for the global economy is the price of copper. It is starting to shine again. It is very sensitive to US monetary policy and Chinese economic growth. The nearby futures price has rallied from a recent, January 3 low of $2.568 per pound to $2.805 yesterday. Like the stock market, the price of copper is responding positively to the more dovish approach to monetary policy and Trump’s cheerleading on the progress in US-China trade talks.

(4) The dollar remains a headwind. The prices of most commodities traded globally in dollars, including the price of copper, are inversely correlated with the foreign exchange value of the trade-weighted dollar. If the Fed pauses hiking rates for a while and US-China trade talks end amicably, the dollar should weaken, or at least stop strengthening. That would be a positive for the growth rate of S&P 500 revenues, which is inversely correlated with the dollar.”


Confidence Boosters for the Market

by Laura Ehrenberg-Chesler on January 28, 2019 in Earnings

For the fourth quarter of 2018, and into the month of January 2019, the market has been worried about slowing growth and the possibility of a recession. Earnings reports have been mixed, with several large multi-nationals reporting disappointing numbers. Ed Yardeni articulates a few things that could bolster the confidence of the market over the […]

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Mexico’s New Foreign Policy: A Return to the Past – courtesy of Geopolitical Futures

by Marilou Moursund on January 16, 2019 in Brexit

I think it is interesting that we tend to pay more attention to Europe and the UK rather than what is going on right to the south of us.  Many of the same issues revealed by the Brexit vote, the Yellow Vests in France, and the election of populist leaders around the world are also […]

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Corporate Buybacks vs. Capital Spending

by Laura Ehrenberg-Chesler on December 20, 2018 in capital spending

There has been a lot of chatter this year about corporations buying back their own stock rather than investing in their businesses. On Tuesday, Ed Yardeni debunks this myth with facts. “True Story III: Capital Spending at Record High. Another widely held view is that corporations aren’t spending enough on plant and equipment because they’re […]

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No sign of Credit Crunch at Banks

by Laura Ehrenberg-Chesler on December 18, 2018 in Economic Indicators

With all the worry about the inverted yield curve and a potential recession, it was a relief to read Ed Yardeni’s piece this morning about banks, lending, and the yield curve. From Ed Yardeni: “So what really matters is the net interest margin of the banks. Consider the following: (1) Interest margin. Data available for […]

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Thanksgiving story on Successful Managers

by Laura Ehrenberg-Chesler on November 28, 2018 in Tribute

In case you missed this story from the WSJ on November 25: “By year two, as William Bradford’s long-odds startup finally stepped back from the brink of oblivion, he decided to hold a mandatory, three-hour staff meeting. This wasn’t a party, an operational review or hackathon. The only item on the boss’s agenda that morning […]

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Rising Inventories Hit Oil Price

by Marilou Moursund on November 27, 2018 in Energy

The price of oil has tumbled in the last month from the mid-$70s to $51 this morning.  The Wall Street Journal has a good article today about all the factors affecting the price of oil.  From the linked article: What sparked the reversal? Investors and oil traders had a sudden rethink about how much oil […]

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Jim Cramer on Slowing Economy

by Laura Ehrenberg-Chesler on November 16, 2018 in Credit Crisis

Jim Cramer; from comments today posted on the CNBC website: “There are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc and cost a lot of jobs, and that’s what we’re on the verge of here,” he said. “That’s what the markets are saying. That’s what the CEOs are worried about offline.” […]

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Ed Yardeni turns more cautious

by Laura Ehrenberg-Chesler on November 14, 2018 in Commodities

Ed Yardeni has been bullish for the better part of the most recent bull market. He recently turned more cautious due to the Federal Reserve raising rates, a slowing global economy, the China trade impasse, and domestic politics. From his research today: “On balance, Trump’s policies have boosted economic growth and further tightened the labor […]

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It’s Election Day

by Marilou Moursund on November 6, 2018 in equity market

The Wall Street Journal had a good summary today of the various concerns facing the market titled “Why the Election Shouldn’t Distract Investors”.  From the linked article: Every market pundit has a view on how the election will affect markets. The truth is, the economic and financial forces at work right now are so powerful […]

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