The Macro Economic Reports Indicator: Not a Good Omen

Since peaking on July 10, the Macro Economic Reports Indicator (first introduced on this blog on June 17) has stagnated. Including the two major macro economic reports issued thus far this week (consumer confidence and durable goods orders), the indicator now sits a full 3 points below its July 10 peak (see table*). This is not a good omen for future earnings expectations.

Investment Strategy Implications

With so much stock market value built into future earnings reports below consensus readings in the macro economic sphere suggests a heightened risk factor to future earnings reports coming in above expectations – a necessary ingredient for higher equity prices.

As noted in yesterday’s blog posting, earnings need to be rather robust over the next six to twelve months to justify current equity valuation levels. When macro economic reports, especially the kind that were issued thus far this week, come in well below consensus expectations (not to mention the sizable downward revision in today’s durable goods orders), investors are advised to proceed cautiously.

*click image to enlarge

Comments

[enigmaman:]

majority of companies beating earnings have done so without increasing revenue but by firing employees, cutting expenses and selling off of non performing assets. That being the case where do they go from here? Without the consumer how will companies beat earnings, better yet where will they get earnings? Doesnt seem very likely the consumer will be coming back anytime soon and when they do it will be a different consumer, when will this be factored into earnings projections by Wall Street? When it is what will be the result? Either way its not looking good for further market gains !

Jul 30 08:23 AM

[enigmaman:]

These drastic measures have to be done to survive, its not to improve profitability in the normal sense, like selling ones car to buy another more economical one is far different then selling ones car because you cant afford to make the payments anymore, a matter of survival There is a big difference for the reasons why!

What does a company report in the meantime, before sales return, what is left to drive equity prices higher if sales do not return in mass, Will a stock go up 10% reporting 1% increase in sales, what about profits margins, if sales increase as the expense of marhins, what happens then. Im just curious because this market has run up because of reporting such great earnings or was it just that they reported something at all, in either case where to from here for equities. BTW- insiders are selling like crazy (selling high), insider buying has fallen off the cliff, that doesn't seem very positive to me, but what do I know maybe its a new contrarian indicator when insiders are selling their shares we should be buying them because its all good

On Jul 30 08:26 AM dividendmachine1 wrote:

> I disagree a company's goal is to constantly trim fat which helps
> the bottom line
>
> Also when the sales do return as the consumer driven market is emboldened
> by a higher stock market
>
> They will start hiring again as they need more help and that will
> spur growth
>
> This is a great time to buy large cap multinationals priced properly
>
>
> I have made my living allocating capital and write a national newsletter
> trust me it will be fine.peace

Jul 30 09:35 AM

[the rabble:]

"Also when the sales do return as the consumer driven market is emboldened by a higher stock market"

What planet did you crash in from. ? Here let me talk like an idiot. Where are the jobs that are going to "embolden" the consumer. Walk into any Wally world and take a look around. Mfg capacity is at what in the US 68% ? When the embolded consumer does any sales spurring where do you think the "bulk" of that stimulus is going to go. ? Take a look at the freight (rail and truck) numbers.
How about personal income and factory work hours per employee.
Employment. Personal assets (housing ?). Consumer confidence index. Exports. National debt. State finances. The only thing the consumer is going to get embolded to do by watching the stock market is hang the bankers and overthrow the govenment. Remember what that wise French revolutinary said..."when people get desperate, mad and hungry they do bad things." Trust me... this has'nt even started yet.

Jul 30 12:14 PM

[BigJake:]

Have you bought any AR-15's yet? Those will be worth alot if the situation you describe unfolds.


On Jul 30 12:14 PM the rabble wrote:

> "Also when the sales do return as the consumer driven market is emboldened
> by a higher stock market"
>
> What planet did you crash in from. ? Here let me talk like an idiot.
> Where are the jobs that are going to "embolden" the consumer. Walk
> into any Wally world and take a look around. Mfg capacity is at what
> in the US 68% ? When the embolded consumer does any sales spurring
> where do you think the "bulk" of that stimulus is going to go. ?
> Take a look at the freight (rail and truck) numbers.
> How about personal income and factory work hours per employee.<br/>Em...
> Personal assets (housing ?). Consumer confidence index. Exports.
> National debt. State finances. The only thing the consumer is going
> to get embolded to do by watching the stock market is hang the bankers
> and overthrow the govenment. Remember what that wise French revolutinary
> said..."when people get desperate, mad and hungry they do bad things."
> Trust me... this has'nt even started yet.

Jul 30 02:33 PM

[LilBob:]

The people who owned the companies exported many of this country's good paying jobs. Spend long enough looking at market forecasts and earnings reports and it's fairly easy to forget that working class people-the ones whose dollars keep all those retail ventures in business-essentially live in a closed economic environment. With more Americans working in menial low-wage jobs there's simply no money to spend. That's why we had the credit melt-down, imaginary wealth to prop up a dieing economy. Now we're reaping the leavings of past greed: a wasteland of an economy that is not going to grow because the job base is continuing to shrink and even those who are employed are facing shorter hours and smaller paychecks. At this point the only hope for a revival would be increased hiring in the non-profit sector as a result of stronger markets rebuilding endowment balances or the rapid development of technologies that promise radical reductions in energy consumption-thereby cycling many of those foreign oil dollars back into the US economy.

Jul 30 07:29 PM

[expat in China:]

S& P Companies are smaller!

Same capitalization, higher debt and less product lines, reduced facilities and less workers to generate revenue. I believe the current valuations are still thinking like it is 2006 and have not realized the real shift in america of reduced business activity that will last for a number of years to come.

I am sitting on 85% cash but do not have another investment vehicle that has reasonable risk or limited manipulation. The risk of raising my equity level as a speculation on 2010 can not be justified considering the true macro elements of the world.

What would I miss by avoiding the markets for the rest of my life, real returns over time are low and the trust element of corporate governance are gone leaving everyone with financial statements stretched into illegal or dishonest promotion.

Jul 30 09:52 PM