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We exited last week with all three major stock market indices down modestly. While there was some sign following the near shut down of the federal government, the larger story was the growing concern over an economic soft patch following renewed consumer concerns as well as several streams of data over the last several weeks that have caused more than a few to recast their recent and near term expectations for the domestic economy. As we head deeper into March 2011 earnings season, with a smattering of S&P 500 (NYSEARCA:SPY) companies slated to report over the next 4 days (remember, the market is closed on Friday for Easter Sunday), it looks like a fast and furious ride in the coming days.

GDP Forecasts Get Recast
Last week started off slowly in terms of economic data, but what data we did get was mixed at best. A more sober perspective, however, would say that the most recent figures, when coupled with those over the past few months, imply that the country’s rate of economic growth has slowed in recent months. Moreover, as the full impact of higher gas and food prices is felt, growth could be restrained in the near term.

Before we get down to changes in the outlook, let’s set the stage by looking at how the quarter that ended in December fared.

In late March, the Bureau of Economic Analysis released its final view on gross domestic product (GDP) for the last quarter of 2010. That view, which was based on more complete source data than the prior GDP reading for the quarter, showed that the quarter ending in December grew 3.1 percent over the quarter ending in September. The prior reading for the last quarter of 2010 was growth of 2.8 percent, and the upward revision reflected increased consumer spending, exports and business investment. Factoring in that revision, the bureau also revised its reading for 2010 GDP growth to 2.9 percent, up from a negative 2.6 percent in 2009.

As you can imagine, the question investors pondered at the time was whether the fourth-quarter rate of growth would improve, hold steady or slow in the first quarter of 2011.

GDP expectations for first quarter this year started at about 3 percent, but the economic committee of the American Bankers Association in mid-January increased its GDP forecast for 2011, from 3 percent to 3.3 percent growth. Digging through that revised forecast, we find the group expected the U.S. to grow at a better than 3.2 percent annual rate in each quarter this year.

To be fair to the bankers association, it was not alone. Early in the quarter ending in March, the Federal Reserve raised its domestic 2011, GDP forecast to 3.4 percent to 3.9 percent growth, up from its November view on 2011, that called for GDP growth of 3.0 percent to 3.6 percent.

Again, that was earlier in the year and those forecasts were issued before a number of challenges arose. These challenges included unrest in the Middle East and surging prices for oil, gasoline and other inputs, peak food prices, European concerns, the impact of disaster-related damages in Japan and our own near government shutdown and deficit concerns.

In addition to those issues, we have seen softer if not downright weakness in some of the data over the past few months. Examples can be found in construction spending, the housing market and durable goods orders to name a few. In short, rising commodity prices and flat wages more than offset the latest stimulus plan.

Echoing this souring perspective, the National Federation of Independent Business’ Index of Small Business Optimism gave up 2.6 points in March, falling to 91.9. The prime reason for the drop in the index to levels last seen in the fourth quarter of 2010, was the decline in the percent of owners expecting higher real sales and better business conditions over the next six months. With that context, it’s easy to see why NFIB chief economist Bill Bunkelberg said, “It looks like everyone became more pessimistic in March.”

Given the souring tone, it’s not surprising that we have started to get downward revisions to economic growth expectations for the quarter that ended in March. JPMorgan Chase (NYSE:JPM) recently cut its view on GDP growth for the quarter ending in March to 1.4 percent from 2.5 percent, while Bank of America (NYSE:BAC) reduced its forecast for the second time to 1.5 percent. Several weeks back, Bank of America reduced its GDP forecast for the quarter from 3.3 percent to 2.2 percent.

Higher Gas Prices Weigh in on Optimism Levels
While we’re getting those negative revisions, we’re also getting some upwardly revised ones, albeit in the wrong direction for gas prices and food prices. In particular, the U.S. Energy Information Administration now sees gasoline averaging $3.80 per gallon in 2011, up 33 percent year over year. Worse yet, during the April-to-September peak driving season, the agency expects gas prices to peak near $3.91 per gallon in early summer. In other words, buckle up for more pain at the pump.

The $0.70 per gallon jump in gas prices, higher food prices, wage concerns and arguably the dickering in Washington over the near Federal government shutdown and pending bickering over raising the debt ceiling and deficit reduction plans are all taking their toll. Several measures of optimism soured in recent weeks as well – from the National Federation of Independent Business’s monthly Optimism Index to Gallup’s findings that Americans' optimism about the future direction of the U.S. economy plunged in March for the second month in a row. Per Gallup data, the percentage of Americans saying the economy is "getting better" fell to 33% - down from 41% in January and the current readings match last year's low points: 32% in July, 33% in August, and 32% in September.

Needless to say, Consumers bear watching in the weeks ahead.

Earnings, Earnings, Earnings
Last week we had a handful of corporate earnings – Alcoa (NYSE:AA), Google (NASDAQ:GOOG) – but the vast majority of earnings data will be hitting the tape over the next few weeks. While companies may deliver earnings in line with expectations, the area I’ll be watching will be in their outlooks and forecasts to see how they might have changed from the last earnings period. Given revised GDP expectations and continued headwinds in the current quarter, odds are that more than a few companies in the major stock market indexes will have to adjust their forecasts. That in mind, I’ll be watching the following across a number of companies – revised revenue expectations, changes in margin forecasts, capital spending adjustments, operating expense cuts and hiring plans among other things. Below is a sampling of companies that I’ll be watching and using to piece together adjustments big and small to my investing mosaic.

The real question is whether or not the earnings we get near term will reinforce the seasonal pattern of “sell in May and go away” or not.

Buckle up.

Monday, April 18
Badger Meter, Inc. (NYSE:BMI)
Crane Co. (NYSE:CR)
Heartland Express, Inc. (NASDAQ:HTLD)
Microsemi Corp. (NASDAQ:MSCC)
TD Ameritrade Holdings (NYSE:AMTD)
Texas Instruments Inc. (NASDAQ:TXN)
WW Grainger, Inc. (NYSE:GWW)

Tuesday, April 19
AmeriServ Financial, Inc. (NASDAQ:ASRV)
The Bank of NY Mellon Corp. (NYSE:BK)
Cree, Inc. (NASDAQ:CREE)
CSX Corp. (NYSE:CSX)
Goldman Sachs Group, Inc. (NYSE:GS)
Harley-Davidson, Inc. (NYSE:HOG)
Intel Corp. (NASDAQ:INTC)
Johnson & Johnson (NYSE:JNJ)
Juniper Networks, Inc. (NYSE:JNPR)
Paccar Inc. (NASDAQ:PCAR)
United Rentals, Inc. (NYSE:URI)
Yahoo! Inc. (NASDAQ:YHOO)

Wednesday – April 20
Abbot Laboratories (NYSE:ABT)
Altria Group, Inc. (NYSE:MO)
American Express Company (NYSE:AXP)
AMR Corp. (AMR)
Apple, Inc. (NASDAQ:AAPL)
AT&T, Inc. (NYSE:T)
The Cheesecake Factory Inc. (NASDAQ:CAKE)
Chipotle Mexican Grill, Inc. (NYSE:CMG)
Delta Air Lines, Inc. (NYSE:DAL)
Eaton Corp. (NYSE:ETN)
F5 Networks, Inc. (NASDAQ:FFIV)
Hanesbrands Inc. (NYSE:HBI)
Polaris Industries Inc. (NYSE:PII)
Qualcomm, Inc. (NASDAQ:QCOM)
Rush Enterprises, Inc. (NASDAQ:RUSHA)
Wells Fargo & Company (NYSE:WFC)
YUM! Brands, Inc. (NYSE:YUM)

Thursday – April 21
1-800 Flowers.Com, Inc. (NASDAQ:FLWS)
Air Products & Chemicals, Inc (NYSE:APD)
BlackRock, Inc. (NYSE:BLK)
CNH Global N.V. (NYSE:CNH)
Danaher Corp. (NYSE:DHR)
Education Realty Trust, Inc. (NYSE:EDR)
GATX Corp. (NYSE:GMT)
General Electric Company (NYSE:GE)
Honeywell International Inc. (NYSE:HON)
Ingersoll-Rand PLC (NYSE:IR)
Life Time Fitness, Inc. (NYSE:LTM)
McDonald’s Corp. (NYSE:MCD)
Morgan Stanley (NYSE:MS)
The NY Times Company (NYSE:NYT)
NVR, Inc. (NYSE:NVR)
PPG Industries, Inc. (NYSE:PPG)
Schlumberger Limited (NYSE:SLB)
Sherwin-Williams Company (NYSE:SHW)
Synaptics, Inc. (NASDAQ:SYNA)
T. Rowe Price Group, Inc. (NASDAQ:TROW)
Verizon Communications, Inc. (NYSE:VZ)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: As GDP Expectations Weaken Corporate Outlooks May Be Next