Global growth, foreign-exchange, oil, and small caps are the subject of every client inquiry, says David Kostin. His team's recommendation: Buy "American exceptionalism."
In Kostin's view, U.S. economy and corporate fundamentals are still strong, with economic growth expected by Goldman economists to be 3.2% next year, the fastest expansion since 2005. Europe is expected to grow just 1%.
What his team likes are those stocks of companies which have a high proportion of domestic sales, plus sectors like Consumer Staples (XLP -0.1%) and Discretionary (XLY +0.7%) which stand to benefit from lower oil prices (plunging again today).
As for small caps (IWM +0.9%), Kostin is wary, noting downward earnings revisions have boosted small cap P/E ratios even as prices have declined.
It's unlikely that the strong dollar will impact Q3 earnings as much as people think, Diane Garnick, CEO of global asset management firm Clear Alternatives says. But it will impact Q4 earnings. We're likely to see companies meet or exceed earnings in Q3, but give downward forecasts for Q4, she says.
Companies with bigger international exposure, like Wal-Mart (NYSE:WMT) will lower their estimates more. The same is true for sectors dominated by companies with global exposure like financials (NYSEARCA:XLF).
Conversely, companies like Walgreen (NYSE:WAG) who are almost all U.S. dollar based will be less impacted by a stronger dollar. Also relevant for ETFs like XLP and XLU.
Consumer staples stocks continue to persevere amid a broad market decline.
The Consumer Staples Select ETF (NYSEARCA:XLP) is +1.9% over the last 5 days vs. the -1.3% showing of the S&P 500 ETF.
Today, PepsiCo (PEP +1.5%) is doing some of the heavy lifting following its Q3 earnings report - while a number of meat stocks are also contributing including Pilgrim's Pride (PPC +1.3%), ConAgra Foods (CAG +1.8%), Hormel (HRL +0.7%), Seneca Foods Corp. (SENEA +0.7%), Diamond Foods (DMND +1.1%), Tyson Foods (TSN), and Sanderson Farms (SAFM +0.7%) .
The reads from major retailers on the spending habits of U.S. consumers varies widely with Wal-Mart and Family Dollar warning on the low-end, while pockets of strength have been seen at department stores, some specialty retailers, and out-performers such as Costco, Kroger, and Starbucks.
The high level of spending on automobiles and big-ticket items has squeezed out some discretionary spending, say analysts
If there's one development that nearly all retailers agree on, it's that store traffic is lower as online and mobile take market share and consumers pivot toward a paradigm of efficient shopping trips from mall browsing.
Ikea says it plans to increase the minimum wage for its U.S. retail workers by an average 17% starting next year, a decision that may add to pressure on retailers and fast-food companies that have not raised wages, particularly the largest holdouts, such as McDonald’s (MCD -0.1%) and Wal-Mart (WMT -0.7%).
Business opponents say raising the minimum wage would add as much as hundreds of millions of dollars to costs; Ikea is presenting the move as good for employee well-being, and says it will not raise prices to offset the new costs.
Earlier this year, Gap said it would raise its minimum hourly rate for U.S. employees to $9 in 2014 and $10 in 2015.
There's nothing concrete on the table, but some analysts think the company has been stealing some market share from major retailers in Q1 and Q2 as consumers continue to evolve their shopping habits. Staples (SPLS -10%) and Office Depot (ODP -1.5%) come to mind.
Starbucks (SBUX -1.3%) CEO Howard Schultz seems to have called the retail slide with his perception that a "seismic shift" toward online and mobile is beyond the tipping point (FBN interview, SBUX conference call).
ICSC thinks the death of the brick-and-mortar store model has been greatly exaggerated with e-commerce dominating the conversation on retail sales. The relationship is more symbiotic than some say, reasons ICSC.
The research firm notes the audacious growth rates of e-commerce come off of small base and will slow as the scale broadens. Last year, in-store sales grew 3.5% to $144B, while in-store purchases rose 17% to $38B.
Consumers are much more likely to make a purchase after visiting a store than browsing a website. ICSC thinks this indicates the e-commerce model without B&M showrooms would weaken.
A key point is that online retailers providing an in-store return option are able to deliver higher net sales than those without one - 95% vs. 77%. Consumers tend to buy extra goods when making the return trip to the store.
A familiar pattern repeats as a sharp selloff in small caps (IWM -1.8%) and tech momentum names lead the broader decline in equities. The Nasdaq (QQQ -1%) is managing a sizable dip even as Apple gains 3%. Down 4.4% today, Facebook is back to about flat YTD, Twitter -4% on the session, is lower by 37% YTD. The iShares Biotech ETF (IBB -2.6%) has moved into the red for the year.
Leading S&P 500 (SPY -0.4%) decliners are Bank of America -5.6% after suspending its capital plan, and Google -1.9%.
What sector's working today? Consumer staples (XLP +0.8%). Proctor & Gamble +1.5%, Altria +2.3%, Pepsi +1.6%, Phillip Morris +1%.
: Some mining stocks & coal are looking extremely cheap, but sentiment is negative.. for today at least
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