peak oil

Canada’s job market surges, but wage growth lags

Employers topped expectations and created a net 55,000 new jobs in May, the biggest gain since last fall, as a surge in full-time positions offset part-time losses. Both the private and public sectors beefed up hiring, and more Canadians participated in the labour force, according to Statistics Canada’s monthly jobs report released on Friday.

However, wage increases remained bleak by historical standards, even though they rebounded slightly from a record low in April.

Average hourly earnings across all industries rose 1 per cent to $25.88 over May of last year. In April, the average was up 0.5 per cent.

“Even full-time jobs can be low quality,” said Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce. “More and more of those jobs are being created in the low-quality segment of the labour market.”

The loss of high-paying natural-resources jobs in Alberta has weighed on the national average.

But other factors have contributed to the recent weakness. Wage growth remains below historical standards for the majority of industries, including higher-paying areas such as manufacturing, natural resources and finance, according to National Bank of Canada data.

Also, earnings for some of the highest-paying industries have declined. For example, the average hourly wage in the finance industry fell 0.7 per cent to $29.56 over May of last year.

Education dropped 1 per cent to $31.94. Professional, scientific and technical services – the industry responsible for creating a good portion of the new jobs – declined 2.5 per cent to $32.20.Another government report showed that workers paid by the hour received meagre increases. Their average hourly earnings increased 0.9 per cent year over year, while the average earnings of salaried employees rose 2 per cent, according to Statistics Canada’s Survey of Employment, Payrolls and Hours, which is considered quite accurate because it uses payroll data.

The unemployment rate rose to 6.6 per cent from 6.5 per cent as more Canadians searched for work. On top of professional services, there were new hires in manufacturing, trade, transportation and health care. This helped the economy create 317,000 new jobs over the past year. (…)

On the flip side, regions less dependent on natural resources – Ontario, Quebec and British Columbia – boosted employment, with Quebec’s unemployment rate hitting a record low of 6 per cent. (…)

First 5 months of 2017, Canada has created 185,000 full-time jobs! YoY: +1.8% (U.S. is +1.2%). Manufacturing jobs jumped 25,300 in May (U.S. was flat).

Wage growth low as Germans look beyond pay packets Labour reforms and desire to stay competitive curb salary rises in strong economy

PEAK OIL DEMAND: FACT OR FICTION?

EARNINGS WATCH

From Facset:

Overall, the estimated earnings growth rate for Q2 2017 of 6.6% today is below the estimated earnings growth rate of 8.7% at the start of the quarter (December 31). Ten sectors have recorded a decline in expected earnings growth since the beginning of the quarter due to downward revisions to earnings estimates, led by the Energy and Materials sectors.

This 1.9% decline in the EPS estimate for Q2 2017 is below the trailing 1-year (-2.5%) average, the trailing 5-year (-3.5%), and the trailing 10- year average (-4.2%) for the bottom-up EPS estimate for the first two months of a quarter.

If the Energy sector is excluded, the estimated earnings growth rate for the remaining ten sectors would fall to 3.7% from 6.6%.

The Information Technology sector is expected to report the second highest (year-over-year) earnings growth of all eleven sectors at 9.3%. The Semiconductor & Semiconductor Equipment sector is forecast to grow EPS by 40% in Q2. If the Semiconductor & Semiconductor Equipment industry is excluded, the estimated earnings growth rate for the Information Technology sector would fall to 3.2% from 9.3%. At the company level, Micron Technology is predicted to be the largest contributor to earnings growth for this sector. The mean EPS estimate for Micron Technology for Q2
2017 is $1.50, compared to year-ago EPS of -$0.08. If this company alone is excluded, the estimated earnings growth rate for the Information Technology sector would fall to 5.9% from 9.3%.

The estimated revenue growth rate for Q2 2017 is 4.9%. If the Energy sector is excluded, the estimated revenue growth rate for the index would fall to 3.8% from 4.9%.

At this point in time, 112 companies in the index have issued EPS guidance for Q2 2017. Of these 112 companies, 75 have issued negative EPS guidance and 37 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 67%, which is below the 5-year average of 75%.

While the number of companies issuing negative EPS is slightly below the 5-year average (79), the number of companies issuing positive EPS guidance is well above the 5-year average (27). If 37 is the final number for the quarter, it will mark the highest number of S&P 500 companies issuing positive EPS guidance since Q1 2012 (also 37).

In the Information Technology sector, 17 companies have issued positive EPS guidance for the second quarter. This number is well above the 5-year average for the sector (9). If 17 is the final number for the quarter, it will mark the third highest number of companies issuing positive EPS guidance for this sector since FactSet began tracking EPS guidance in 2006. Nine of these 17 companies are in the Semiconductor & Semiconductor Equipment industry. This industry is
projected to report the highest earnings growth (40%) of the seven industries in this sector.

In the Health Care sector, 10 companies have issued positive EPS guidance for the second quarter. This number is well above the 5-year average for the sector (3). If 10 is the final number for the quarter, it will mark the highest number of companies issuing positive EPS guidance for this sector since FactSet began tracking EPS guidance in 2006. Five of these 10 companies are in the Health Care Equipment & Supplies industry. This industry is projected to report the highest earnings growth (10%) of the six industries in this sector.

Let’s review and analyse this info a little bit further:

• Earnings growth is expected at +6.6% (before surprises!), from +14.0% in Q1. Ex-Energy: +3.7% vs +9.8%.
• IT (+9.3%) and Financials (+7.2%) are the only two sectors with above average earnings growth in Q2. Together, they are expected to grow earnings +8.2% on average, down from +9.5% expected one week ago and from +18.8% in Q1. IT EPS are boosted by Semis results; +3.2% ex-Semis in Q2.
• The 6 consumer-centric sectors are seen growing EPS only 0.6% in Q2, down from +2.4% one week ago.

The earnings tailwind is slowing considerably and its breadth is getting very narrow and erratic. Overall guidance looks good but also lacks breadth. Of the 37 positive guidance so far in Q2, 27 are from IT and HC, 14 of which are from 2 sub-sectors of IT and HC.

Ex It and HC, guidance is 46 negative and 10 positive, unchanged from last week; the 82% negative ratio compares with 85% at the same time in Q1’17 and 80% at the same time in Q2’16, so essentially in line with recent experience.

What Profit? Anemia Worsens in S&P 500 as Economy’s Bounty Thins

From Bloomberg Briefs:

The S&P 500 just posted a third quarter of year-over-year earnings growth. But in the shadow of the rebound is a trend that has been worsening for more than two years: a rising number of profitless companies.

About 10 percent of stocks in the benchmark gauge have posted losses in the last 12 months, an uncharacteristically large portion that has no precedent since 2010, according to data compiled by Bloomberg.

What’s to blame? Energy companies are a culprit, unsurprisingly. Of bigger concern are technology and consumer stocks that have crept onto the list. Overall, the 51 companies lost $55 billion over the last year. When the market peaked in 2007, the figure was $22 billion. (…)

Trailing 12-month earnings in the S&P 500 total about $986 billion, or $113 a share, just below an all-time high reached in 2014. Take out the companies losing money and the total hits $1.04 trillion, or $117, the highest ever. (…)

But while $4-a-share of profits across 51 companies might not scream bear market, it doesn’t exactly comport with bull market standards either. It’s the widest gap between the two metrics since 2011. And it’s almost double the number of stocks without earnings just three years ago.

Among those shares, 23 are energy stocks, and they’re responsible for some of the biggest losses. Hess Corp. lost $19 a share in the past year as Chesapeake Energy lost $4.80. In total, energy companies were responsible for $34 billion of losses in the last year.

That leaves $21 billion in losses among the other industry groups. While tech shares weren’t the biggest losers by dollar amount, they do make up some of the notable cash-burners. Autodesk Inc. lost $2.45 a share. Yahoo! Inc., Qorvo Inc. and Symantec Corp. also landed in the red this past year.

Investors’ perception of unprofitable companies varies greatly by industry. While the shares of the money-losing energy stocks have taken a beating, quite the opposite is true for the tech stocks. Instead, tech shares without earnings are up an average 32 percent in the last year. (…)

S&P 500 Climbing Mountains

Ed Yardeni:

(…) I remain bullish. My long-held concern is that the bull market might end with a melt-up that sets the stage for a meltdown. The latest valuation and flow-of-funds data certainly suggest that the melt-up scenario may be imminent, or underway. Consider the following:

(1) Valuation melt-up. The Buffett Ratio is back near its record high of 1.81 during Q1-2000. It is simply the US equity market capitalization excluding foreign issues divided by nominal GDP. It rose to 1.69 during Q4-2016. It is highly correlated with the ratio of the S&P 500 market cap to the aggregate revenues of the composite. This alternative Buffett Ratio rose to 2.00 during Q1 of this year, matching the record high during Q4-1999. It is also highly correlated with the ratios of the S&P 500 to both forward revenues per share and forward earnings per share. All these valuation measures are flashing red.

(2) ETF melt-up. The net fund flows into US equity ETFs certainly confirms that a melt-up might be underway. Over the past 12 months through April, a record $314.8 billion has poured into these funds. That was led by funds that invest only in US equities, with net inflows of $236.4 billion, while US-based ETFs that invest in equities around the world attracted $78.4 billion in net new money over the 12 months through April.

(…)  the shift of funds from actively managed funds to passive index funds is significant and could be contributing to the melt-up. That’s especially likely since money is pouring into S&P 500 index funds, which are market-cap weighted. This may partly explain why big cap stocks, like the FAANGs, are outperforming assuming that money is coming out of mutual funds that are underweight the outperforming FAANGs.

(3) FAANG-led melt-up. The market cap of the FAANGs is up 41.4% y/y to a record $2.49 trillion, while the market cap of the S&P 500 is up 14.3% to $20.95 trillion over the same period. The FAANGs account for 27.8% of the $2.6 trillion increase in the value of the S&P 500 over the past year. The FAANG stocks now account for 11.9% of the S&P 500’s market capitalization, up from 5.8% on April 26, 2013. Collectively, over this period, they’ve accounted for $1.6 trillion of the $6.9 trillion increase in the S&P 500! Their collective forward P/E is now 27.1 and 42.8 with and without Apple, respectively. The S&P 500’s forward P/E is 17.7 and 16.9 with and without the FAANGs. These elephants continue to sprint up mountains, leading the market’s bulls, even though the air is getting thinner.

• Watch Out for FANG Inc. Earnings estimates for Facebook, Amazon, Netflix and Alphabet haven’t kept up with their share-price gains.

The four tech giants have added $343 billion in market capitalization since the start of 2017, a gain of 27% versus a gain of 8.6% for the S&P 500. (…) Indeed, if the four tech giants were one big company—let’s call it FANG Inc.—that company’s multiple would have risen to 39 times 2017 earnings estimates from 32 times 2017 earnings estimates at the end of 2016. (…)

Earnings estimates for Facebook for this year and next are up 18% and 10%, respectively, since the beginning of this year. The company’s shares are up an even greater 30%. Similarly, the 28% rise in Netflix’s stock price exceeds its respective 11% and 2% gains in earnings estimates for this year and next. Expectations for Alphabet’s earnings for the two years have climbed only 3% and 4% over the period as its shares have climbed 22%.

For Amazon, where investors tend to focus more on cash flow than earnings, shares have shot upward even as earnings estimates have fallen by a quarter. (…)

Mutual funds and exchange-traded funds focused on technology have had inflows of $6 billion year to date—the highest of any sector—compared with $2 billion of outflows during the entirety of 2016, according to Goldman Sachs. Actively managed funds are 32% overweight the information technology and internet and catalog retail sectors, according to Bank of America Merrill Lynch. Driving that, the bank says, is their 71% overweight position in Facebook, Amazon, Netflix and Alphabet. (…)

• Amazon’s quiet domination merits greater scrutiny

(…) Amazon already accounts for 43 per cent of US online sales, and its market share in Germany and the UK is above one-quarter and growing. The company has captured 31 per cent of the cloud services market. Its Alexa voice platform is also spreading fast.

The company’s wealth and willingness to tolerate losses make it a formidable competitor in any arena it chooses to enter. Antitrust regulators usually focus on immediate consumer detriment. But in this case they should also take heed of the company’s long term wider impact on competition and choice. (…)

Technology Shares Lead Global Declines Shares of technology companies fell around the world, building on Friday’s steep declines in the U.S. giants that had been driving this year’s stock market gains.

The Stoxx Europe 600 dropped 0.9%, held back by a 3.7% drop in the tech sector. (…) In Europe Monday, every company in the technology sector was trading in negative territory, with the sector poised for its worst decline in nearly a year. Shares of semiconductor manufacturer AMS, 3-D sensors maker STMicroelectronics and the U.K.’sDialog Semiconductor fell 11.6%, 8.4% and 6.6%, respectively. Europe’s technology sector had also gained 16% so far this year, echoing the rally in its U.S. peers. (…)

Regional banks may keep lagging without Washington lift A rough few months for most U.S. bank stocks has been particularly unkind to regional banks, and that’s not likely to change soon as hopes dim for higher long-term interest rates and timely policy relief from Washington.

(…) After outperforming larger banks in the wake of the Nov. 8 U.S. Presidential election, the S&P 600 index .SPSMCBKS of small cap banks are down 8.1 percent so far this year, data through Thursday showed, while the S&P 500 index of the biggest U.S. banks .SPXBK is unchanged. The full S&P 500 .SPX, meanwhile, is up 8.7 percent.

Last year, investors bet heavily that smaller, entirely U.S.-focused banks would benefit most from Donald Trump’s promises of tax cuts, deregulation and economic stimulus.

But those hopes dwindled dramatically as it became clear that President Trump would have difficulty gaining enough support to deliver on any of his pro-growth proposals. (…)

Fading hopes for an economic boost from Trump’s agenda has compressed the gap between short- and long-term interest rates, putting pressure on bank loan profit margins. (…)

Also, commercial and industrial loan growth has slowed this year after climbing steadily since late 2010. The Federal Reserve’s latest Senior Loan Officer Opinion Survey, released May 8, showed domestic banks reporting weaker commercial and industrial loan demand from firms of all sizes in the first quarter. (…)

JPMorgan analysts on Thursday scaled back their forecast on the size of possible U.S. tax cuts and pushed out the timing to the second quarter of 2018 from the third quarter of 2017. (…)

INTERESTING CHARTS

From Ed Yardeni:

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