CPI for all items rises 1.2% in March; gasoline, shelter, food indexes rise

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.2 percent in March on a seasonally adjusted basis after rising 0.8 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.5 percent before seasonal adjustment.

The index for all items less food and energy rose 0.3 percent in March following a 0.5-percent increase the prior month. The shelter index was by far the biggest factor in the increase, with a broad set of other indexes also contributing, including those for airline fares, household furnishings and operations, medical care, and motor vehicle insurance. In contrast, the index for used cars and trucks fell 3.8 percent over the month.

The all items less food and energy index rose 6.5 percent, the largest 12-month change since the period ending August 1982.

Core goods finally declined 0.4% in March but core services accelerated to +0.6% (+4.7% YoY) and +6.1% a.r. in the last 3 months.

SURVEYS SAY!

NFIB Monthly Economic Report

BofA Says Fund Managers Most Gloomy on Record on Recession Woes

The share of investors expecting the economy to deteriorate is the highest ever, according to the April survey. Stagflation expectations jumped to the highest since August 2008, while monetary risk increased to a historic high, BofA strategists said, after surveying 292 panelists with $833 billion in assets under management in the first week of April.

A global recession is now seen as the biggest tail risk by investors, according to BofA’s monthly survey (…).

The results highlight how gloom is taking hold among investors as the Federal Reserve turns more aggressive in its attempt to tame soaring inflation. The bearishness has been extreme enough to trigger BofA’s own buy signal, a contrarian indicator for detecting entry points into equities. Global stocks have been under pressure this month after rallying from lows in March as bond yields have soared.

BofA’s strategists disagree with the tactical buy signal, saying they “remain in ‘sell-the-rally’ camp,” as the stock market slump earlier in the year was just an “appetizer not main course of 2022.”

“The disconnect between global growth and equity allocation remains staggering,” the strategists led by Michael Hartnett wrote in a note. (…)

• Investors are now the most net overweight ever for commodities; long oil and commodities is the most crowded trade, followed by short U.S. Treasuries and long tech stocks (…)
• A majority of investors at 64% expect the S&P 500 to break below the 4,000 level first before rising beyond the 5,000 level (26%); the survey shows that investors expect a Fed “put” to arrest a stock market selloff at 3,637 index points for the S&P 500. (…)

New York Fed: Public Expectations for March 2023 Inflation Hit 6.6% Record Public expectations for the level of inflation a year from now hit a record in March, according to a survey released by the Federal Reserve Bank of New York.

(…) The New York Fed also reported that public expectations for inflation three years from now, in March 2025, moderated to 3.7% from February’s 3.8% forecast.

“The increase in short-term expectations was broad-based across age, education, and income groups,” the New York Fed said, adding “the decline in medium-term expectations was driven by respondents with no college education and with annual household incomes under $50,000.” The report noted that uncertainty over short-term inflation levels hit a new high and longer-term uncertainty over inflation remained at record levels. (…)

The survey also found that respondents see their spending surging by 7.7% a year from now, up from 6.4% in February, hitting a new series high. But expected income growth next year cooled to a 3% gain. The report noted respondents were “more pessimistic about their household’s financial situation in the year ahead, with fewer respondents expecting their financial situation to improve a year from now.” (…)

Data: New York Fed; Chart: Axios Visuals

• Everything Costs More, and That’s Disrupting Retirement for Many Signs are mounting that high inflation is helping propel more people—including retirees—back into the labor force, economists say.

(…) “We’re beginning to see the migration of the older cohort who expected to live on fixed income in a low interest-rate and low inflation environment,” said Joseph Brusuelas, chief economist at RSM US LLP. “That has not materialized; therefore they have to come back to the labor force to create the conditions so they can retire.” (…)

Roughly 2.6 million Americans retired earlier than expected between February 2020 and October 2021, according to estimates from Federal Reserve Bank of St. Louis senior economist Miguel Faria-e-Castro. Now many are returning to work at rates not seen since March 2020, according to jobs site Indeed. (…)

(GS)

HOUSING

From Almost Daily Grant’s:

Per data from Mortgage News Daily, the average 30-year fixed mortgage has reached 5.25%, up some 200 basis points over the last year and the highest since August 2009.  As CNBC’s Diana Olick relays, the buyer of a $400,000 home with a 20% down payment is now obliged to shell out an additional $370 in monthly payments relative to spring 2021, never mind the fact that average purchase prices sit 15% to 20% higher than they were at this time last year. 

Spiraling housing costs may finally be making a dent in that heretofore bulletproof bull market.  Redfin deputy chief economist Taylor Marr observed in a Friday blog post that the national frequency of “homes for sale” Google searches dropped 7.9% from a year ago during the second week in March, with pronounced declines across a trio of high-cost markets (Boston searches down y 15%, San Francisco by 14% and Los Angeles by 13%). 

Waning buyer interest wasn’t confined to internet search engines, as tours of for-sale houses across California declined by 21% in the week ended March 31 from the first week of the year, after that metric jumped by 76% in the same period of 2021.  Then, too, the nationwide share of home sellers decreasing their list price is growing at the fastest pace in at least seven years.

• Inventory up 2.3% Week-over-week; Up 8.3% from Seasonal Bottom Currently it appears inventory will be up year-over-year sometime in the 3rd quarter of 2022.

China’s Li Issues Third Growth Warning as Covid Takes Toll

Authorities should “add a sense of urgency” when implementing existing policies, Li told local authorities at a seminar Monday. China will study and adopt stronger economic policies as needed to support the economy, he said.

The comments come days after similar warnings from Li, highlighting the toll the economy is taking from lockdowns and other virus control measures imposed to curb the latest wave of omicron outbreaks. Nomura Holdings Inc. said the risk is rising the economy may contract in the second quarter if lockdowns are extended after April.

The Nomura economists estimate that about 373 million people in 45 cities are now under full or partial lockdown, making up 40% of China’s gross domestic product. (…)

Li said Monday that pro-growth measures should be brought forward and accelerated, including tax and fee cuts, sales and usage of special bonds, and incentives to keep jobs.

Local governments should tap their own policy potential to tailor targeted supportive measures according to local conditions, he said. In the meantime, they should prevent introducing and correct policies that are unfavorable to market expectations. (…)

(GS)

• Lockdown Anger in Shanghai Won’t Fade Anytime Soon The accumulation of misery among the city’s thriving middle class is undermining faith in a government that’s spent decades improving Chinese living standards.

(…) Street-level frustration is also rising. Recently a video circulated showing residents of a Shanghai compound chanting, “We want to eat, we want to go to work, we want freedom!”

Even high-level national leaders aren’t immune from the protests. On Sunday, when Vice Premier Sun Chunlan, China’s Covid czar, visited Shanghai, residents shouted at her: “We want to have food to eat.” (…)

• China nudges listed firms, investors to buy stocks to stabilise market The government will also facilitate corporate financing in COVID-hit areas and urge state shareholders of listed firms to actively buy undervalued stocks, the country’s securities watchdog said in a statement on its website late on Monday.

(…) To boost investor confidence, CSRC said it will encourage listed firms to buy back their shares to stabilise prices. Major shareholders and senior executives are also encouraged to actively buy shares when prices fall sharply.

Meanwhile, state shareholders should actively buy undervalued stocks, and support share buy-back and cash dividend plans by listed firms, according to the statement, which was jointly published by the CSRC, China’s state assets supervisor, and the All-China Federation of Industry and Commerce.

China is also stepping up efforts to woo foreign investors, amid signs of capital outflows.

The Shanghai Stock Exchange said late on Monday that it had held a virtual roadshow with nearly 200 representatives from global investors including sovereign wealth funds and pension funds, to promote index investments tracking China.

The promotion came after Institute of International Finance (IIF) data showed outflows of $6.3 billion from China equities in March, and $11.2 billion out of China bonds. (…)

Nomura said late on Monday China is facing a rising risk of recession.

Sri Lanka unilaterally suspends external debt payments, says needs money for essentials, article with gallery Sri Lanka’s central bank said on Tuesday it had become “challenging and impossible” to repay external debt, as it tries to use its dwindling foreign exchange reserves to import essentials like fuel. Sri Lanka’s decision covers about $25 billion in bilateral and commercial debt, which includes about $12 billion of international sovereign bonds.

WEAK DEFENSE!

Staid Utility stocks make a historic run

(…) the Dow Jones Utility Average has enjoyed its 2nd-largest 30-day rate of change in 20 years.

The surge has been so great that more than 60% of them became overbought on an average day over the past 2 weeks. Since 1999, only 2 distinct occasions encompassing 10 days total have exceeded this. The Backtest Engine shows that all 10 days saw losses in XLU over the next couple of months.

The jump in overbought stocks pushed more than half of them to 52-week highs on an average day over the past 10 sessions, a 23-year record. The Backtest Engine shows that future returns are horrid when the 10-day average reaches even 40%. Of 24 days, only 1 barely eked out a positive return 2 months later.

Even more astounding, a 10-day period when more than half of Utility stocks hit a 52-week high is a record dating back 70 years. In other words, at no other time since 1952 have so many of these stocks hit new highs at the same time for such a long stretch.

If we put together a composite breadth indicator that incorporates 7 different factors, it just hit the 10th-highest reading since 1952. (…)

Out of the 16 signals, only 2007 and 2016 witnessed gains in these stocks during the usual soft spot from 1-6 months following the signal.

When we see markets hit true extremes, it’s typically a good bet that they will self-correct and mean-revert. The tired maxim “extreme can always get more extreme” exists because nothing is ever 100%, and sometimes there is a structural change. Or, sometimes, people simply get crazy, and it lasts a while. Mean reversion has been the best bet when we see upside extremes in staid stocks and sectors. It’s extremely rare to see groups like this extend momentum runs for very long. 

Lowry’s Research pointed out last week that the DJ Utility Average has been making new highs nearly every day since March 24, against rising interest rates, highlighting investors’ defensive mood.

This Morningstar/CPMS chart shows how low Utes’ dividend yield is now vs bond yields and inflation, often a sign of market tops.

Investors are paying top P/B multiples while ROEs are declining…

…and top P/E multiples (24x!!!) for a sector growing EPS 0-8% per year and only 1.2% in the last 12 months:

Visa Expects to Make Up Lost Russia Revenue Within a Year Pulling out of Russia means a revenue loss of about 4%, making comparisons tough for the next couple of quarters, CFO says. Before the invasion, Ukraine represented 1% of Visa’s revenue.

Here come the EVs

The research firm BloombergNEF estimates that the number of plug-in vehicles on the world’s roads will top 20 million in June.

• “That’s remarkable growth from only 1 million EVs on roads in 2016,” writes Colin McKerracher, a top BloombergNEF transport analyst.
• He sees the number reaching over 26 million by the end of the year.

“The speed of growth is much faster than many incumbents in the automotive and oil industries were expecting just a few years ago,” McKerracher writes.

While China and Europe are the biggest markets, a separate report by the consultancy ERM notes the growing availability of models in the U.S.

• The number of fully electric and plug-in hybrid vehicles for sale under $100,000 will be well above 100 by mid-decade, per the analysis prepared for the Environmental Defense Fund.
• That includes a growing number of SUVs and pickups.

Economists Boost Inflation Expectations in Worrying Sign for Fed

The consumer price index will now average 5.7% in the final three months of the year, up from the 4.5% estimated a month ago, according to the median forecast of 72 economists in a Bloomberg survey. The chance of a recession over the next year also increased to 27.5% from 20% in March. The March CPI report will be released Tuesday. (…)

The Fed’s preferred gauge, the personal consumption expenditures price index, is anticipated to average 4.7% year-over-year in the final three months of the year, more than double the central bank’s 2% target. (…)

Average hourly earnings are expected to be higher than prior surveys showed, with the measure increasing by 5.6% and 5.3% from a year earlier in the second and third quarters, respectively, as businesses continue to boost wages to attract and retain workers.

• Summers Sees Consensus Building Toward Inevitable U.S. Recession

(…) “The combination of overheating, followed by policy delay followed by supply shocks means I think it’s a very difficult set of challenges, and recession in the next couple of years is clearly more likely than not,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin on Friday. “I suspect that’s how the consensus will evolve.” (…)

Summers also highlighted that the U.S. has never experienced inflation above 4% and unemployment below 4% without that being followed by an economic slump within two years. (…)

Turning to China, (…)

“Between exit from Covid, profound financial strains, internal issues around inequality, tension over state enterprises, China has real economic vulnerabilities,” Summers said. “What I’m fearful of is that those vulnerabilities will translate into hostile nationalist impulses as a way of holding the country together when the glue of rapidly growing prosperity starts to peel and flake off.”

• A “recession shock” is coming, BofA warns
• Rising consumer prices squeeze US consumers.

Nordea also discusses recession probabilities:

The University of Michigan (UoM) Sentiment index has slid to levels associated with past recessions and the latest spending figures fell 0.4% m/m in February after adjusting for inflation. Spending is not yet alarming, but we note that real spending has declined on a monthly basis in three of the last four months.

The US economic outlook is in the hands of households. The extremely tight labour market will support household consumption, but it is hard to imagine that consumers can endure an environment with increasing living expenses and declining real wages for a prolonged time without consumption taking a hard hit. We do not see UoM recovering anytime soon.

Consumption supported by low unemployment but hurt by bad sentiment

In this perspective, retail sales (Thursday) will be important to watch. Growth in US retail sales slowed in February after surging a month earlier, suggesting we are indeed starting to see a glimpse of the impact of falling purchasing power. The higher energy prices and – importantly in the US – the 20% increase in gasoline prices throughout March will put additional pressure on consumers and crowd out spending in other areas.

Retail sales yet to normalise

Some notes here:

• Consumer sentiment is a coincident indicator, generally bottoming out near the end of recessions, just before unemployment peaks out. Confidence is now as low as it has been in 50 years but no recession just yet with unemployment at a record low!
• We saw similar contradictions between unemployment and confidence in 1973-74 and 1979 but the U.S. was in recession then. Unlike today!
• The reality is that measures of consumer confidence have shown to be meaningfully influenced by trends in gasoline prices, particularly by sharp and sudden changes.

Using more than thirty years of consumer sentiment data, we analyze the relationship between changes in gasoline prices and its impact on consumer sentiment. We find a negative relationship between changes in gasoline prices and changes in consumer sentiment, suggesting that as gasoline prices rise (fall), this negatively (positively) impacts consumer sentiment. Additionally, causality analysis provides support that changes in gasoline prices leads consumer sentiment and changes in consumer sentiment. (Journal of Applied Business and Economics, 2012)

And this from The Pew Research Center in 2014:

• FYI, gasoline prices spiked 42% in 1973-74 and 68% in 1979. Currently: +45%.
• Now a smaller part of consumer budgets, can high energy inflation cause a recession?

Nordea’s retail sales chart above takes no account of inflation. If it did, it would show that real sales peaked in April 2021 and declined 1.7% since through February, with indications of weak March sales. In fact, rising inflation has already done half of the normalization process Nordea is talking about.

• Spending on goods accounts for 33% of total spending and the current hope is that the inevitable slowdown in goods will be more than offset by catch up spending on services, still 4-5% below trend.
• But there is a potential problem: real income. Americans have used the dollars not spent on services to splurge on goods during the pandemic years. But their real disposable income is now only 1.5% above pre-pandemic levels and declined in each the last seven months and 8 of the last 9.

• This in spite of “a very, very, very strong labor market” as Mr. Powell said. Unfortunately, inflation is even stronger and is quickly eroding wage gains and whatever excess savings might have existed. The chart above clearly shows the historically tight relationship between spending and income.

• Can we thus reasonably expect that services will take over from goods when disposable income is dropping? Just in the last 3 months , real DPI declined at a 3.4% annualized rate.

• Real DPI is now down 1.6% YoY. On a trailing 3-month basis, it did worse only once in the last 50 years: -2.6% in December 1974. Then, a 0.6pp dip in the savings rate (from 14.4%!) could not prevent a deep and long recession with the unemployment rate jumping from 4.6% to 9.0% within 19 months.

The truth is that, for most people, when it comes to spending, recurring real income matters a lot more than savings. 

Most economists contend that inflation will abate significantly by the end of the year and return to the 2-3% range in 2023, what John Mauldin smartly calls the “immaculate disinflation”, like it will simply happen.

Some use inflation on vehicles to support their case, pointing out that prices of new and used vehicles, up 12.3% and 41.2% YoY respectively, will necessarily come down when the chips shortages abate. Their combined 8% weight in the CPI will then work in reverse and drag total inflation down.

The chart below plots the YoY changes in total CPI (red), average inflation for new and used vehicles (blue) and CPI ex-vehicles (black). There is no doubt that vehicle prices will eventually decline, but CPI-ex-vehicles is still up 6.3% in February from 2.5% two years ago.

The next chart shows the MoM changes in total CPI (red) and CPI-ex-vehicles. Note the large impact vehicles had in April, May and June 2021 when their big spikes occurred.

Since July 2021, both series have increased by 0.6% per month on average, a 7.3% annualized rate.

What will likely happen is that vehicle prices will eventually start declining as supply normalizes, dragging down total and core CPI, perhaps to the 3-4% range, allowing for an economist “aha!” moment, celebrating mathematical disinflation from items most of us only purchase very occasionally, while other goods and services we use in our daily lives (e.g. energy, food, rent, apparel, dry cleaning) keep climbing faster than wages.

We might well get a statistical inflation relief that could make even real incomes look stronger for a while.

But main street reality will not change unless the seemingly nascent wage/price spiral is stopped, either by rising unemployment, broadly improved supply of food, energy and other goods, and diminished corporate pricing power.

The war in Ukraine has considerably reduced prospects for goods deflation. As companies scramble to restore their supply chains and reconfigure their production and distribution facilities (reshoring, nearshoring and just-in-case manufacturing all concentrated in western world economies), demand for scarce labor and commodities will remain high for some time.

• Cost of living crisis to worsen

The coming week sees inflation updates for the US, mainland China and the UK, which are expected to show the cost of living crisis intensifying. Worse is yet to come, as signalled by new highs for many PMI survey price indices, which showed business costs rising at a rate not seen since 2008 in March. These higher costs are being increasingly passed on to customers, leading to record rates of inflation in the US and Europe.

By measuring how companies’ cost pressures are changing, this index provides a reliable advance guide to consumer prices, tending to change around three months ahead of the annual rate of consumer inflation. Recently, the price index provided a very early steer into the severity and persistence of the surge in inflation triggered by the pandemic, and the latest rise in this index therefore hints at further upward inflationary pressures to come for households.

But what about services inflation? From S&P Global:

• New highs for service sector inflation as spending patterns shift

Input cost inflation accelerated worldwide in both manufacturing and services, in both cases feeding through to higher rates of selling price inflation as higher costs were passed on to customers. While manufacturing input cost inflation and selling price growth remained below recent highs, new all-time peaks were recorded in the service sector.

While service sector inflation rates for both costs and selling prices lagged manufacturing throughout 2021 on average globally, the divergence has recently narrowed, largely reflecting the increasing spill-over of higher goods and fuel costs to the service sector, notably in terms of higher food and transport prices, and the later pick-up in demand for services since the start of the pandemic.

Lockdowns and other health-related restrictions meant spending was diverted away from services to goods in the early stages of the pandemic, but spending is shifting back towards services as economies reopen, which is causing a commensurate shift in pricing power from goods producers back to service providers.

• Starbucks Hires New Strategy Chief as More Baristas Unionize Starbucks said it is bringing aboard a new senior executive specialized in worker relations as more baristas at the coffee chain’s cafes this week voted to unionize.

(…) Six New York state cafes voted Thursday and Friday to join Starbucks Workers United, the union formed to help the first Buffalo, N.Y.-area locations unionize in late 2021. Additional tallies are slated for next week for Starbucks cafes in Massachusetts, Oregon and Virginia. (…)

More than 180 of Starbucks’s 9,000 corporate stores have petitioned for union elections.

Addressing workers Monday, Mr. Schultz said that he never would have been able to expand Starbucks with the presence of labor organizations within the chain, and that he sees Starbucks as a pro-worker company “that does not need someone in between us and our people.” (…)$SPXmazon warehouse staff in New York City voted to unionize. More U.S. workers, citing unfair labor practices, now want a similar vote

• JetBlue is offering flight attendants $1,000 attendance bonuses for the spring travel crush. (CNBC)

Bank of Canada expected to announce oversized rate hike this week Bay Street economists believe the central bank will raise its policy interest rate by half a percentage point at its Wednesday rate announcement, instead of the usual quarter percentage point

Europe Debates How to Cut Purchases of Russian Oil European Union officials are seeking to make oil the focus of the bloc’s next set of economic measures against Russia over its invasion of Ukraine.

(…) Germany continues to resist the idea of an oil ban, and EU officials are wary of acting during the French presidential election, whose first round took place Sunday. Meanwhile, Hungary has become more entrenched in its opposition, diplomats say. (…)

Germany, which also insisted on a slower timetable for stopping Russian coal imports than many other EU countries wanted, has said it could halve its Russian oil imports by this summer, but that it would need until the end of this year to stop them entirely. (…)

A senior European official said Budapest seems to have “dug in” on its opposition to energy sanctions since the elections on April 3. Austria is also notably reluctant to impose tougher energy sanctions. (…)

Poland and the Baltic countries are in the opposite camp. Lithuania announced last week it had stopped all oil and gas purchases from Russia, despite its traditionally heavy reliance on Russian energy supplies. (…)

The U.S. has also promised to increase shipments of liquefied natural gas to Europe to ease its energy squeeze, and is aiming to ship 50 billion cubic meters of LNG to Europe annually in the coming years, making up for about a third of the gas the EU receives from Russia.

China auto sales slump in March on COVID curbs

Sales in the world’s biggest car market tumbled 11.7% in March from a year earlier to 2.23 million vehicles – its first decline in three months and contrasting sharply with an 18.7% jump in February, according to the China Association of Automobile Manufacturers. (…)

While China’s overall March sales plummeted, sales of new energy vehicles, which include battery-powered electric vehicles, plug-in petrol-electric hybrids and hydrogen fuel-cell vehicles, more than doubled in March to 484,000 vehicles. That was, however, sharply slower than a tripling of sales in February.

China Inflation Rises as Lockdowns, Ukraine War Drive Up Prices Inflation in China picked up in March, driven by soaring global commodity prices and lockdowns in major cities, but the overall inflationary picture remains far more benign than in other major economies.

(…) Consumer prices in March were up 1.5% from a year earlier, biggest annual jump in three months, while the prices charged by companies at the factory gate were up 8.3%, a slower pace than February’s 8.8%, but exceeding the expectations of economists polled by The Wall Street Journal. (…)

Gasoline prices were up 25% as Russia’s invasion of Ukraine sent global oil prices rocketing. (…)

Producer prices in March were up 1.1% from February, double the previous 0.5% monthly gain, as geopolitics and other international factors drove up commodity prices, said Dong Lijuan, a senior statistician with China’s statistics bureau. Russia’s invasion of Ukraine has pushed up prices for commodities ranging from oil to nickel to wheat, heaping costs on factories world-wide.

What the media omit is that food prices were down 1.5% YoY in March and that Non-food CPI was up 2.2% YoY but +11.6% MoM annualized according to Goldman Sachs.

(GS)

TECHNICALS WATCH

Patience and defense remain the best advice. Demand for equities is weak and very selective as small caps continue to be shunned while large cap investors increasingly focus on defensive sectors.

Actually, my favorite technical analysis firm, for the first time during this long cycle, raises the possibility that we are living a major market top, not dissimilar to 2007.

The S&P 500 Large Cap Index – 13/34–Week EMA Trend Chart seems to want to turn negative again:

• John Authers: How ‘Ukraine Fatigue’ Is Taking Over Markets The attitude seems to be that this war can be safely ignored if it turns into a long grind of attrition. That’s a mistake.

(…) There are chances of seriously terrible and genuinely positive outcomes. But the likelihood is that this turns into something more like World War I, stuck in a stalemate for years. The attitude in markets seems to be that this can then be safely ignored, much as the grinding conflict in Afghanistan came to be known as the “Forgotten War.”

The problem with this is that Ukraine is in Europe, bordering the European Union, and is a major supplier of raw materials to the rest of the world. (…)

Further, it’s hard to see how the stalemate can end without the West finding some way to limit its reliance on Russian energy. It will take years, at best. (…)

Russia needs to find alternative buyers to avoid an eventual loss in a years-long war of attrition. That turns the spotlight to India and particularly to China. If they decide to prop up Russia by buying more oil at preferential rates, Beijing will sunder its economic relationship with the EU, and probably usher in a grim return to a bipolar Cold War-like world. (…)

Stocks are resisting the dreadful news from Ukraine because brokers’ analysts are upgrading their forecasts for 2022 earnings despite everything. (…)

EARNINGS WATCH

From Refinitiv (my emphasis):

Twenty S&P 500 companies have reported their latest quarter:

Of these companies, 70.0% reported earnings above analyst expectations and 25.0% reported earnings below analyst expectations. In a typical quarter (since 1994), 66% of companies beat estimates and 20% miss estimates. Over the past four quarters, 83% of companies beat the estimates and 13% missed estimates.

In aggregate, companies are reporting earnings that are 2.4% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.1% and the average surprise factor over the prior four quarters of 13.3%.

Of these companies, 80.0% reported revenue above analyst expectations and 20.0% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 80% of companies beat the estimates and 20% missed estimates.

In aggregate, companies are reporting revenues that are 1.1% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.2% and the average surprise factor over the prior four quarters of 3.7%.

The estimated earnings growth rate for the S&P 500 for 22Q1 is 6.1% [6.4% on Apr. 1]. If the energy sector is excluded, the growth rate declines to 0.6% [1.0% on Apr. 1]. The energy sector has the highest earnings growth rate (239.2%) of any sector. It is expected to earn $32.1B in 22Q1, compared to earnings of $9.5B in 21Q1.

The estimated revenue growth rate for the S&P 500 for 22Q1 is 10.9%. If the energy sector is excluded, the growth rate declines to
8.3%.

The estimated earnings growth rate for the S&P 500 for 22Q2 is 6.9% [6.8% on Apr. 1]. If the energy sector is excluded, the growth rate declines to 2.1% [2.4%].

Downward revisions are spreading out to more sectors. Last week, only 3 S&P 500 sectors (Health Care, Real Estate and Energy) had positive revisions compared to 4 and 7 in each of the previous two weeks respectively.

But revisions are pretty minor so far:

Goldman Sachs:

We forecast downside risks to earnings estimates for the remaining quarters in 2022. Full-year EPS estimates have actually been revised 2% higher since the start of the year and earnings growth is forecast to accelerate in coming quarters. Analysts appear reluctant to adequately trim forecasts despite the high degree of uncertainty surrounding the economic outlook.

Although our 2022 top-down EPS estimate is 3% below bottom-up consensus ($221 vs. $227), we believe results from 1Q earnings season are unlikely to generate enough clarity for analyst estimates to fully converge to our forecast.

BTW:

China Limits Sales by Some Funds as Stocks Slide Again The market regulator gave window guidance to some big mutual fund houses, telling them to refrain from selling A-shares on a net basis on Monday, according to the people who asked not to be identified discussing private information. The verbal request, which has become a regular operation to prevent panic selling, was valid for the day, said the people.

Fleeing Putin, Thousands of Educated Russians Move Abroad Young professionals, often working in tech, have left the country after the Ukraine invasion: “I can’t live in a country that goes to war with its neighbors.”

China Accelerates Nuclear Buildup China has accelerated an expansion of its nuclear arsenal because of a change in its assessment of the threat posed by the U.S., people with knowledge of the Chinese leadership’s thinking say.