It’s one of Wall Street’s storied adages: Earnings are the “Mother’s Milk” of stock prices. But if that’s the case, the bulls are going to need a new cow … stat!
Market Roundup
I say that because the early warnings we got from the likes of FedEx (FDX), Hewlett Packard (HPQ) and Caterpillar (CAT) are being followed up by even more disappointments from a wide swath of Corporate America.
DuPont (DD) kicked things off late Monday when it warned that full-year operating earnings would come in at just $2.75 a share — compared with a previous forecast of $3.10 a share. Sales plunged 11% in the second quarter amid weakness in emerging markets, agricultural product demand and foreign exchange-related losses.
DuPont shares actually rose because of hopes for more financial engineering. That’s because CEO Ellen Kullman announced plans to step down and be replaced by an interim CEO who would be more amenable to business spin offs or a corporate break up. But that doesn’t change the lousy underlying revenue and profit trends, which signal serious problems in the global economy.
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| Worries increase over disappointing U.S. corporate profits. |
Then overnight, Yum! Brands (YUM) really dropped a hammer on shareholders. The owner of the Taco Bell, Pizza Hut and KFC fast food chains warned that 2015 per-share earnings growth would miss its own 10% target, and the even more ambitious 14% estimate of analysts.
China was a key area of weakness. Same-store sales there rose a paltry 2%, compared with forecasts for 9%. Yum singled out Pizza Hut as a key area of weakness among its brands.
Seed and agricultural chemicals company Monsanto (MON) piled on, saying it would earn as little as $5.10 a share in the fiscal year that ended Sept. 1. That’s far below the $6 that analysts were expecting. The company also said it would eliminate 2,600 jobs, slash research and development spending, and exit some operations.
Finally, we got some disturbing profit news out of Adobe Systems (ADBE), the software company known for its Photoshop and Acrobat products. It said it would earn an estimated $2.70 a share in 2016 on $5.7 billion in revenue.
Analysts were expecting $3.19 a share and $5.93 billion, meaning this was a pretty sizable miss. The company blamed currency problems, sales weakness associated with moving its business to the cloud, and more.
Look, estimates for profits and sales have been falling for months. Both overall and ex-energy numbers are sinking like a stone.
A bounce over the past few days in commodities prices and the week-long closing of Chinese stock markets have allowed the bulls some breathing room. But unless the global economy and corporate earnings pull out of their serious funk, the oversold rally is going to run out of juice quick. And nothing I’ve seen or heard in the past 48 hours suggests that is happening. So I remain cautious and conservative here.
| “Estimates for profits and sales have been falling for months.” |
Now, let’s hear your take. What do the warnings from the likes of DuPont, Yum!, Monsanto, and Adobe say about the state of Corporate America? Are these just isolated examples, or is the broader trend in profits negative for stocks? Do any of these companies look attractive to you as bottom-fishing candidates? And what do you make of the short-term rally in commodities … is this a flash in the pan or something more?
Hit up the Money and Markets website and share your take today!
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Yesterday’s piece on the biotech massacre and drug pricing overall touched a nerve, with several readers commenting on the financial, political, and social impacts of this key issue.
Reader Mike S. said: “Do you think it is an accident that Obamacare left the drug companies to set their drug prices as they see fit? Is anyone surprised that the drug companies have sent their drug prices to the moon? The only question yet to be answered is how long it takes the American public to finally demand that all those drug prices should go through a ‘single payer system,’ much like Medicare?”
Reader Chuck B. responded by saying: “It is not just Obama’s administration, but all the administrations. Much of every administration’s political and financial support comes from Big Pharma, and other medical groups and people. Their money talks, of course. Loudly.”
Reader Thomas S. weighed in on the significant financial toll rising drug prices are taking on people, saying: “Having recently retired from over 30 years in social service, I saw many clients that risked eviction and starvation, because they could not pay rent or buy food and also pay for medication.
“Their income, while low, was over the Medicaid limit. Medicare part D was not sufficient. As you note, one person was paying a $1,800 monthly copayment for drugs. What happens to a person whose income is $2,300 monthly? Medical bills are the largest cause of bankruptcy in this country, but nobody wants to deal with it.”
Reader Jean suggested a change in focus on how to maintain our health overall would help: “All patented drugs cause harm to the body. People need to wake up and quit killing themselves on these drugs! There are so many natural remedies that are break-thru and actually cure many diseases. A total re-education of the medical establishment should take place in natural medicine. We are so far behind other countries in this respect.”
And finally, with regards to the investment implications of the current bio-rout, Reader Bob said: “I own a large long position in one biotech stock. It has gotten hammered recently. I am wagering three things:
“1) The fundamental market need for improved healthcare and treatment regimes will eventually prevail (price controls don’t work);
“2) The wheat will be separated from the chaff and the majority of companies that are not relying on price gouging will rise above the market’s current healthcare broad brush; and
“3) Politicians are notoriously long on words and short on action and the hyperbole (though in isolated instances valid) surrounding this issue will eventually be subordinated to others.”
Thanks for sharing your thoughts on this topic. As I mentioned yesterday, I would keep a close eye on the recent lows for all of these stocks. We could see more forced selling in the short term, regardless of the longer-term trends, if they don’t hold. Then we’ll have to see if the political momentum for things like price controls gathers steam.
Want to weigh in, but haven’t done so yet? Then don’t hold back. Let me hear your thoughts online.
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Anheuser-Busch InBev (BUD) went public with its decision to pursue SABMiller (SBMRY). The company would offer $99.7 billion in cash and shares as part of the move to create a global beer behemoth. SABMiller wants more money, however, and any deal would face enormous antitrust concerns in several jurisdictions.
Own a Volkswagen affected by the emissions scandal? Then get ready – the company is planning to initiate a huge recall starting in January. The update will require only software changes in many instances, but some repairs will involve installing new fuel injection equipment and catalytic converters.
I just highlighted how Saudi Arabia continues to bleed reserves thanks to low oil prices and high domestic spending. Overnight, we learned that China’s reserves tanked by another $43 billion in September, too. Investor outflows and the cost of intervening to support the yuan after this summer’s massive devaluation drove reserves down to $3.51 trillion, the lowest since July 2013.
I’ve always been more of a football guy. But since I married a Northside Chicago woman a few years ago, I learned quickly how dedicated these Cubs fans can be! So naturally, our household will be pulling for them to win their wildcard playoff game against the Pittsburgh Pirates tonight. Meanwhile, the Yankees lost to the Astros 3-0 in their one-game playoff.
So will the Cubs pull it off? Will Volkswagen pull its reputation out of the fire? And will every beer you buy at the grocery store soon be made by the same brewer? Give me your opinion on these or other issues at the website when you can.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Interesting to list all of the economic reality, but as last Friday proved the markets love bad news to crush any FED interest rate hike speculation (and GS announcing no rate hikes until 2017 really helped) so recessions/depressions mean little as long as the free money keeps flowing.
What ticks me off is the amount of advertising used for prescription drugs. We pay a Dr. to prescribe a drug for our condition. If he doesn’t know what drug to use change physicians.
Yah, I am really “sick” (no put intended) of all these drug ads on TV! What the f..k? Your doctor is supposed to be on top of this. Why advertise directly to consumers? This is loony!
I work in pharma, the answer is simple. Studies show that patients usually get the drug they ask their doctor for. In a world of so many me-too drugs, it makes a difference. Your specialty care docs won’t cave in, but primary care docs are basically pill pushers, and one bad grade away from being an HR person.
How else are we going to find out about all the horrible side effects? Jim
I follow IWM on my short term and medium term trading as that ETF seems to lead the markets (small cap)… I call them the “Soldiers” and the SPY and DJI the “Generals”……. Anyhow today’s gains stopped right at the down trend, upper trade channel line from 6/23 (1 year daily candle stick chart)….. Many of the reversals have occurred at either the top or bottom trend lines of this channel since 6/23 (there have been 6 up trends and 4 down trend lines since 6/23)… Based on recent performance the odds are that we will reverse to the downside tomorrow….
you could always try a butterfly options spread.
Your analysis of earnings is indeed troubling. For the past 25 years I’ve worked in the manufacturing sector marketing and selling factory automation systems to large manufacturing firms. I weathered the 2008-2010 downturn by the skin of my teeth. Business fell off the edge during those years as everyone pulled back capital spending. Currently, however, business is strong. Our order book is in excellent condition and the backlog is growing. Of course the capital spending faucet can be turned off at any time, but so far so good. I don’t see the same factors at play here that were creating some of the turmoil in 2008. The auto makers are leaner, there is no Lehman or AIG waiting in the wings. Manufacturers are bringing work back to domestic sources as the demand for quality rises in all sectors, automotive, industrial and medical devices. Unemployment is low. I don’t mean to say there are no goblins to watch for. Wealth disparity and sovereign debt need to be addressed along with the troubles in the Middle East and our own political idiocy. Overall, I’m cautious, but not in panic mode.
MJT,
You made an very important point that manufacturing is returning to America (no thanks to the GOP) as that is the main reason that our economy went into the ditch along with the financial disaster bought by the GOP idiocy to remove Glass-Steagall in 1999 which allowed the incredibly dangerous and reckless trading to return… Personally, I think we are going to be ok, except for this slight pullback… I’m thinking there is more than a little political spin on the “sky is falling” rhetoric that gets printed on this site… :(
Really Mike so you are going to totally ignore the fact that the democrats were the one’s that pushed housing loans to people that didn’t even have a job and that is what brought the economy down. Bush tried to change the policy but the democrats would not hear of it, so for once can you liberal lairs try and tell the truth?
Go back and look at Barney’s Bill. It was restricted to the inner cities. The GOP had the majority and they removed that restriction at the behest of their donors, the Big Banks. That made the banks billions. The GOP propaganda machine, again, did not tell the truth!… :(
Glenn: Learn to spell.
Lairs – where animals (or vulture capitalists) hide to rest (or count ill-gotten gains).
Liars – political hacks such as yourself who blame everything on the political letter (R or D) after a politicians name.
“With the Republicans and the Democrats it’s like Tweedle Dee and Teedle Dumb. There’s not a dime’s worth of difference between the two of them!”
––George C. Wallace, 1968. [erstwhile presidential candidate, governor and “first Gentleman” of Alabama, and inveterate racist (who atoned his ignorance in late life)].
“…there is no Lehman or AIG waiting in the wings…”
Perhaps, Gentle Reader, you might be interested in the machinations of Glencore. One hundred billion dollars in new”off-the-books” debt “discovered” today. Glencore is scrambling to round up money to cover its “black box” operations. It is being called openly TODAY “The Next Lehman.”
And waiting on deck are Mercuria, Gunvor Group Ltd., Trafigura. All are commodity traders who are getting hammered by falling commodity prices and crashing demand.
You might want to think about yellow police tape to string up around these coming implosions.
The Democrat Party is the party of “that’s not funny anymore”. Mark Steyn
You always get it wrong with your bearish stock predictions which you and Martin have been making for years.
Mostly from the Democratic victories of 2009 forward, which just happened to be the bottom of the Cheney/bush Crash!… :(
It’s a good thing I don’t drink and am a Dodgers fan. GO LA!!
For more than 45 years I have watched the Dow predict 6 months into the future with prett y good accuracy. I think it has been predicting lower earnings and a weaker economy in late first quarter early second quarter next year.
All I can say is that somehow the Dow made, basically, an unabated run from 6,450 in March of 2009 to 18,350 in May of 2015 a timeframe which saw the fallout of major corporations, the construction and real estate industries and the banking sector, not to mention job attrition. The world was going through a period of major turmoil, risk and money printing, yet the Dow prospered — QE spending??? I kept waiting for a sizeable pullback, but it never happened. Why will a sizeable pullback occur now? It should, but will it? Do earnings really matter when unseen forces are at work buoying the market? That is what happened on Friday, October 2nd? News was bad, the market initially headed down, but reversed course in a major turnaround which shouldn’t have happened… why did it? Who’s in control of the stock market? Does this have something to do with the year prior to election year? Answer that and we can all get on with our lives. Thank you.
The market topped right after the GOP became the Magority in Congress. Last time they had the majority was when the stock market crashed!.. :(
The 2008/9 crash began with real estate debt going bad. This time it is Auto debt and junk bonds. We are due on a regular 5 to 7 year cycle.
The reader misstating that its OBAMACARE that is causing the prescription price gouging
Need to apologize for failing to do their homework.
See Geo Bush -Denny Hastert -Billy Tauzin -Max Baucus and many more that created the legislation that prevented price negotiation.The legislation was signed at 3am while we all slept. See the video now on line as they smiled when George said Great Job -this legislation could not happen without your “help”.
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Scum bags one and all
We will be paying for his dispicable decisions for decades
That was before Obamacare. The GOP was against a single payer for drugs and coverage under Obamacare.
It seems to me the single payer has brought us a system where no one is concerned about cost because it doesn’t come out of their pockets. That’s probably why our doctors see twice as many patients. It’s given us a system where the majority of emergency room visits are people with colds and constipation. During the last flu outbreak over 90 per cent of the of people going to the emergency room didn’t have the flu. My Mother in Law goes several times a month just because she is bored and Medicare pays for it all. They also like the ambulance rides! Jim
Out of wack markets get corrected. The “news” really has nothing to do with how the markets act, longer term. This is probably an “earnings recession”. I don’t think it is all that worrisome for that near future!
I personally don’t think the Busch take-over of Miller is going to fly. Too many anti-trust issues here!
And, anyway, both beers SUCH!
I mean SUCK!!
Who wants to drink that trash when there are so many fine craft beers available.
A lot of you guys who are looking at things not being all that bad are forgetting about the 300 hundred plus billion dollars of sub prime loans to the oil frackers which will come crashing down this month when their credit lines get re-evaluated by the banks and get reduced or called in. This will reverberate throughout the banking industry just like the sub prime real estate crisis did in 2008. The Chinese stock market will also resume it massive fall any day now. Europe is in terrible shape and Japan is a basket case, but sure it’s all good in the U.S. huh?
Ken A
Agree with you regarding the risk associated with loans to frackers…not a trifle amount…though, U.S. banks are in better shape than they were in in 2008-9-10-11-12 and 13. But will the U.S., China, Europe and Japan pull their QE spending wild cards? I would like nothing more than for the market to correct/come down because that would be healthy. And, I think there’s a better probability this will happen relative to a market surge. But, I think the downside will be tempered by the influx of Euros and Yen coming into this country. We’re in a different world now. Lot’s of uncontrolled public spending and monetary emission. One U of C professor said, ‘this always ends badly.’ My question is when will it end, so I know when to short the market.
Oil producer bonds are approaching a ten per cent default rate. Last quarter they used 86 per cent of free cash flow to service debt. Sixty bucks a barrel is break even. It is indeed a dangerous situation. Jim
I have never spoken out. I tend to be a more private person. However, I can stay silent no longer. The international currency wars that have been taking place for many years now, are finally coming home to roost. Combined with China’s inability to be transparent about their currency and their apparent inability to discern the difference between their own hyperbole and the truth, and the consequences of those actions, consider the weak performance of the euro and so many South American currencies. Add to this the apparent oversaturation of inventories and under saturation of buyers internationally for products particularly. What you have is Corporate America having to bend a knee; more and more countries are starting radical cutbacks of spending; let’s not forget the incredible negative pressure on all systems from the massive illegal drug trade. There’s nowhere to turn other than commodities. I don’t think precious metals are the answer either. At least not right now. Commodities will rule in the months and maybe even years to come we’ll see. Good luck everybody.
We are only seven years into the nessesary ten year healing period from the last financial crisis. So, we have three more years to go. That’s the bottom line. Everything also is just noise!
I sell products for several high tech companies and all of them are having a down year. In one product line, sales are off 30 – 35% so far this year, and I have heard from the competition that their sales are no better. They are laying off staff and tightening up spending. Discounting is up another level higher than in past years to fight for every order. It seems that there are less customers buying this year, so stress in the sales staff is up. Mgmt sees tis as a short term issue, however, I see that next year the economy will be down even more. For years now, China sales have helped mgmt make the numbers for the year, but not this year.
Global demographic trends will lower sales and profits overall for at least another 5 years according to analyst Harry Dent. He also sees China as continuing to decline mainly due to their past policies of one child per family, which decreases the size of the current generation compared to the older generations who spend less and save more, then die and sell off their stuff, which is also deflationary. Europe is in trouble obviously, as is Japan and now the US due to declining demographics, so all that’s left is the emerging economies and in order for them to advance, prices of commodities need to rise, their major output. But with declining consumer economies, that’s not a sure bet for them either with lowered global demand.
Wasn’t today the economic world was supposed to collapse?
Ask Larry! Jim
No. After warning the end would start today (especially if one didn’t sign up for his new service), he now says the end could start at any time. If anyone wants to know the exact time, just send me money and I’ll let you know.
I just read that Goldman Sachs and J P Morgan are having trouble selling debt to back a leveraged buyout of clothing retailer Full Beauty Brands. This is fully secured debt, not junk. The junk bond thing is starting to spread to higher grade debt.
Michael,
Just like Caterpillar, Yum brands is an ABSOLUTE Canary in the coal mine as to the massive deflation problem that is spreading out of control around the world…What you need to remember is that the Chinese Stock market basically fell 45% in 2 months. This is the world’s second largest economy and it fell just about as much as the US market did in the same amount of time…….during the 1929 stock market crash! People have absolutely NO IDEA how bad the capital markets are right now. The scary thing is, there is no way to stop this slow moving train wreck. It spells major problems in the next 3-6 months…
Mike Larson released an interesting report on beating the bond bubble this morning, via Weiss Education. Worth reading – 38 pages of large print. Has Weiss ratings on many stocks, etc.
Beware a very rare BLACK SWAN an inflationary depression it can happen .BUY GOLD AND SILVER to be safe.
What’s an inflationary depression? Is that where everyone raises prices but nobody is buying? And wages for non-existent jobs go up? Got it. I was just not offered a job for $200/hr. Rather than not accept it, I quit my old job so I now make zero/hr–inflationary depression.
Phil, to your question…It’s called Stagflation!
keep one hand on that sell button!
Another analyst just wrote about four of the major oil companies: XOM, RDS, CVX and BP. He concludes that all have gone to a negative cash-flow position, meaning they must either sell assets or borrow to buy back stock or pay dividends. All have cut, but not eliminated buy-backs. All have cut capital expenditures (CAPEX). Cutting dividends would affect a lot of people. ExxonMobil (XOM), for example is owned by 10 governments, 47 PENSION FUNDS, 149 banks, 158 hedge fund managers, 188 indexes, 637 insurance companies and 4,839 ETFs. Cutting dividends would hurt millions of people to some degree. XOM is in the best shape, he concludes, while Royal Dutch Shell (RDS) is in most danger, but all are safe for the moment, as long as oil doesn’t fall farther, and their ratings allow them to borrow at favorable rates. All are, or will need to sell assets. RDS actually bought another company, BG Group (BG.L), however, and without a substantial rise in oil prices, could be in trouble. I’m repeating this data as an indication of how balanced on a knife blade the markets are at present, and of how managements are trying to hide the truth.
our favorite holding period is forever.