Looking Forward to Spring (Wall Street Included)

by Louis Navellier | February 18, 2014 12:00 pm

Looking Forward to Spring (Wall Street Included)

Want to know what’s impacting the economy and the market these days? Just look out the window!

Many of you will see snow, which is now on the ground in 49 of the states, with Florida being the lone holdout. I had friends from Michigan visit me here in South Florida this week, and they were complaining about the winter. I reminded them that the Great Lakes are now almost entirely frozen, which has not happened for decades. The South just had its second big storm in two weeks, and the fact that Philadelphia shattered a 130-year record for snow demonstrates just how severe this winter has been.

So with the Midwest, the Northeast and the deep South frozen over, no wonder retail sales are down! It was no surprise at all that retail sales fell 0.4% in January (and December was revised to a 0.1% decline, down from a 0.2% increase). The good news is the financial media has actually figured out that the unusually cold weather is now largely responsible for the dip in retail sales, factory orders, manufacturing and the weak payroll reports.

Not to be overly cynical, but it’s a pretty big development when the media stops and thinks for a change instead of just blindly reacting. So all of a sudden, bad news is good, since the media is telling everybody that the economic news is poised to improve as soon as the snow and ice melt. Investors are now getting excited about all the good economic news that will come in the spring. Consumer sentiment should also improve in the spring, since folks naturally cheer up as temperatures warm up.

The expectation for stronger economic data combined with testimony from new Fed Chair Janet Yellen sent the S&P 500 (INX[1]) more than 2% higher for the week. Since the recent closing low on February 3, the S&P has gained more than 5% in just nine trading days.

Yellen pretty much stuck to the script and pledged to keep interest rates low and continue to “taper” the Fed’s quantitative easing (QE) as long as the economy continues to improve. She gave the impression that she was surprised by the weaker than expected payroll reports the past two months, and that she might be more accommodative if necessary. At this point, I don’t expect more accommodation, but investors like knowing that it’s on the table. More likely, QE will wind down this year, since the Fed’s unemployment target of 6.5% has almost been reached.

Going forward, I expect Wall Street will focus less on QE and more on earnings, where the news is good. The best earnings in almost three years have materialized due to (1) improving sales, (2) relentless stock buyback programs and (3) a weaker U.S. dollar, all of which help to boost underlying earnings growth.

At the moment, 346 of the companies in the S&P 500 index have reported results, with 68% exceeding analysts’ expectations by an average of 3.8%. Even more importantly, 66% have beaten sales estimates by an average of 0.3%, which is extraordinarily high. These 346 companies are averaging 0.9% annual sales growth and 10.9% annual earnings growth in the fourth quarter.

 

 

Endnotes:
  1. INX: http://studio-5.financialcontent.com/investplace/quote?Symbol=INX

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