Earnings reports are quite thankfully winding down. Roughly 90% of the S&P 500 member companies have announced results, with a minor few remaining. In general, earnings weakness was once again underestimated by Wall Street analysts, with aggregate growth in Q2 actually down 22% year over year, considerably higher than the 13% decline in earnings expected at the beginning of the process.
Fortunately, there hasn’t been much new in the underlying weakness of the reported results. As has been the case for most of the past twelve months, the financials and consumer discretionary sectors bore the brunt of the declines. In fact financial earnings contracted a shocking 94% year over year, while the discretionary sector, largely due to homebuilders, declined 57% year over year. Excluding financials, earnings would have been up 5.3%, which isn’t nearly as bad.
Oil is trading off again today and now stands at roughly $114. Consumer discretionary stocks (excluding homebuilders) have benefited from the move in oil, as we predicted might be the case. In fact, the stocks of retailers and hotels have been on a tear these past few days, with volumes actually starting to press above daily average levels, suggesting that there may be more to the rally than merely short covering.
I don’t know about you, but lower gas prices are a nice positive. They may not make me feel rich enough to buy a new home or car, but the simpler pleasures could do.
Chipotle burrito anyone? (And then a nap.)
