|Dow||-96.53 to 17,640.84|
|S&P 500||-16.55 to 2,028.26|
|Nasdaq||-39.36 to 4,664.71|
|10-YR Yield||-.059 to 1.912%|
|Gold||+$17.20 to $1,233.30|
|Crude Oil||-$2.46 to $45.90|
As you read this, Alcoa (AA, Weiss Ratings: C) will have just reported fourth-quarter results. That will mark the start of corporate earnings season, with hundreds of companies following AA in the days and weeks ahead.
The problem? Profits are sinking into a pool of cheap oil! They’re expected to climb just 1.1 percent year-over-year, the worst performance since the third quarter of 2012. That’s a huge decline from the 8 percent+ growth analysts were expecting a few months ago, according to the Wall Street Journal. As a matter of fact, Bloomberg said earnings expectations are falling faster now than at any time since 2009 — during the Great Recession!
|Profits are sinking into a pool of cheap oil.|
Not surprisingly, the energy sector is going to be the mangiest dog of the bunch. Analysts are looking for a greater-than-19 percent profit plunge. But the outlook for utilities (-6.4 percent), materials (-4.4 percent) and financials (-1.7 percent) isn’t so hot, either. The strong dollar is a headwind for materials, while the flattening yield curve is a problem for banks.
But the funny thing is, we’ve also seen several disappointing pre-announcements out of the retail sector in the past few days. I wrote about a few of them, including Macy’s (M, Weiss Ratings: B+) and Bed Bath & Beyond (BBBY, Weiss Ratings: B+) on Friday. Then this morning, Tiffany & Co. (TIF, Weiss Ratings: C) warned that full-year profit won’t meet expectations.
Many Tiffany customers probably don’t care if gas is going for $2 a gallon or $4. Their drivers take care of filling up their Bentleys. But many “experts” claimed the retail sector on the whole would benefit dollar-for-dollar from the weakness befalling energy — and it sure doesn’t seem to be happening!
Falling oil prices are killing profits in the energy sector.
They’re not helping “contra-oil” sectors the way they were supposed to.
|“Falling oil prices are killing profits in the energy sector.”|
And other correlated moves — in currencies or interest rates, for instance — are putting pressure on still other sectors that shouldn’t have much at all to do with oil!
That’s not the best mix heading into a very important earnings season … and a key reason why stocks are getting increasingly volatile here.
So what’s your take? Is $2-a-gallon gasoline a good thing — or bad thing — for corporate America? What about the U.S. economy? Are companies like Macy’s and Tiffany going to benefit even as Exxon Mobil (XOM, Weiss Ratings: B-) and Chevron (CVX, Weiss Ratings: C+) suffer? Or is that back-of-the-envelope analysis too simplistic? Why or why not?
Use the Money and Markets website as your soapbox. Your fellow investors will appreciate hearing from you, and so will I!
|Our Readers Speak|
The job market is great … according to the government statistics. But the job market stinks … according to the opinions of our readers! That’s pretty much the “50 words or less” summary of last Friday’s news, and your reactions to it.
Reader More Confused said: “Another month, another attempt by the BLS to mask the collapse in the U.S. labor force with a goalseeked seasonally-adjusted surge in waiter, bartender and other low-paying jobs.
“Case in point: after a modest rebound by 0.1 percent in November, the labor participation rate just slid once more, dropping to 62.7 percent, or the lowest point since December 1977. This happened because the number of Americans not in the labor force soared by 451,000 in December, far outpacing the 111,000 jobs added according to the Household Survey, and is the primary reason why the number of unemployed Americans dropped by 383,000.”
Reader Tom B. added: “At the beginning of 2013, Congress cut off the emergency unemployment payments to almost 3 million Americans and they all fell off the unemployment rolls. For the last 4 years, the ‘underemployment’ rate has soared, but the official unemployment numbers don’t reflect this ABSOLUTE TRUTH!
“All of America knows this. The jobs being added are a pathetic joke: census takers, McDonald’s burger flippers, and Wal-Mart workers. The true total unemployment rate is 13.5 percent, and is made up primarily of middle class, white collar workers who were laid off and after two years of collecting paltry, pathetic UC benefits, they’ve fallen off the official rolls and remain unemployed.”
As for wages, several of you weighed in on why we’re not seeing the growth we would like to see.
Reader Arne G. said: “Lest we forget there is the demographic of new high school and college graduates entering the labor force for the last six years from the 2008 melt down. Add this population to all the jobs lost during that crisis. Should we then expect a much longer turn around in wage growth because of this additional pool of labor no one has hardly mentioned?”
Reader Doona added to the discussion, noting the widening gap between what Americans at the bottom and top ends of the income scale are experiencing. The comments:
“Statistics show that inequality in wages has grown significantly between highly paid executives and low income workers since at least the year 2000. So the money is getting into fewer hands, leaving low income and middle class with less money to spend.
“We have forgotten that middle class consumers drive the economy, so we are recklessly heading in the wrong direction. Stockholders will only be able to be appeased for so long as corporate profits gleaned from ‘downsizing’ and other greedy shortcuts to profit will be a sucked orange pretty damn quick.”
Bottom line: The official numbers may paint a rosy picture of the labor market. But many of you still aren’t seeing it in your daily lives. If you want to add your voice to the mix, the Money and Markets website is there for you as a great forum.
|Other Developments of the Day|
France remained on high alert in the wake of last week’s terrorism attacks. Meanwhile, almost 4 million people and 40 leaders from around the world marched in Paris as a sign of international unity. Conspicuously absent? High-level officials from the U.S.
Hopefully the mystery of AirAsia Flight 8501 will be solved before long, now that one of the plane’s “black boxes” has been recovered and the other has been located. The crash claimed 162 lives.
Gas prices tanked (ahem) another 27 cents per gallon in the most recent week. The Lundberg Survey found an average price of $2.20 nationwide, the lowest price since April 2009. That was at the tail end of the Great Recession.
If you live in Albuquerque, New Mexico, you’re in luck — you have the cheapest gas at $1.76. San Francisco? Not so much! Gas will set you back $2.66.
What do the Saudis really think about this collapse in oil? You can never be sure. But widely known and respected Saudi billionaire Prince Alwaleed bin Talal shared some insights in an interview published by USA Today. Worth a read today.
Ready to comment on these or other stories of the day? Then head over to the website and get started!
Until next time,