Corporate Earnings
We wanted to address the strong corporate earnings we are seeing versus the conflicted lower consumer sentiment. First, we will go over corporate earnings. You will see in a chart shown in the episode that over 95% of S&P 500 companies have reported results. The first quarter earnings growth for the index is tracking a 9.1% year-over-year increase. That’s an upside surprise of more than four percentage points. We’ve also seen a 13.6% increase in revenue growth with 73% of companies beating revenue estimates, and 78% of companies beating earnings estimates. The disappointing retail results don’t take away from the fact that the overall results are really solid this earning season. The fact is that corporate America is healthy despite the cost pressures and a supply chain disruption we’ve seen.
The Consumer
We’ve been watching consumer sentiment, which has been falling fast and doesn’t line up with what we’re seeing in the jobs numbers. Typically, when you see jobs numbers this strong, you also see a very happy consumer. Wages are going up and jobs are plentiful, so why is the consumer so down right now? Our research partners at Strategus provided us with the chart shown in the video for this episode on this topic. It pretty much explains why the consumer is so negative. On the chart, you will see it shows an increase in the cost of core goods, such as food at home. It also shows the mortgage rate increase and the gasoline price change. Year-over-year, there’s been a 20% increase in the cost of core goods. That’s likely what is leading to the consumer having a negative sentiment on the market and the economy. However, based on the numbers regarding corporate America and what we have seen with the GDP numbers, the consumer is still spending. You can see on the next chart shown in the episode, even though they’re negative, they’re still spending and willing to go into debt. We’ve seen consumer loans start to increase, which usually a sign of consumer confidence. Historically, when consumers are willing to take on debt, they’re typically more positive. This probably indicates that the consumer will continue to spend and are very confident in their own job situation. However, they are not necessarily as confident in the overall economy or certain areas with the economy such gas prices and mortgage rates. We are watching closely to see what’s driving this consumer sentiment and spending, and looking forward to where corporate America profits will come from.
Cooling Down
Last week, we discussed how the Fed is trying to fight inflation and how it’s having a bigger impact on corporations than the consumer. On the flip side, last week we got the housing numbers and they dropped down 16% month-over-month. It’s starting to reflect on the consumer. While the housing number was disappointing in a sense, it kind of got ahead of itself while everything was hot so, the Fed might welcome this slow down. Prices are still up as well as rates. At this point, people are still paying more with higher rates and higher cost for homes, and we want that to tamper down. However, sales are down, so the Fed might take this as a positive and try to spin it in a way where the economy is finally cooling down a little bit.
Technical Analysis
On a weekly basis, we give you the short-term resistance and support levels, but today we are focusing on long-term levels. The short to intermediate term resistance level is currently sitting at a price of 4,120 with a support level of 3,850. A more long-term technical resistance level is at a price of 4,300 and that support level is at 3,600. These are important to look at along with the momentum in the markets to see if we do cross over these levels. We are watching to see if the market is priced at these numbers for just a days-worth of trading, or if it actually sits there and continues to sit there for the longer term. This type of technical analysis of the market is what we will continue to look at.
Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here
Adam Vansant, AIF®, BFA™
Vice President
Wealth Consultant
Email Adam Vansant here
Ty Miller
Associate Vice President
Email Ty Miller here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
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