Archive for November, 2014

• Ross Stores Beat Earnings
  Eddy Elfenbein, November 20th, 2014 at 6:27 pm

  Impressive earnings report from Ross Stores ($ROST). The deep discounter earned 93 cents per share for its fiscal third quarter. That was six cents more than estimates.

  The CEO said:

  “We are pleased with the better-than-expected sales and earnings we achieved in the third quarter. These results were driven by our ongoing ability to deliver compelling bargains to our customers, which drove above-plan sales gains and strong merchandise gross margins. Operating margin for the quarter grew 55 basis points due to a 40 basis point improvement in cost of goods sold and a 15 basis point decline in selling, general and administrative expenses.”

  Quarterly sales rose 8% to $2.599 billion. Same-stores sales were up by 4%.

  For Q4, Ross projects earnings between $1.05 and $1.09 per share. For the entire year, they see earnings between $4.28 and $4.32 per share. That’s an increase of 10% to 11% over last year. The shares are up more than 5.5% after hours.

• The S&P 500 Nears Its Inflation-Adjusted High
  Eddy Elfenbein, November 20th, 2014 at 12:02 pm

  The stock market is up a little bit this morning. Of course, the stock market seems to only move in little bits these days. Looking at our Buy List, Ross Stores ($ROST) reports after the close today, and retail stocks have perked up lately. Ross has been as high as $83.47 today and Bed Bath & Beyond has been up to $73.41. That’s a nice rebound.

  One shocking econ report today came from the Philly Fed. The latest report on manufacturing activity in the Philadelphia Fed region came in at 40.8. That demolished expectations of 18.5. In fact, the beat was so big that I suspect there may be something off. As always with economic data, we want to wait for more confirmation before we can declare a new trend.

  The Labor Department said that consumer inflation was flat last month. But if you take out food and energy, inflation was up by 0.2% in October. Inflation is up 1.664% in the last 12 months.

  Speaking of inflation, the S&P 500 is still below its inflation-adjusted high from March 2000, but it’s closing in. Including dividends, the market has made an inflation-adjusted profit, but the straight index still has not.

  Thanks to the latest CPI data, we can say that the S&P 500 would have to have been at 2,122.74 on October 31 to match its inflation-adjusted high. The problem is that there’s at least a three-week lag with inflation data, so it’s impossible to say exactly where the inflation-adjusted high is in real time.

  But we can make some estimates. With an inflation rate of 1.7%, that means it nicks 0.1 points off the S&P 500 each calendar day. That would bring the current inflation-adjusted high to 2,124.75. Let’s say 2,125 to be safe. That means the stock market is about 3.5% away from a new inflation-adjusted high. This could happen soon.

• How the Stock Market Performs Before and After Big Drops and Big Rallies
  Eddy Elfenbein, November 20th, 2014 at 8:58 am

  Lately, I’ve been doing some unusual projects with market data. Here’s the latest one I wanted to share with you.

  I wanted to see if there’s a pattern the S&P 500 exhibits before and after major price moves. To do this, I took all of the S&P 500 daily changes since 1950. I then selected out all the days when the market fell by more than 2%, rose by more than 2% and everything else.

  Historically, the market has risen by 2% or more in a single day, on average, once every two months. It’s nearly identical for 2% daily rallies. I then included how the market did on the 16 days prior to each big rise or fall, plus the subsequent 35 days.

  The blue line shows that the stock market slides into a big drop, but rallies afterward.

  

  What surprised me was the red line. It shows that the S&P 500 also slides into big jumps. In fact, the slide is a bit more pronounced than the blue line. Yet again, the market rallies after the big leap upward. The rally is slightly weaker than the blue line’s rally.

  The black is all of the rest of the time, which is about 96% of the time. It barely moves. The rest of the time, the stock market gradually climbs.

  I think this underscores an important point about financial markets. Markets tend to move between long periods of stability and short periods of great instability.

• Morning News: November 20, 2014
  Eddy Elfenbein, November 20th, 2014 at 7:06 am

  Eurozone PMIs Slow, Raising Pressure on ECB

  UK Retail Sales Rose by 0.8% in October as Prices Fell

  Yen Under Pressure After 7-Year Dollar Low

  Russia Has Little to Offer in Oil Price War

  Crude Oil Edges Down as Eyes Fixed on OPEC Meeting

  Fed Debate Shifts to Tightening Pace After First Rate Increase

  Uber’s Terrible, Horrible, No Good, Very Bad Day

  Alibaba Will Set Up International Version of Taobao Marketplace: Jack Ma

  Qualcomm Wants to Move Out of Your Pocket Into Your Cars, House and Wearable

  New Scrutiny of Goldman’s Ties to the New York Fed After a Leak

  Banks Had Unfair Advantage From Commodity Units

  Sanofi Ready to Emerge From Innovation Drought

  Banking Culture Breeds Dishonesty, Scientific Study Finds

  Jeff Carter: The Best Way to Talk About Your Company

  Joshua Brown: Every Smart Beta Strategy Works, If You Can Be An Adult.

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• Equity Returns and the Yield Curve
  Eddy Elfenbein, November 19th, 2014 at 10:21 am

  I did some research and found this fascinating stat. When the spread between the 90-day and 10-year Treasury yield is 121 basis points or more, the stock market does much better than when it’s 120 basis points or less.

  Here’s how it works. Since 1962, the S&P 500 has averaged a 1.42% annualized gain when the yield spread is 120 points or less (that doesn’t include dividends). But it’s averaged 10.47% per year when the spread is 121 basis points or more. That’s a big difference.

  Over the last 53 years, the spread has been 120 basis points or less about 41% of the time, and it’s been 121 basis points or more the other 59% of the time.

  The spread has been over 121 points continuously for nearly seven straight years. In fact, the indicator’s only big miss came in early 2008 when it flashed bullish several months too early.

  The yield spread is currently 230 basis points. If the 10-year yield stays at this level, then, according to our indicator, we don’t have to start worrying about stocks until the 90-day yield gets over 1%. It’s currently at 0.04%.

  Here’s the spread over the last 30 years (the black line is at 120 basis points):

  

• Morning News: November 19, 2014
  Eddy Elfenbein, November 19th, 2014 at 7:03 am

  India’s Strong Growth to Depend on Modi-Led Reforms: OECD

  Russia and Venezuela to Fight Low Oil Prices

  Bank of Japan Rebels Switch Over to Back Extended Easing

  Differences Appear Within Majority of Bank of England Rate Setters

  Yellen Inherits Greenspan’s Conundrum as Long Rates Sink

  Economists Call October Inflation Measure ‘Distorted,’ a ‘Statistical Quirk’

  Black Friday Isn’t Dead! It’s Just Evolving With Shoppers

  Xiaomi Stake Said to Value IQiyi at Up to $3 Billion

  Uber’s Media Revenge Fiasco: What Went Wrong and How to Fix It

  Home Depot Warns There’ll Be More Costs Due to Its Data Breach

  Wells Fargo Unit to Launch Europe Infrastructure Fund, Target $1 Billion

  Exercise in a Bottle Is Next Food Frontier for Nestle

  Ranbaxy May Be Making a Huge Mistake by Suing All-Powerful U.S. FDA

  Roger Nusbaum: A Yield Play Without Any Yield?

  Epicurean Dealmaker: What Is It Like to Be a Banker?

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• The S&P 500 and Its Earnings
  Eddy Elfenbein, November 18th, 2014 at 12:04 pm

  Here’s a look at the S&P 500 along with its earnings. The S&P 500 is in black and it follows the left scale. The earnings line is in yellow and it follows the right scale. The two lines are scaled at a ratio of 16-to-1. That means that whenever the lines cross, the market’s P/E Ratio is 16.

  

• Medtronic Meets Earnings
  Eddy Elfenbein, November 18th, 2014 at 10:15 am

  This morning, Medtronic ($MDT) reported fiscal Q2 earnings of 96 cents per share. That’s a decent number. The company hit the consensus forecast right on the head. Medtronic earned 91 cents per share in last year’s Q3.

  More importantly, the company said that the Covidien ($COV) deal is still on track. The company hopes to close out the deal early next year. Medtronic will reincorporate in Ireland and the new name will be Medtronic PLC.

  Quarterly sales came in at $4.37 billion which was a shade more than the consensus of $4.36 billion. The medical devices company reiterated its full-year earnings outlook of $4.00 to $4.10 per share. The company has already earned $1.89 per share for the first half of its fiscal year which ends in April.

  “Our second quarter performance was strong and well balanced across our businesses and geographies,” said Omar Ishrak, Medtronic chairman and chief executive officer. “Revenue growth was at the upper end of our full-year revenue outlook and within our mid-single digit baseline goal, reflecting the strong execution of our global organization.”

  The shares have popped a little bit today. Shares of MDT have been as high as $72.26 this morning which is a gain of 4.4%.

• Morning News: November 18, 2014
  Eddy Elfenbein, November 18th, 2014 at 7:07 am

  As Japan Falls Into Recession, Europe Looks to Avoid It

  UK Inflation Rate Rises to 1.3% in October

  Flash Boys Raising Volatility in Wild New Treasury Market

  FHA is Back in the Black – But Not Out of the Woods

  Halliburton May Sell Fewer Baker Assets Than Expected

  Actavis Surges to Top Drugmaker Ranks With Acquisitions

  Home Depot Profit Tops Estimates on Customer Traffic Gain

  Toyota Tackles Chicken And Egg With Rollout Plan for Hydrogen-Powered Mirai

  DreamWorks: Too Greedy For A Deal?

  SunEdison and TerraForm Buy First Wind, Gaining a Toehold in Turbines

  Urban Outfitters Reports Earnings Miss, Sales Decline At Namesake Brand

  U.S. Mobile Payments Market to Boom by 2019, Research Firm Says

  Latest Madoff Fraud Deal Pushes Amount Recovered to Over $10 Billion

  Edward Harrison: Banks, Japanese Trade, the Currency Wars and Deflation

  Edward Hugh: Abenomics 2.0 – Just What Are They Trying to Achieve?

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• James Gandolfini on Sesame Street
  Eddy Elfenbein, November 17th, 2014 at 5:39 pm