When a Good Multiple and Jobless Rate Aren't Enoughby
Two Big Themes this week:
1. Central banks are still buying
2. Unemployment is still a problem
Many investors aren't excited about the decline of headline unemployment to 7.4% when fewer people are being counted in the labor force, average wages are declining and employers create fewer jobs than forecast. Now we know WHY the Fed is buying.
While the market's all-time high this week suggests the Fed is winning, even bulls need more than central bank sugar to justify committing new capital. They need a more fundamental reason to buy, especially with the S&P 500 trading at 16.1 times earnings, compared to an historical average of 14-17 times earnings, according to Citi strategist Tobias Levkovich. Allow us to propose three little words:
So far, 343 companies have reaffirmed or updated forward guidance since earnings season began July 8. Only 16 of these have told analysts their earnings will grow at least 5% over the next 12 months. We note their stocks are up an average 29% YTD, well above the S&P 500 Index.
As an added bonus for blog readers, we note three companies reporting next week whose estimates were raised THIS week by the analysts tracked by Bloomberg: CF Industries (CF), Molson Coors (TAP), NRG Energy (NRG).