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The Fed’s tinker with a taper
February 5, 2014 Nick Raich, CFA CEO nick.raich@earningsscout.com
www.EarningsScout.com Twitter: @EarningsScout
Change the way you view the market
www.EarningsScout.com 2
The Feds tinker with a taper February 5, 2014 Nick Raich, CFA CEO - - PowerPoint PPT Presentation
The Feds tinker with a taper February 5, 2014 Nick Raich, CFA CEO - - PowerPoint PPT Presentation
The Feds tinker with a taper February 5, 2014 Nick Raich, CFA CEO nick.raich@earningsscout.com www.EarningsScout.com Twitter: @EarningsScout Change the way you view the market 2 www.EarningsScout.com Myth: Its just all about the Fed
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Myth: It’s just all about the Fed
www.EarningsScout.com 3
In, 2013, the S&P 500 was up more than 30%
There is no doubt central bankers have supported equity prices2but it’s more than just all about the Fed!
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Fact: It’s all about earnings expectations
www.EarningsScout.com
- 46 out of 131 industries in the S&P 500 had raised
EPS expectations in 2013
- Source: The Earnings Scout
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Fact: It’s all about earnings
www.EarningsScout.com
- 85 out of 131 industries in the S&P 500 had lowered
EPS expectations in 2013
- Source: The Earnings Scout
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Powerful liquidity injections by central bankers
www.EarningsScout.com
- 450 Initiatives
- $16+ Trillion
- Prevented an
earnings cliff
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Myth: Fed policy (i.e. QE) isn‘t working
www.EarningsScout.com 7
2013
- 2014
2015
- $102 is the all time record high
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Fact: Earnings fell off a cliff in 2008
www.EarningsScout.com 8
2009
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Earnings fell off a cliff in 2008
www.EarningsScout.com 9 Date 2009 Estimate 29 Aug '08 $ 106.08 30 Sep '08 $ 102.32 31 Oct '08 $ 90.33 28 Nov '08 $ 85.09 31 Dec '08 $ 78.72 30 Jan '09 $ 68.59 27 Feb '09 $ 65.49 31 Mar '09 $ 63.04 30 Apr '09 $ 60.58 29 May '09 $ 59.87 30 Jun '09 $ 59.68 31 Jul '09 $ 60.75 31 Aug '09 $ 60.41 30 Sep '09 $ 60.18 30 Oct '09 $ 61.76
Most traditional earnings models did not confirm a market rally until October 2009
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Fact: Earnings fell off a cliff in 2008
www.EarningsScout.com 10
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Pioneers in earnings momentum
www.EarningsScout.com 11
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Change the way you view the market
www.EarningsScout.com 13
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Earnings fell off a cliff in 2008
www.EarningsScout.com 14 Date 2009 Estimate 29 Aug '08 $ 106.08 30 Sep '08 $ 102.32 31 Oct '08 $ 90.33 28 Nov '08 $ 85.09 31 Dec '08 $ 78.72 30 Jan '09 $ 68.59 27 Feb '09 $ 65.49 31 Mar '09 $ 63.04 30 Apr '09 $ 60.58 29 May '09 $ 59.87 30 Jun '09 $ 59.68 31 Jul '09 $ 60.75 31 Aug '09 $ 60.41 30 Sep '09 $ 60.18 30 Oct '09 $ 61.76
Most traditional earnings models did not confirm a market rally until October 2009
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Change the way you view the market
www.EarningsScout.com 15 Date 2009 Estimate 29 Aug '08 $ 106.08 30 Sep '08 $ 102.32 31 Oct '08 $ 90.33 28 Nov '08 $ 85.09 31 Dec '08 $ 78.72 30 Jan '09 $ 68.59 27 Feb '09 $ 65.49 31 Mar '09 $ 63.04 30 Apr '09 $ 60.58 29 May '09 $ 59.87 30 Jun '09 $ 59.68 31 Jul '09 $ 60.75 31 Aug '09 $ 60.41 30 Sep '09 $ 60.18 30 Oct '09 $ 61.76 Rate of Change D0.67% D3.54% D11.72% D5.81% D7.49% D12.86% D4.52% D3.74% D3.91% D1.17% D0.33% 1.80% D0.56% D0.38% 2.63%
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Fact: Earnings fell off a cliff in 2008
www.EarningsScout.com 16
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What drives asset prices?
www.EarningsScout.com
- Changes to macroeconomic expectations drives asset
prices.
- When expectations go up, risk on.
- When expectations go down, risk off.
- The best way to measure those changes is to look at -
.-( to earnings estimate revisions (i.e. delta)
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Pick one and why?
www.EarningsScout.com
In 2012, this country’s economy grew 7.8% In the same year, this country grew at 2.2%
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It’s a game of expectations
www.EarningsScout.com
In 2012, China’s stock market was up less than 1% In 2012, the U.S. stock market was up 16%
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Myth: Earnings estimates have to rise for higher stock prices
www.EarningsScout.com 20
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S&P 500 earnings estimates in 2013
www.EarningsScout.com 21
2013
- "
- 2014
2015 "
- $102 is the all time record high
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Myth: Earnings have not mattered this year
www.EarningsScout.com 22
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Myth: Earnings have not mattered
www.EarningsScout.com 23
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Change the way you view the market
www.EarningsScout.com 24
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It’s all about the delta
www.EarningsScout.com 25
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When a don’t buy rating is a good thing
www.EarningsScout.com 26
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Rising interest rates: 10 Yr US Treasury
www.EarningsScout.com 27 In anticipation of a Fed taper, longDterm interest rates rose sharply After no taper rates have came back down.
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Guidance in the 1st half of 2Q 2013 earnings season
www.EarningsScout.com 28
Through the end of July, 3Q13 EPS guidance was negative but not as negative as it was in prior quarters.
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The 2nd half of 2Q 2013 earnings season was not kind
www.EarningsScout.com 29
The pace of downward 3Q 2013 earnings guidance worsened significantly in the 2nd half of 2Q 2013 earnings season.
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It’s all about the delta
www.EarningsScout.com 30
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Summary
www.EarningsScout.com
- It’s more than just all about the Fed
- Focus on rates of change to earnings expectations
- Understand why earnings estimates are changing
- Fed wants to exit QE badly; not sure they will be able to without
derailing the economic recovery
- When will CEOs spend & hire?
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Changing the way you view the market
February 5, 2013 Nick Raich, CFA CEO nick.raich@earningsscout.com
www.EarningsScout.com Twitter: @EarningsScout