Chris Versace is CIO of Tematica Research. This article is from the firm’s Sept. 26 Monday Morning Kickoff newsletter.
With just a handful of days left in the September and 3Q 2016, we’ll be on the look-out for any and all negative earnings pre-announcement, and what they may mean for any of our holdings. While we may be a tad early, we’d note that current earnings expectations call for S&P 500 earnings to rebound in 2017 and grow more than 13 percent year over year to $133.60 per share. As we march through upcoming September quarter earnings, we expect that forecast will come under heavy scrutiny as investors start to turn their attention past the fourth quarter and toward what’s likely to come in 2017. In other words, given the weakening speed of the global economy, odds are earnings expectations for the S&P 500 in 2017 are likely to be a repeat of what we saw in 2017 — a steady move lower. Barring any significant changes in economic policy — we do have a presidential election this year and more on that below — this is apt to keep market returns capped, especially if one is inclined to follow a sector-based investing strategy.
We here at Tematica, see the world in a different light and that has allowed us to stay a few steps ahead of the Wall Street herd. That’s a position we like, and therefore we will continue to follow our thematic investing strategy that identifies pronounced tailwinds with businesses positioned to drive meaningful revenue and earnings growth. As Larry Kudlow says, profits are the mother’s milk for stocks. We could not agree more.
Turning our gaze to these last few days of September, one might think it’s going to be a quiet one, but as you can see in the thematic earnings calendar below it’s probably a little busier than most expect with 8 of our investing themes getting some love. As the investment community looks to get a grasp of consumer demand springing out of our Rise & Fall of the Middle Class investing theme, both here at home and abroad, Nike (NKE)’s quarterly results as well as those from Costco Wholesale (COST) will be a center of focus. So too, will recreation vehicle company Thor Industries (THO) and Carnival Corp. (CCL).
Food deflation has been called out recently by Sprouts Farmers Market (SFM) and Kroger (KR) fingered eggs as a big winner in that department. While good for consumers, it maybe not be for the egg business at Cal-Maine Foods (CARE). We’ll also check in on the subject of food deflation with Costco, ConAgra Foods (CAG) and McCormick & Co. (MKC), a great dividend dynamo company if there ever was one. Those three should also help us better understand the degree to which Cash-strapped Consumers are once again favoring eat at home at the expense of restaurants. Commentary from Hain Celestial Foods (HAIN) should serve to confirm the continued shift to natural, organic and other healthy foods that is a part of our Food with Integrity investing theme.
On the economic docket, we’ve got a few more pieces of August data including Durable Orders and Personal Income & Spending as well as the third estimate of 2Q 2016 GDP. Given the August Industrial Production reading as well as last week’s Flash US September Manufacturing PMI from Market Economics that showed another step down in manufacturing order activity, odds are the pending Personal Income & Spending report will carry greater weight as investors get a bead on the mindset of the consumer ahead of year-end holiday shopping.
Before any of that comes our way, later tonight we have the first of three Presidential Debate for the 2016 election. We’ll see how much policy and leadership is discussed vs. caustic barbs thrown during the 90 minute challenge, with the market likely to signal its view come Tuesday. Regardless of your political leanings, there is little question the two candidates have their own views on taxes, spending and other policies and that means we’ll be breaking them down to gauge the impact come Election Day 2016.
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