Blame it on the weather. When it comes down to it, it seems the weather determines so much of what happens in our lives, from how we feel to where we go. The weather has such a significant impact on everything. Stocks too. You’ll see.

It isn’t only spring which is upon us, no, it is earnings season too, and so far results have been than expected. The sample size is small with just 30 of the S&P 500 companies reporting, but the data looks strong to this point. According to the latest data from S&P Dow Jones Indexes, 83% of companies have beaten results, while 17% have missed, with 0% meeting.

(Data From S&P Dow Jones)

It would be shocking if the trend continued at this pace, but it does point to the narrative we have spoken about before, expectations may have fallen too far.  Currently, S&P Dow Jones Indexes suggests that operating earnings rise 41 basis points to $36.69 in the first quarter. Those estimates would continue to suggest that earnings growth reached a low last quarter.

(Data From S&P Dow Jones)

Earnings estimates for the full year continue to decline although modestly, to $164.99 per share in 2019 and $185.78 per share in 2020. It would indicate overall growth of about 9% in 2019 and 12.6% growth in 2020.

(Data From S&P Dow Jones)

It leaves the S&P 500 trading at 15.65 times 2020 earnings estimates still well below the historical average of around 17 to 18 times since 1988.

The Weather

Interestingly, Factset revealed that 13 companies had cited FX as a negative headwind in the first quarter, which was up from 12 at the same point in the fourth quarter. Meanwhile, wage and labor cost have had a negative drag on results too, with 10 companies commenting up from 6 at the same time last quarter. But the biggest jump was weather related which increased to 9 companies from 0 companies in the fourth quarter.

The weather! You mean it wasn’t the trade wars that have been the big problem or the Fed? The weather! No companies have commented on the Fed so far as the problem, while only 6 have commented on the trade wars, down from 8 last quarter.

Who would have imagined that the icy cold/snowy/rainy weather would have kept people from carrying out business activity?

We will continue to monitor the trend.

(Factset)

The Dollar

The dollar comments may only grow worse though as the quarter continues because the dollar index is up materially since the first quarter of 2018. On February 15, 2018, the dollar index was at roughly 87, on the same day in 2019 it was around 97, an increase of almost 9%.

Improving Weather, Improving Economy.

The good news is that spring is here and at the same time, there are signs the global economy is in recovery mode. This week we found that China exports increased by 14.2% versus last year, and came in ahead of estimates for 7.3%. Meanwhile, Eurozone industrial production fell just to 0.3% versus forecasts for a decline of 1%.

Additionally, the Atlanta Fed GDPNow is forecasting 1Q GDP growth of 2.3%, which is up from estimates of 2.1% last week, and up from around 0.5% in early March. Meanwhile, the NY Fed’s Nowcast is projecting growth of 1.4%. If Atlanta’s Fed GDP forecast proves to be correct it would be higher than the first quarter of 2018 reading of 2.2%.

source: tradingeconomics.com

Wait a Minute?

Then we when looking back over the past couple of years, the second quarter has been by far the best quarter of the year. Maybe, just maybe, we can blame everything on the weather. After all, since 2014,  the first quarter of 2015 was the only good first quarter.

source: tradingeconomics.com

So perhaps the world isn’t coming to an end, and maybe the stock market woes of December and January were not due to the tariffs or the Fed, but the crummy weather. Just blame it on the weather.

It sounds naïve, I know. But sometimes it really is that obvious.

-Mike
Photo From Flickr

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