The Rate Of Falling Earnings Estimates Is Slowing

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In his Daily Market Notes report to investors, Louis Navellier wrote:

More Good Bad News

More bad news is good news this morning: Durable Goods came in soft, bond yields are down, and stocks are up.

After the worst week of the year, the headline Durable Goods Orders for January, projected to be down 4%, the weakest forecast since the pandemic began, came in -4.5%. Inside that number, however, the Core Durable Goods Orders which exclude transportation orders came in +0.7%, above the +0.1% forecast, and Non-Defense Orders were +0.8%.

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It is important to note that the Dec'22 headline Durable Goods Orders were up 5.6%. For the trailing 3 months the cumulative number was -0.1%, and the Core number is +0.8%. Clearly, orders are not falling off a cliff.

The bond market has shaved off a handful of basis points in yield on the weakness in the headline number, and that's all stocks needed to break the strong downtrend they had been in. For February, technology and banks have been flat while retail is down 5% and energy is down 6%.

Gold has had a minor bounce, crude oil is modestly down, natural gas is up 5% erasing the February lows, and the US dollar index is down half a percent to back below 105.

Falling Estimates Slowing

Earnings season may be winding down but today there are dozens of smaller companies reporting, most with no Street estimates. The notable names reporting after the close include Occidental (NYSE:OXY), Universal Health Services (NYSE:UHS), Workday (NASDAQ:WDAY) and Zoom Video (NASDAQ:ZM).

Pending home sales for January came in at a surprising +8.1%, albeit -24.1% y-o-y, but it's not expected to last given 30-year mortgage rates are back up to 6.88%.

While the estimates for the 2023 S&P earnings continue to fall, from $229 on January 1st, to $222 today, the rate of decrease is slowing. Today, the forward P/E is now 17.8X compared to the historic average of 17X. Stocks hit their highs in the first half hour of the trading day and after the first hour moved back to the opening level.

The S&P is trying to hang on to 4,000, the NASDAQ to 11,500. Tesla is helping, up 4.6% as their investor day is this week and hopes are that Elon Musk will have a strong story to tell about sales and margins going forward.


Sell the Rip

The big unknown remains whether earnings and P/E multiples can grow while interest rates continue to rise. Will investors find 5% CD rates more attractive than a volatile stock market that seems to be going sideways?

It's become a sell the rip market this month, putting a cloud over Index investing. Stock picking looks to be the better strategy until the Fed actually pauses.

Coffee Beans:

The payments to Ukraine have already exceeded the annual military expenditure of the U.S. in the war in Afghanistan from 2001 to 2010. The U.S. military costs in the Vietnam War, the Iraq War and the Korean War were significantly higher. Source: Statista. See the full story here.