My oh my, how time flies! Friday will be April 1, otherwise known as “April Fools’ Day.” It’s a day for playing practical jokes and spreading hoaxes. The jokes and their targets are called “April fools.” Pranksters embarrass their victims by shouting “April fool!” The day has been popular since the 19th century. It isn’t a public holiday in any country, but maybe it should be given the proliferation of fools and foolishness around the world, particularly in political and monetary policy circles. Geoffrey Chaucer’s The Canterbury Tales (1392) contains the first recorded association between April 1 and foolishness.
What will April bring this year? Consider the following:
(1) Fed’s fools.
The new month starts with the US employment report and M-PMI for March. Debbie and I aren’t expecting any hoaxes. Both are likely to be relatively strong, contradicting the imminent-recession hoax that some pranksters were passing around earlier this year. The month’s real foolishness is likely to be postponed until the FOMC’s next meeting on April 26-27.
One member of this committee has already made some foolish comments. FRB-SL President James Bullard, who a few weeks ago warned that the next rate hike should be postponed for a while, has recently been saying that a rate hike might be appropriate at the next meeting after all. On Wednesday, Fed Chair Janet Yellen in effect said that would be foolish. Then again, she might look foolish if the economic news is strong and inflation continues to rise.
(2) Quarterly foolishness.
Industry analysts have a foolish tendency to lower their earnings expectations for the next quarter’s earnings season during the latest quarterly earnings season. For example, in advance of the Q1-2016 earnings season, which starts next week, they cut their consensus estimates by 9.0% since the start of January, when the previous earnings season started. The consensus expected growth rate for the quarter just ended has plunged from 2.3% y/y at the start of the year to -6.9% currently. There were similar downward revisions in the estimates for the S&P 400 and S&P 600.
I asked Joe to calculate the expected earnings growth rates for the S&P 500 sectors. He reports that the latest forecasted Q1-2016 growth rates vs. their Q4-2015 growth rates are as follows: Consumer Discretionary (13.1%, 12.8%), Telecom (5.5, 21.6), Health Care (4.6, 8.4), Utilities (-2.1, -7.3), Consumer Staples (-2.6, 0.0), Industrials (-4.4, -1.6), Tech (-5.2, 2.5), S&P 500 (-6.9, -2.9), Financials (-7.2, 2.5), Materials (-19.1, -18.3), and Energy (-98.9, -73.9).
Foolish investors might conclude that these are mostly bearish numbers for the stock market. The same was said about the previous quarter’s numbers reported during January. Yet the S&P 500 has rebounded smartly since February 11 back above last year’s close, with the following ytd performance ranking for the 10 sectors, of which just two are trailing the S&P 500: Telecommunication Services (15.3%), Utilities (13.9), Consumer Staples (5.2), Industrials (4.7), Materials (3.9), Energy (3.3), Information Technology (2.3), Consumer Discretionary (1.3), S&P 500 (1.0), Financials (-5.4), and Health Care (-5.7).
Odds are that there will be yet another upward hook in actual earnings for Q1-2016, as there has been almost every quarter since the start of the current bull market.
Once again, we will see that industry analysts foolishly followed the guidance provided by company managements to make their reported results better than expected. Some analysts may take the hook, hoping that company managements will reward the firms of cooperative analysts with investment banking deals. Never mind: That’s a foolish notion.
Dr. Ed Yardeni
is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.
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