I’ll guarantee something today, one I make every quarter. That about 70-75% of companies reporting earnings will beat the earnings per share consensus estimate. We’ll still likely see y/o/y declines for Q4 and muted guidance but that is how the earnings game is played, each and every quarter. With respect to market valuations ahead of earnings, we know we all usually revert to looking at the P/E ratio but I’ve included a chart below of the P/S ratio with S being sales for the S&P 500. As you can see we are just above the March 2000 level at 2.33 vs 2.27 then, thus still very expensive notwithstanding the pullback off the highs.
How about EV/EBITDA, to take into account debt and cash flow, at 13.2x, we’re at the same level as Q3 2000 with the spike in the chart being covid related.
P/S Ratio for S&P 500
EV/EBITDA
Jamie Dimon said this in today’s quarterly press release on the economy: “The US economy remains strong with consumers still spending excess cash and businesses healthy. However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.”
This won’t be cited by the bank execs today since they benefit from it but Bankrate a few days ago released a consumer survey on the use of credit cards and it reflects a more stressed consumer. “When looking at cardholders in particular, 54% report that they pay their credit card bills fully each month in order to avoid paying interest, while the other 46% carry a balance from month to month (up from 39% last year). What’s quite expensive and confounding for those that have this balance, “as credit card interest rates have risen at the fastest rate on record, and the average APR has hit a near record high (19.59%), 43% of credit card debtors don’t know the interest rates on all of the cards on which they carry a balance.” //www.bankrate.com/finance/credit-cards/more-americans-carrying-debt-and-many-dont-know-apr/#young
Cass Freight yesterday reported its December shipments data and its index fell 3.9% y/o/y and by 3.3% m/o/m but that’s non-seasonally adjusted. Adding that change saw a 1.2% m/o/m gain. Cass Freight said “With retail sales broadly growing in line with inflation rates, it’s clear that peak holiday shipping volumes were flattish in real terms vs a year ago. Normal seasonality from here would have shipments back in positive territory y/o/y in 1H ’23, but sharpening declines in imports, into the West Coast in particular, suggest near term trends may soften further.”
The inferred freight rate in December saw a .4% y/o/y drop and by 2.2% m/o/m. “Aside from some noise in this series as a result of fuel prices and modal mix, the trend has clearly turned lower over the course of 2022 and is poised to continue in this direction in the near term.” There is nothing market moving here but all reflective of the moderating activity.
The Bank of Korea raised rates by 25 bps to 3.50% as expected but the internal vote was very mixed with two of six wanting to do nothing implying this could be one of the last hikes for now. That said, Governor Rhee said “I don’t think it’s right to interpret from this decision that the rate will be frozen.” The Korean Won is up again by .4%. I say again because its been on a tear vs the US dollar since the October lows where the US dollar topped out against all currencies. We like EM sovereign local currency bonds as the way to play the dollar weakness.
Speaking of FX, the yen is rallying again ahead of next week’s BoJ meeting where they are again losing control of their yield curve.
Korean Won (the lower it goes, the higher its value vs the US dollar)
China reported its December trade data but it’s impossible to parse out the influence of massive covid spread and how it clogged everything up. Exports fell 10%, a touch less than the estimate of down 11%. Imports were lower by 7.5% vs the forecast of down 10%. Let’s say that in March hopefully most of the country will have herd immunity and things will begin to normalize, a major boon to them and everyone that does business with them. The China H share index in Hong Kong is now up 10% year to date after the overnight 1.1% rally.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.