Worries about slowing global growth are at least partly to blame for the wild swings in the markets in the past few months.
But one of the big bullish forces offsetting that has been the American consumer, which alone generates more demand than the entire Chinese economy.
We’re getting confirmation of this theme in the latest round of quarterly earnings reports, where businesses that cater to discretionary consumer spending are blowing away expectations.
In a recent slide deck to clients, Morgan Stanley’s chief US equity strategist Adam Parker shared a chart showing the aggregate differences between actual earnings and estimated earnings across various sectors. So far, he points out, those in the consumer discretionary sector are leading the way in surprising the pros.
“[E]arnings have exceeded expectations by 10.7%, the most of any sector so far this earnings season,” he writes.
By comparison, the earnings of the S&P 500 as a whole exceeded expectations by only about 5.2%.
“We are generally optimistic on the consumer,” he continued. “More people are working, they are working more hours per week, and they are making more money per hour than they were a year ago. Their obligations are down due to low interest rates and a much lower gasoline price. There are limited signs of stress, as credit card and mortgage delinquencies continue to decline.”
In a research note published on Friday, FactSet’s senior earnings analyst John Butters highlighted a few companies that reported actual results above estimates by the widest margins. First on the list, Amazon with +$US0.17 per share compared with -$US0.13, followed by General Motors, Lennar, and Darden Restaurants.
This shouldn’t come as a surprise to those who keep their eyes glued to the US economic data, as the American consumer has frequently been cited as a source of strength over the past few months. In fact, the bulk of the recent months’ personal spending data has been robust, even amid what appears to be a recession in manufacturing.
Tom Porcelli, RBC Capital Markets’ chief US economist, observed that the strength of the US consumer alone more than offset the entire economic fallout from the global slowdown.
Notably, although some were concerned that slumpy Walmart data — and its CEO’s bleak assessment of the US consumer — could suggest that the consumer is starting to sputter, it’s worth pointing out that Walmart may no longer accurately reflect US consumer’s tastes. After all, as consumers continue to gravitate towards online shopping, it’s reasonable to suggest that e-retailer Amazon has dethroned Walmart as the primary indicator of American consumer sentiment.
And, as FactSet’s Butters mentioned in his aforementioned note, Amazon was number one on the list of consumer discretionary companies that reported the largest upside aggregate differences between actual earnings and estimated earnings.
Perhaps the American consumer will continue on strong, smashing expectations. At least in the near future.
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