Market Update – June 26, 2012
Some of the numbers and ideas that I read on Monday…
Q2 earnings growth. S&P 500 Q2 earnings growth is expected to drop .6%. This would be the worst growth since 2009 Q3.
Downward guidance. 73 members of the S&P 500 issued lower guidance for Q2 (compared to 67 in Q1). (Negative pre-announcements from P&G and FedEx increase fears of slower global growth.) Meanwhile, 29 companies raised their guidance (down from 44 in Q1).
Microsoft vs. Apple. Three years ago, Microsoft’s sales were 60% higher than Apple’s sales and operating income was 160% greater. By Q1 of this year, Apple’s revenues are now 125% greater than Microsoft’s and operating income is 140% higher.
Why do you expect the recovery to strengthen? Consumer spending is 70% of GDP. Consumers continue to delever. It will be difficult to export to weak economies. Business investment relies on stronger consumer demand. Governments are struggling.
The European model has failed. The euro nations assumed that the euro would succeed. But the low interest rates caused housing and consumption booms. Now slow growth is not sufficient to support their entitlement programs.
Operation Twist. The $267 billion extension would maintain the approximately $44.5 billion monthly rate of purchases of longer-term securities in effect since Operation Twist started last September. One economist estimated that this would reduce the yields on longer-term Treasuries by only 5 to 8 basis points.
Mortgage rates. The average rate on a 30-year fixed rate loan is 3.71% according to Freddie Mac. But, CoreLogic says that 20.5 million of 39 million creditworthy “prime” borrowers are paying rates higher than 5%, while just 5.7 million households have rates less than 4%.
More Moody behavior. Moody’s lowered its long-term ratings on 28 Spanish banks by one to four notches. There is fear over exposure to commercial real estate. Earlier this month, Moody’s lowered Spain’s sovereign debt rating to Baa3 – almost junk status.
Rising CDS premiums. The cost of insuring $10 million of German debt against default for five years has risen from $75K / year (in March) to $101K this year. By contrast, it costs $70K / year to insure U.K. debt and $50K / year for U.S. debt.
Law graduates. Nine months after graduation, only 55% of the class of 2011 had full-time long-term jobs that required a law degree. (As a former lawyer, I’m not sure if I feel worse for those who don’t have a job or those who do.)
As we wait until Thursday…a recent Pew Research Center poll found that only 52% of Americans have a favorable opinion of the Supreme Court. This is the lowest rating since the poll started in 1987. Some commentators are already discussing the possibility of a 5-4 opinion that some people will view as simply a partisan view of the law.
Isn’t everyone getting a 12% raise? The FT reports that 15 top US and European bankers received an average 11.9% pay raise to $12.8 million. Jamie Dimon topped the list with a $23.1 million pay package (an 11% increase).
Have a great week.
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