More Lukewarm Econ Data to Match Q1 Earnings

Today’s March Personal Income & Spending report reconfirms what we saw from the sub-par Q1 GDP report on Thursday, with the US economy barely staying in positive territory. Consumer spending in Q1 was up +1.9%, which was below the growth pace of the preceding quarter, with weakness in household spending on durable goods accounting for most of the deceleration. This morning’s spending growth number for March came in weaker than expected, partly offset by a positive revision to February’s growth pace.

The net effect of today’s spending report on the subsequent GDP revision will likely be a washout, with the March disappointment dragging it down and the February revision pushing it higher. The positive part of today’s report came on the income side, which turned out to be better than expected.

Check out Q1 GDP Advance Estimate at 0.5%, Worse Than Mainstream Forecasts

On the earnings front, the focus remains on the blow-out results from Amazon (AMZN) after the close on Thursday, which came out with record earnings for the otherwise non-earnings-centric retailer. The Amazon strength came as a result of impressive momentum in its cloud business and continued gains in the retail operations. Amazon has its hands in both the Technology and Retail sectors, even though at its core it is primarily a retailer.

This hasn’t been a good earnings season for the Tech sector, with a number of sector bellwethers coming up short of expectations. This is clear from the aggregate Q1 earnings scorecard for the sector, which is tracking below other recent periods. Total Q1 earnings for the 85.1% of the Tech sector’s market cap in the S&P 500 index that has reported results are down -5.3% from the same period last year on +1% higher revenues.

Also in focus today is the Energy sector, with Exxon (XOM) and Chevron (CVX) coming out with mixed results and benchmark oil prices continuing their recent uptrend. Exxon’s earnings beat estimates on the back of strength in their petrochemicals operations, with the core upstream business struggling. Chevron, on the other hand, missed estimates, with the company reporting a bigger than expected loss for the period.

Including all of this morning’s reports, we now have Q1 results from 309 S&P 500 members that combined account for 71.8% of the index’s total market capitalization. Total earnings for these 207 index members are down -5.6% on -1.7% lower revenues, with 72.4% beating EPS estimates and 56.8% coming ahead of top-line estimates.

See also Q1 Complete, What's Next?

As we have been stating from the get-go this reporting season, the growth pace has been notably tracking below other recent periods, but positive surprises have been more numerous. The most plausible explanation for the bigger proportion of positive surprises is the low levels to which estimates had fallen ahead of the start of this earnings season. The recent pullback in the U.S. dollar’s exchange value has helped Q1 results on the margin as well.

For Q1 as a whole, combining the actual results that have come out already with estimates for the still-to-come reports, total earnings are on track to be down -7.3% from the same period last year on -1% lower revenues, the 4th quarter in a row of earnings declines for the index.

Earnings declines are expected to continue in the current period (2016 Q2) as well, with estimates for the period still coming down. Total earnings for the S&P 500 index is currently expected to be down -5.5% from the same period last year on -0.9% lower revenues. On the positive side, the pace and magnitude of negative revisions for Q2 remain below what we saw in the comparable period last earning season.

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