Daily Market Update – November 13, 2014 (8:30 AM)
The news coming in from retail is mixed, as far as investors are concerned.
They always look at the top line and the bottom line.
The top line represents revenues and the bottom line represents profits. Then they add into the mix forward guidance, which is far from an exact science, just as imaginative accounting removes the simple arithmetic behind profit and loss sheets from the realm of being an exact science.
The mixed news is that the trend is that the bottom lines are increased, but the top lines aren’t always so, although Wal-Mart reported this morning higher on both.
The consequence to that is that the bottom line represents sales and expenses, while the top line represents sales. One can be reflective of a company’s efficiencies, while the other can be much more reflective of what is going on int he economy, in addition to the particular popularity of a company at a moment in time.
So while seeing a general trend of increasing profits investors may be happy, especially if also guiding higher, but that may overlook the bigger picture.
On the other hand, if the revenue trend is flat or lower among a group of retailers, there has to be some concern that the consumer isn’t really participating, especially as employment statistics are suggesting that more and more people are at work and increasingly capable of spending their money.
Nothing propels an economy and creates confidence like consumer spending.
While we all love the very low interest rate environment that we have been in for so long, the one thing that we don’t think about too much is that the low interest rates are very much a by-product of the inability to consume. The pressure to drive prices higher by everyone seeking to satisfy personal demand for goods just isn’t there.
Somewhere is q happy medium that allows for some reasonable increase in interest rates as discretionary spending and business expansion is growing.
For the past few years and in particular the past year, there has been lots of concern about the Federal Reserve raising rates and the very idea of them going higher has placed a ceiling on the market’s climb higher, despite all of the advances that have been made.
Barely a year ago, the market was concerned at 10 year rates were approaching 3%. Then it got concerned at rates were beginning to climb to 2.5%. Just a few weeks ago the rate fell to 1.9% and had then taken a very strong bounce higher to its current 2.35%, having reached its bottom and begun its rise concurrent with the stock market in mid-October.
However, unless increasing employment will lead to increasing consumer demand for things big and small and not just European trips to take advantage of the strong dollar, there isn’t going to be anything to really drive those top lines and there is only so much that can be done by companies to increase their profits without those top line increases.
But those are all issues for another day, or at least until Target reports its earnings next week.
For now, it’s all about how to end up the week with some assignments, rollovers and call sales in preparation for the final week of the November cycle.
This morning looks like it will begin as yet another quiet day in a week that was expected to be that way.
Who know, maybe something will create a spark, hopefully higher, but for now there’s nothing really in sight as the clock ticks to tomorrow’s clsoe.