Daily Market Update – October 21, 2015 (8:45 AM)
The earnings are continuing to flow in this morning and there’s still not much reason to pout or to be overjoyed, as far as the broader market goes.
There is a pattern and it is continuing the same one that we’ve seen the past couple of quarters as companies are beating earnings on a per share basis, but still falling short on revenues, due to currency exchange.
Bad winters and currency exchange have been the predominant themes of the past couple of years as this recovery has been moving forward at a glacial pace and even those who remember the 70s and early 80s would welcome some cause for an interest rate increase.
Meanwhile, those positive earnings statistics may be getting ready to complete their run as all of that money for stock buybacks is beginning to run dry. Caterpillar and IBM weren’t alone in buying back their shares at their price peaks, as so many companies have decided that there’s no reason for them to use their money to expand when there’s no foreseeable increase in the businesses.
You really can’t blame a CEO for wanting to go along for that rocket ride higher, especially when their own contract may offer incentives that are closely tied to share performance and simply using all of that spare cash to buyback shares instead of doing something constructive with it.
AS a shareholder, I’d much rather get a dividend increase or even a special dividend, than to see money being spent on something that really has no value and creates nothing of real value, all in the name of share price optics.
So what if that performance may be fueled by using other people’s money and doing so without regard to value?
But sooner or later those quarter to quarter comparisons aren’t going to be looking so good, unless there’s a real increase in revenue.
After a long period of driving earnings per share by cost reductions and share buybacks, there’s not much left, other than actual performance.
While there are lots of earnings still to be reported this week, the market seems to be basically yawning. The real actions is in take over stories and the rest of the market is simply waiting for next week’s FOMC meeting.
The really important earnings may be those from the retail sector, but they won’t come until after the FOMC decides what to do about interest rates.
It’s looking more and more that the pleas from The IMF and the ECB for our Federal Reserve to delay a rate hike until 2016 may become the case, as there doesn’t appear to be too much suggesting that things are heating up more than can be handled.
As I mentioned yesterday, I think that the days before next week’s FOMC meeting may again be greeted by enthusiastic buying as traders acknowledge the continuing gift of low interest rates.
Of course, if that’s going to be the case, we might as well expect that when interest rates do finally look as if they’re going to be increased, traders will do what they did before and go into some sort of a panic, even though the new interest rates will still be among the lowest we’ve ever seen.
As long as you don’t apply logic to anything, it all makes lots of sense.