A Reduction In Risk Means A Reduction In Growth

A Reduction In Risk Means A Reduction In Growth

$DIA, $SPY, $QQQ, $USO, $CAT, $GE, $MSFT, $AMZN, $GOOGL

US companies are not optimistic that next year will see them get a break from the tough economic and market conditions faced in Y 2015. And that may hurt capital investment and jobs growth.

In the 1st 3 weeks of October, 165 American companies  cited the slowing global economy in their outlooks for earnings and revenue. That is up from 108 in the same frame last year, and 97 in the year-earlier Quarter.

Among the “growth” phrases that have appeared in many of those statements are “challenging macroeconomic environment,” or “global headwinds.”

Earnings and revenue have been depressed this year mostly because of the strong USD, economic weakness in China and Brazil, and depressed Crude Oil and commodities prices.

The rise in the value of the USD means that profits earned in foreign currencies are worth less once translated into dollars and it can make American exports less competitive.

The weakness in major EM’s (emerging markets) has hit sales by American multinationals and the dive in the prices of energy, metals and minerals had not only hit Crude Oil producers and miners but the manufacturing and service companies who sell to them.

The problems are clearly not across the board, as shown by better-than-expected results reported last Thursday by technology heavyweights Amazon.com (NASDAQ:AMZN), Google’s Alphabet Inc.(NASDAQ:GOOGL), and Microsoft Corp (NASDAQ:MSFT). They are all benefiting from the expansion of cloud-based computing.

But among the major companies to announce job cuts in recent weeks are industrial conglomerates United Technologies Corp. (NYSE:UTX), and General Electric Co.(NYSE:GE), technology giant Hewlett-Packard Co., and the world’s largest Oilfield-services provider Schlumberger (NYSE:SLB).

Even social media company Twitter Inc.,(NYSE:TWTR) and biotechnology group Biogen Inc. have said they are cutting jobs.

Large employers announced 205,759 US job cuts in Q-3, the largest amount since Q-3 of Y 2009, according to a report.

Caterpillar Inc, (NYSE:CAT) told analysts that it expects its capital spending to be “less than half of what it was in 2012,” while appliance maker Whirlpool Corp. lowered its capital spending for Y 2015 to between $700 – 750-M down from a prior forecast of $750 – 800%.

Those moves are coming at a time when overall corporate earnings in Q-3 are on pace to fall by 2.8% from this time last year. So far 59% of companies have reported revenues that have fallen below analyst estimates.

And expectations for Y 2016 are also falling.

In July analysts were predicting that corporate earnings per share in the 1st 2 Q’s would grow 9.2% and 13.7%, respectively; those figures now are down to 4.8% for Q-1, and 5% for Q-2.

The companies own growth forecasts are falling short of expectations at the greatest pace since June 2014, according to a BofA Merrill Lynch Global Research report.

Companies have a reason to be worried. This is not a major economic slowdown, but it is meaningful, and once we see a reduction in risk taking we will see a reduction in growth.

Tuesday, the US major market indexes finished at: DJIA -41.62 at 17581.10, NAS 100 -4.56 at 5030.14, S&P 500 -5.29at 2065.87

Volume: Trade Tuesday was above recent averages as 1-B+/shares changed hands on the NYSE.

• NAS 100 +6.2% YTD
• S&P 500 +0.3% YTD
• DJIS -1.4% YTD
• Russell 2000 -4.8% YTD

Stay tuned…

HeffX-LTN

Paul Ebeling

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