Two charts caught my eye in my sweep through the papers and the blogosphere this morning. They’re not charts that have any immediate implications, but rather show a longer term picture of slowing growth consistent with much of the data we’ve been privy to over the past 6 months. Commentary from FDX this morning was further evidence of this portrait.
I saw both charts on The Big Picture blog, one of my daily favorites. The first chart shows earnings growth for S&P 500 companies over the past 7 years, courtesy of Reuters and the New York Times:
This would be the first drop since 2009. Interestingly, the stock market is at new highs despite this potential dip, mimicking the price action in the second half of 2007. The real question will be whether the earnings drop accelerates, or the current dip is simply a false alarm (as the stock market seems to be assuming for now).
The second chart shows Durable Goods overlaid against the S&P 500 index:
Soc Gen research presented this chart prior to the FOMC meeting last week, arguing that the FOMC would likely choose QE3 because of the perceived weakness in Durable Goods, and its prior relationship to stock prices. In retrospect, QE3 was in fact announced. Going forward, the question is once again whether QE3 will be sufficient to reverse the fall in Durable Goods and prevent a repeat of the recessions in 2001-02 and 2008-2009.
This mix of push and pull between earnings momentum and macro policymaker intervention has prodded me towards more implied volatility analysis for options trades, rather than pure directional macro bets overall. I’ve been looking at AZO ahead of earnings tomorrow, and will have a post on that later today.