Best S&P 500 sales since 2012 show economy spurs bull market

Rising consumer demand is fueling economic growth

Feb 18, 2014 @ 5:06 pm

+ Zoom

Standard & Poor’s 500 Index companies are exceeding analyst sales forecasts by the most since 2012, a sign rising consumer demand is fueling economic growth as the bull market approaches its sixth year.

Led by banks, utilities and drugmakers, sales beat analyst predictions by 1.2% this earnings season, the highest margin in almost two years, according to data compiled by Bloomberg. The performance came as economists raised their estimate for GDP expansion to 2.9% in 2014, up from 2.6% at the start of the year, even after snowstorms helped lead to lower-than-projected data on retail sales and payrolls.

The combination will lift earnings enough to fuel more gains for the S&P 500 as manufacturing improves and employment recovers, according to Jonathan Golub, the chief U.S. market strategist at RBC Capital Markets LLC. He sees the S&P 500 climbing 13% from last week’s close to 2,075 this year. Companies from Regeneron Pharmaceuticals Inc. to Nvidia Corp. surpassed revenue forecasts in the fourth quarter by twice the rate as the previous period on stronger-than-estimated demand for everything from drugs to computer chips.

“We’re starting to see revenue growth in a lot of companies as we sift through all the rubble,” Dan Veru, chief investment officer who helps oversee $5 billion at Palisade Capital Management LLC, said by phone. “The best news in that is that those sales expectations are low. And when expectations are low companies have a tendency to beat those expectations.”

The S&P 500 advanced 2.3% last week as comments by Federal Reserve Chair Janet Yellen fueled optimism the economy can weather further stimulus cuts and Congress voted to increase the nation’s debt ceiling. While the increase in payrolls trailed economists’ estimates in the first two reports of the year and retail sales excluding automobiles and gasoline unexpectedly decreased in January, the U.S. has added jobs for 40 straight months and that measure of sales has increased in every month but two since the middle of 2012.

Revenue growth is more important than at any time since the bull market began as profit margins at American companies climbed to all-time highs above 9%, limiting the potential earnings boost available from cost cuts. McDonald’s Corp., the world’s biggest restaurant owner, and Nike Inc., the largest sporting goods company, signaled margin gains will be harder to come by this year.

(Bloomberg News)

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

How NextGen talent is impacting financial services

Nextgen talent brings a diverse perspective and unique skills to the industry. Find out why two Utah Valley University students are so excited to make a difference.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

CFPs, including brokers, may have to adhere to a stricter fiduciary duty

CFP Board revises its standards and aims to beef up fiduciary requirements of certificants.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print