Newsflash: the holidays are over; it's time to get back to the daily grind. That means re-familiarizing yourself with a couple key events from last week.
The latest global PMIs decelerated month-over-month and most missed consensus forecasts. How this will play out in the December jobs data this week I am not too sure. Initial jobless claims have been markedly subdued, and corporate earnings warnings on the fourth quarter virtually non-existent. But I think in light of the mediocre PMIs, investors will be looking at the month-on-month change in jobs for the manufacturing and housing sectors with a very critical eye.
Disappointments in these two sectors could boost the opinion that the halving of oil prices in 2014, and a U.S. dollar at its highest level since September 2003, stand to harm earnings outlooks for many industries. In turn, that may feed into subdued first quarter expectations by exposed companies when the reporting seasons kicks into gear later this month.
Obviously, that will test a new element to the investing process: with the Fed pulling back its liquidity support to markets, theoretically corporate fundamentals will be placed in higher regard than in 2014. Warnings of any kind could have profound impacts on a company's valuation, lasting longer than the re-valuation on earnings day and following few sessions.
Dare I say we are poised to return to normal investing, where the market truly deciphers between good and bad companies? Dust off that hard copy of "The Intelligent Investor"...
Assorted Relevant Stats
The first few days of the New Year often bring with them a host of interesting stats from the year just completed. Two have caught my attention. The first: venture capitalists (known as "VCs") and other large-pocketed investors assigned $1 billion or higher valuations on 40 startups worldwide in 2014. Wow, I am in the wrong field! My kid will be taught coding on the Apple Ring (AAPL) as soon as he/she turns one year old.
I think the valuation trend on companies with outright losses, minimal profits, or zero durable long-term competitive advantages must be watched closely for a bubble burst in early 2015. The problem is that I am not in tune with how to precisely suggest a blow-off top in startup valuations is near, one that goes on to harm valuations on the more established Nasdaq names that trade in non-shady public markets. Should Twitter's (TWTR) bottom line be an abject failure in the front portion of the year that, perhaps, will be a point where VCs and the like begin to question their valuation formulas on startups, and the amount of money they are pouring into companies with sexy pitches. Or, it could be a Facebook (FB) or Alibaba (BABA) announcing some insanely overpriced acquisition that plainly demonstrates a looming bubble explosion.
Another stat I stumbled upon is that the average daily price for gas has fallen for 95 days in a row. My bud and ABC News anchor Rebecca Jarvis tweeted a photo yesterday of $0.85 a gallon gas at a Midwest Kroger store. This has to be boosting the store's traffic; it could also be boosting Costco's (COST) traffic as it operates gas stations and earns more profits when gas prices are on the decline. I do believe consumer spending is destined to surprise favorably for most of 2015, due to savings from lower fuel bills and increased income expectations.
If Dollar Tree (DLTR), Family Dollar (FDO) or Dollar General (DG) weren't embroiled in a takeover tug-o-war I would say any one of them could be worthwhile plays. But, for now, I remain okay with the Clorox (CLX) I recommended weeks ago after interviewing new CEO Benno Dorer for TheStreet. The basic thesis:
- Consumers trading up to new, pricier products by Clorox found in the aisles at Wal-Mart (WMT) and Target (TGT).
- Company is entering the dollar store channel with its credible name.
- Costs to produce and deliver the product should be tailwinds to earnings (though resin prices will take a bit longer to decline, it's a stubborn market).
Not opposed to taking a little long exposure to the market off the table here. The deep-pocketed investors return in force this week, and I am interested to see how they react to building signs of a sharp slowdown in international growth.
Also, be on the lookout for earnings pre-announcements given the quarter has ended and people are back in the office.