We've closed out February and, all told, the month was one of the best in several years, with the Nasdaq Composite Index climbing 6% to flirt with its 5,000 threshold, only to back off from it on Friday. The last time that index was trading at such levels was March 2000. The February move positioned the Nasdaq up 4.8% on a year-to-date basis. Cybersecurity stocks, such as FireEye (FEYE), up 29%, and Splunk (SPLK), up more than 20%, were particularly strong performers during February.
As much attention as the Nasdaq got last week, our preferred market index is the S&P 500, THE benchmark for mutual fund managers. It too had a positive move in February, up about 3.7%, which brought its year-to-date return to a more sedate 2.2% following January's rocky start to 2015. While we too are enjoying the upward move in the market that is lifting our investments, the further it climbs the more our short-term concern grows. Simply put, that concern is how much higher can the market go when it's trading at 17.5x 2015 earnings, which are only slated to grow less than 3%?
To put that in context, the S&P 500 grew its earnings 5.8% and 7.5% in 2013 and 2014, respectively, and closed those years at 17x and 17.5x respective earnings. Going a bit further back, we find earnings growth in 2015 is shaping up to be the slowest since 2008, yet the market is trading above the multiple of 17x earnings that it averaged during the 2001-14 period.
That certainly makes us go, "Hmmmm."
Earlier this week we discussed what "Interplanet" Janet Yellen said, or more to the point didn't say, during her Senate testimony. With that testimony aside, the question is whether the economy will match the Fed's usually more-optimistic-than-usual view on the economy. We've talked about the trends in several economic indicators over the last few months that, in our collective view, should be raising at least some eyebrows, but to us Friday's second print for 4Q 2014 gross domestic product (GDP) has both popping up like Mr. Spock's.
No one was shocked by the downward revision for the December quarter's GDP reading to 2.2% from 2.6%. If you missed it, check out Mike Norman's take on why there is more to that downward revision than meets the eye. While many were focused on that rear-view-mirror picture, we were pondering if that was 2.2%, given the weather, Arctic cold and port closures, what will the current quarter's reading look like? The vector is obviously lower, but with one-third of the quarter to go, how much lower?
Turning to the week ahead, we'll get more pieces to fill in that puzzle. Not only does it kick off the last month of the current quarter, which means the usual start-of-the-month data, but it means before too long companies will once again be hiding behind the "quiet period" ahead of 1Q 2015 earnings. The start-of-the-month data deluge begins early Monday with the monthly PMI readings for around the globe, courtesy of Markit Economics. Investors will be looking to see if recent trends -- firming in the Eurozone, weakness in China -- hold and whether the January uptick in the U.S. was sustained.
Amid the sea of economic data, the other key reports we'll be focused on will be January personal income and spending, to answer whether consumers are indeed spending their gas savings; the Fed's Beige Book for corroboration on Yellen's Senate testimony; and Friday's February employment report.
Given the upward move in minimum wages across several states, we would expect to see some flow through into the Labor Department's findings, but according to Bureau of Labor Statistics data only about 3.6 million workers (roughly 4.7% of all hourly workers) earned the minimum wage or less. With Wal-Mart (WMT) and others boosting wages even further, the question in our collective noggins is how will that higher cost impact hiring, marketing and other capital projects in the coming months? Per recent personal income and spending data, what if consumers continue to be bigger savers than spenders?
On the corporate earnings side, as you can imagine with only five weeks until it begins again, we are finally coming to the edge of the earnings forest. Even so, there are a number of key retailers reporting results in the coming days. Among them are Autozone (AZO), Best Buy (BBY), Kate Spade (KATE), Dick's Sporting Goods (DKS), Abercrombie (ANF), Costco (COST), Foot Locker (FL) and Staples (SPLS). Given Apple's (AAPL) pending event on March 9, it will likely pay to listen to Best Buy's conference call for any and all Apple tidbits.
We've also got Smith & Wesson (SWHC) on deck this week, and while the weather may have slowed sales a tad, we're on the cusp of the spring hunting season -- a seasonally strong period for firearm sales. Shares of heavy- and medium-duty truck component company Accuride (ACW) have been strong, rising more than 45% since October. We'll be checking in to see if there is more upside to be had, given the tone of the North American truck market. Another one to watch is the original DVR box -- TiVo (TIVO). We're not involved, but how the company plans to negotiate its way among time-shifted viewing and Internet viewing is something that has our interest.
Below is a more detailed look at what's coming in the week ahead. Check back midweek for our column, in which we will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all.
|Economic Calendar - Monday, March 2 to Friday, March 6|
|2-Mar||HSBC China Manufacturing PMI||Feb|
|2-Mar||Markit Eurozone Manufacturing PMI||Feb|
|2-Mar||Markit US Manufacturing PMI||Feb|
|2-Mar||HSBC Mexico Manufacturing PMI||Feb|
|2-Mar||JPMorgan Global Manufacturing PMI||Feb|
|2-Mar||PCE Prices - Core||Jan|
|4-Mar||HSBC China Services PMI||Feb|
|4-Mar||Markit Eurozone Composite PMI||Feb|
|4-Mar||Markit US Services PMI||Feb|
|4-Mar||JPMorgan Global Services PMI||Feb|
|4-Mar||JPMorgan Global Composite PMI||Feb|
|4-Mar||MBA Mortgage Index||Weekly|
|4-Mar||ADP Employment Change||Feb|
|4-Mar||Fed's Beige Book||Mar|
|5-Mar||Challenger Job Cuts||Feb|
|5-Mar||Unit Labor Costs -Rev||Q4|
|5-Mar||Natural Gas Inventories||Weekly|
|6-Mar||Nonfarm Private Payrolls||Feb|
|Earnings Calendar - Monday, March 2 to Friday, March 6|
|Monday, March 2|
|FSS||Fed Signal Cp|
|PANW||Palo Alto Netwk|
|Tuesday, March 3|
|DKS||Dicks Sprtg Gds|
|SWHC||Smith & Wesson|
|Wednesday, March 4|
|BOBE||Bob Evans Farms|
|HRB||Block H & R|
|Thursday, March 5|
|BREW||Craft Brew Alln|
|COST||Costco Whole Cp|
|IDSY||Id Systems Inc|
|JOY||Joy Global Inc|
|JSDA.PK||Jones Soda Co.|
|MSO||Martha Stwt Liv|
|USCR||Us Concrete Inc|
|WAVX||Wave Systems Co..|
|Friday, March 6|
|FL||Foot Locker Inc|
|TRCO||Tribune Media C..|