We are hip deep in corporate earnings this week, with hundreds of companies issuing quarterly results. Even though we are halfway through, we still have hundreds of reports to go, given corporate enthusiasm for publishing results on Thursdays. Heading into the week, FactSet tabulated a 72% bottom-line and 73% top-line beat for those companies that already reported results.
It will be interesting to see the end-of-the-week tally because so far this week there have been some notable beats and notable misses. Notable misses include McDonald's (MCD), Xilinx (XLNX), Microsoft (MSFT) and Kimberly-Clark (KMB), while notable beats were had by Chipotle (CMG), Boeing (BA), Lockheed-Martin (LMT) and Polaris Industries (PII).
As we the earnings spigot opens further, it is reports like the one from Harley-Davidson (HOG) that have us concerned. The motorcycle company reported better-than expected June quarter earnings, but it was the outlook that hit the shares. The company cut its full-year forecast for motorcycle shipments yesterday, citing weaker-than-expected U.S. retail sales and product delays.
Our concern with this particular earnings season has all been all about the back half of the year, specifically its outlook. Several weeks back, we talked about Wall Street expectations for second half vs. first half earnings growth for 2014, as well as year-over-year expectations in 2H 2014 for both S&P 500 earnings per share and GDP. The quick reminder is that year-over-year comparisons in the back half are more challenging than many remember. Recent misses on housing starts and retails sales have already prompted economists to cut 2Q 2014 GDP expectations and that has given rise to two would-be elephants in the room.
The first is whether 2Q 2014 GDP will more than offset the -2.9% GDP reading for 1Q 2014. Recent reports suggest the first half of the year closed in the red. The second is what the trimmed 2Q 2014 expectations mean for the back half of 2014 GDP forecasts.
Let's take a quick look at some corroborating indicators to get a different perspective, if not a better read on the situation. Over the last few months, U.S. intermodal volume has been strong and through the week ended July 12 those car loadings were up 6% on a year-to-date basis. Intermodal is not alone, as U.S. freight carload traffic also rose 4.8% for the week ended July 12. That's well above the year-to-date average of 3.4% as of July 12. Comparing year-to-date figures at various points during the year lets us know if the traffic, and subsequently the economy, are picking up speed or not. In this case, it is. The year-to-date 3.5% increase in freight carload traffic for the first 28 weeks of 2014 compares to 2.2% for the first 24 weeks of the year. Some simple math tells us the economy has indeed picked up over the last several weeks.
Another metric is truck tonnage. Over the last few months, the data pointed to a pronounced pick up in the economy, with the May tonnage index reading up 3.3% year over year. Even though the June truck tonnage reading declined 0.8% month over month, the year-over-year comparison still showed an impressive 2.3% improvement. Through the first half of the year compared with the same period in 2013, the truck tonnage index is up 2.8%.
From a vector perspective, these two indicators suggest the economy is on track to expand in the third quarter. Tomorrow, we'll get several flash PMI readings, including one for the U.S. The indicators to watch will be the new order, backlog and input price components (new orders and backlogs to confirm continued growth and pricing to keep a bead on inflation prospects).
Company forecast to watch before the end of the week include construction equipment heavy Caterpillar (CAT), 3M (MMM), Terex (TEX) and Union Pacific (UNP). On the truck side of things, earnings from truck dealer Rush Enterprises (RUSHA) trounced expectations as its second-quarter Class 8 retail sales increased by 74% over the same time period in 2013.
Continued weakness in retail sales and housing raises the flag on consumer spending. Already we are seeing sales and deals for back-to-school season and we expect this to intensify in the coming weeks ahead of the Labor Day holiday. Commentary from Amazon (AMZN), whose shares have been on a tear lately -- up more than 20% from the early May low -- bear listening to tomorrow. We continue to see Amazon as a net share gainer in 2H 2014, but given the move in the shares would look for any weakness to commit fresh capital.