The countdown has begun!
Just three trading days left until the end of 2014. Last week, the S&P 500 chugged along the usually slow holiday week adding 130 basis points to its year-to-date return, which stood at 13% as of Friday's market close. If we peer beyond the percentages, we'd find the S&P 500 and the Dow Jones Industrial Average once again closed at record levels, while the Nasdaq Composite closed at its highest level since March 2000.
The news flow between the Christmas and New Year's holiday tends to be slow, but there is some worth noting. Given the weight of the holiday shipping on retailers -- both online and brick and mortar -- you're perhaps wondering how they fared this year?
According to the MasterCard Advisors Spending Pulse, retail sales during Black Friday through Christmas Eve increased 5.5%, which was in line with forecasts. While Versace performed his own mall walks to get a handle on how brick-and-mortar retailers were doing this holiday season, MasterCard's data found spending beneficiaries included casual dining and lodging, with both up or near double digit year-on-year growth. Versace will admit to getting several gift cards this season, including ones form Starbucks (SBUX) and The Cheesecake Factory (CAKE), but also saw a number of other casual dining gift cards being handed out: Chipotle (CMG), Buffalo Wild Wings (BWLD), a few from Barnes & Noble (BKS) and a slew of Apple (AAPL) iTunes and Amazon.com (AMZN) gift cards.
MasterCard's findings showed apparel, particularly women's clothing, did some brisk business this holiday season. Before you get all excited for Ann (ANN) or Cato (CATO) shares, among others, be wary that revenue strength may not drop to the bottom line as heavy discounting is likely to weigh on margins and earnings.
Breaking from trend over the last few years, electronics were not a strong category, according to MasterCard, with spending "basically flat" year over year. Could be another black eye for Best Buy (BBY), as well as hhgregg (HGG), particularly since Amazon added 10 million Amazon Prime customers this holiday season.
You're probably already seeing a number of Best Ideas or Best Picks for 2015. While those prognostications can be interesting, if not plain fun, to read, to us there is a greater question at large headed into 2015.
Last Friday, the S&P 500 closed at 16.4x consensus earnings expectations of $127.67 per share, according to FactSet. Yes, that forecast is lower compared to several weeks ago, as analysts have adjusted energy-company earnings lower amid the slide in oil and gas prices. Baked in that S&P 500 earnings forecast is 8% growth, which is better than the 6+% the index is expected to deliver this year.
Not to go all Debbie Downer with 2015 not even in the starting block quite yet, but we are scratching our collective heads wondering if the S&P 500 will deliver that much operating profit growth in 2015 given the slowing global economy. At the same time, if the Fed starts to raise interest rates the continued cosmetic enhancers of share repurchases on EPS performance could be far less in corporate vogue.
Mix those two concerns together and it raises the following question: are you a growth investor, a growth-at-a-reasonable-price investor or a value investor? Following the near-6% move in the S&P 500 since Dec. 16, more likely than not value investors and to some extent GARP ones will be far more selective heading into 2015. Bear in mind, two of the three major market indices closed Friday at record levels.
Time will tell and we'll be there keeping an eye on it.
Let's turn to the week ahead, which we believe could start off slow, but end in a modest roar (not because of New Year's Eve, which tends to make us move a little slow(er) on New Year's Day). Ahead of that we'll get the December PMI reading for China late Wednesday night. The December flash reading pointed to a contraction. Add in the report that China's industrial profits fell the most in two years in November and it points to a deepening slowdown in the world's second-biggest economy. In our view, this puts pressure on China's central bank to ease monetary conditions and makes the formal December PMI report a must-read.
While the stock market is closed on Thursday for New Year's Day, Friday brings a boatload of December PMI figures. With new stimulus efforts being announced -- a $29 billion stimulus package in Japan, the State Bank of Vietnam boosting lending in 2015 and the European Central Bank widely expected to address the more-than-sluggish eurozone economy in January -- Friday's data could be a bad news is good news situation for the stock market. Even the December PMI flash reading for the U.S. showed "rates of expansion eased to the weakest for 11 months." Fed watchers will no doubt be digesting these data.
On the earnings front, it will be extremely quiet, with only a handful or so of companies reporting their quarterly results. But we would caution you to be on guard for companies, particularly those with a less-than-stellar reputations for its management team, that might slip in a preannouncement or guidance revision when things are quiet and many are off the trading floors.
Below is a more detailed look at what's coming at you in the week ahead. Be sure to check back midweek for The Corner of Wall & Main, 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.