BE CAREFUL OF THOSE NUMBERS

A local financial talk show host with an apparent decent-sized audience was trying to convinced his listeners recently that energy was the only sector in the market down in 2015. "Name another one," he challenged his listeners.

Conveniently or otherwise, he left out mining and materials. Now the guy's a broker or financial planner in his real full time life and the threat of a huge market sell off and another recession won't be peachy for his business or any others among the sell-side crowd. At least for the segment we heard he left out those FANG stocks that propped up the averages much of last year.

He also glossed over all the stock buybacks and artificial support from the M&A frenzy. He rolled out the usual criticism of anyone who questions the excesses of this bull market, calling one and all fear mongers. He then played an excerpt from a recent television interview with the King of Gloom and Doom, Mark Faber. Our point here is not to defend Faber; he's capable of defending himself.

Going into this year he might want to look at another sector. Consumer discretionary companies. From Reuters today we get this.

Consumer discretionary companies, which led S&P 500 gains in 2015 and have had the second-highest average profit growth rate of any sector over the last five years, are more pessimistic than usual going into the quarter. That is despite the benefit of lower gasoline prices for consumers. Consumer discretionary stocks rose 8.4 percent last year, thanks in large measure to Netflix (NFLX.O) and Amazon.com (AMZN.O), the year's best S&P performers.

While consumer discretionary fourth-quarter profits are forecast to be up 8.4 percent, that is below the 13.6-percent growth that was forecast only three months ago, according to Thomson Reuters data. Twenty-five companies in this sector so far have warned and none gave positive guidance, the highest number of negative forecasts since at least 2006, according to FactSet. In a typical fourth quarter, only two-thirds of earnings pre-announcements in this group are negative.

Two of the above mentioned companies are FANG members. Next week begins the street's fourth quarter earnings reporting and, from what we read, the prospects are hardly spot on unless you prefer down trends. 

An earnings recession - two quarters of declining profits - would be led by the usual suspects, energy and materials companies. But its severity may depend on consumer discretionary companies, which have been warning about profits at an unusual pace.

Now the guy was bragging up the lower gas prices and how much it helped consumers, especially citing their spending over the holidays.

By comparison, overall 85 S&P 500 companies guided below analysts' estimates for the quarter and 26 issued positive guidance, roughly in line with recent quarters, FactSet data showed.
Macy's (M.N) this week cut its earnings outlook for the second time and blamed a fall in sales on unusually warm weather that kept consumers from buying coats. It also cited the strong dollar.

Companies that have warned also include L Brands (LB.N), GameStop (GME.N), Starbucks (SBUX.O), Target (TGT.N) and AutoNation (AN.N). Specialty retailers have given the most negative guidance, while 17 companies in the sector have cited the strong U.S. dollar as a reason behind the lowered outlooks, FactSet said. As earnings forecast come down, some strategists say the expected boost to consumer spending from lower energy prices may have been overblown. Consumers still have debts to pay down.
That overblown spending could turn out to match another recent overblown indicator, those December job numbers.
reuters.com/article/us-usa-results-warnings