The S&P 500 posted its best monthly performance since October 2011 up 5.5 %, closing +2.2 % YTD. While earnings estimates for the full year 2015 came down, stocks went up.
U.S. GDP saw + 2.2 % growth in the final quarter of last year, 2014 finished with + 2.4 % GDP growth. The Federal Reserve is” patiently” waiting to raise rates according to Janet Yellen’s latest testimony. According to 39 forecasters surveyed by the Federal Reserve of Philadelphia real GDP will grow 3.2 % in 2015 and 2.9 % in 2016.
Cold weather plus a major port slowdown likely hurt retail sales in the first two months of this New Year. SPX consensus earnings forecasts are now $120.37 for 2015 versus $117.77 in 2014 up only 2.2 %. Earnings growth in the 4th quarter was 3.7 % with 485 of 500 companies reporting. At 2104.50 on the SPX we have a forward P/E multiple of 17.48 X earnings, higher than the 10 year average.
Low energy prices have hurt recent earnings and forecasts. Low energy costs, however, are clearly a positive for future GDP growth. WTI crude rose to $49.76 or +3.1 % in February along with Brent Crude’s rise to $62.58 both measures saw their first gains since last June when WTI crude was near $ 106 /bbl. Precious metal commodities lost 3.24 %
While earnings growth has slowed dividends continue to rise with the SPX yielding about 2.00 % despite higher prices. .Thirty three S&P 500 companies increased dividends in January 2015 while only one company decreased their payout, 375 companies in the index increased dividends in 2014.
With the 9th of March being the 6th anniversary of this Bull market and the NASDAQ having regained 5000 many ask: Is the Bull Run at its end? We think the answer is no, due to ample credit availability, a steep yield curve , growing consumer confidence, growing earnings and residue fear from 2 major declines keeping sentiment in check.
German and Japanese bond yields are only 37 and 36 basis points respectively. Europe has 5 countries that have negative yields, with Swiss yields at -.05 % at 10 years.
Domestic bond yields, while historically low, are attractive relative to foreign yields and current inflation of 1.5 %. If the Fed raises short rates this summer long rates will likely rise more slowly than we saw in 2013 or during past rate hike cycles. Both Europe and Japan are aggressively pursuing QE policies which help GDP growth overseas and add to our virtuous circle.
Douglas Coppola
John Coppola
March 4, 2015
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