Confidence Game: Dow Drops 50 Points as Earnings, Consumer Confidence Weigh

Stocks finished lower today as consumer confidence dropped, and disappointing financial results and guidance from companies like 3M (MMM), Caterpillar (CAT), Under Armour (UA), and Whirlpool (WHR).

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The S&P 500 fell 0.4% to 2,143.16 today, while the Dow Jones Industrial Average declined 53.76 points, or 0.3%, to 18,169.27. The Nasdaq Composite dropped 0.5% to 5,283.40.

Strategas Research Partners’ Don Rissmiller and Erica Halie Comp contend that today’s drop in consumer confidence is nothing to worry about:

There are still risks in the global economy with Chinas currency weakening and bank stocks in Italy showing considerable volatility. However, global economy continues to have a key support: the U.S. consumer. True, this support is not as strong as in the past, as the consumer has stopped de-leveraging, but does not appear to be re-leveraging in 2016. There have also been numerous changes in how consumers are making purchases (comparison shopping, online vs. in stores, experiences over goods). Still, consumer confidence typically falls sharply about a year before a U.S. recession. In this light, its worth noting that the dip in the Conf Board measure of consumer confidence to 98.6 in Oct is still above the level we saw 3 months ago.

While earnings guidance was a problem for some companies today–we’re looking at you Whirlpool–Bespoke Investment Group notes that despite the fact that companies have been lowering their earnings guidance, they’re lowering it less than usual:

…we took the daily number of US companies issuing positive guidance and subtracted the number of companies issuing negative guidance according to Bloomberg and added them up on a 50-day rolling basis…

…the first thing that stands out is that when companies issue guidance, more often than not, it is negative. Going back to 2000, this index has only been positive on 4% of all days…While the current reading is negative, there has only been one other year since 2000 where the guidance spread was less negative than it is now [at the current point in Q3 earnings season]. That was in 2010, when the reading was actually positive…

One caveat to keep in mind…is that over time companies have been giving guidance less and less. That helps to explain in part why readings have been getting less worse over the years, but even relative to more recent history like the last five years, the net number of companies lowering guidance is less than half of what it was at this point in prior Q3 earnings seasons.

That’s gotta be good news, doesn’t it?

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