Phoebe Venable: In uncertain economic times, focus on long-term goals
February 8, 2014
The U.S. economy is sending mixed signals.
In the plus column, the unemployment rate has been steadily falling from its high of 10 percent in October 2009 to a current level of 6.7 percent. There has been a positive wealth effect from rising home values. Stock investors enjoyed healthy double-digit returns last year. Last month’s consumer confidence measure was near its post-recession high, indicating Americans are feeling better about their financial future.
But there are less auspicious signals. While falling unemployment is a good thing, 6.7 percent is still high and December’s labor force participation rate was 62.8 percent, the lowest level in 36 years. In January, economic reports indicated a slowdown in manufacturing activity and car sales. The Fed is continuing to reduce its monthly bond-buying by $10 billion and is on track to end those purchases by the end of 2014. That’s removing a support mechanism that needs to be removed, but it does create additional uncertainty.
But it isn’t at all unusual for our economy to exhibit such mixed signals. Only in times of great prosperity or severe recession do we see economic data pointing consistently and confidently to a single conclusion. In the absence of such definitiveness, investors frequently look to the results of corporate America to determine the health of the U.S. economy and today’s consumer. In general, Americans spend money when they have confidence in their employment, cash in the bank or access to reasonably priced credit. Consumer spending composed 71 percent of the U.S. economy last year. Wise investors watch not only how much consumers are spending but also what they’re buying.
Publicly owned companies have been reporting their 2013 fourth-quarter results over the last several weeks. Four times a year, during these so-called “earnings seasons,” we receive mountains of information from all types of corporations about the health of their businesses. Unfortunately, retailers have been giving us — you guessed it — mixed results. Same-store sales of apparel, electronics and appliances at discount stores have been disappointing for the most part, while food, pharmacy and home-improvement retailers have reported strong sales.
As of the end of January, about 50 percent of the companies in the Standard & Poor’s 500 Index had reported their results for the fourth quarter of 2013, and 74 percent of them beat their earnings-per-share estimates. According to FactSet, in aggregate, the reporting companies had earnings 3.6 percent above expectations. When companies report their quarterly results, they usually provide “guidance” for the current quarter.
With about half of the fourth-quarter results in, the guidance for the first quarter of this year doesn’t show a lot of improvement over what we’ve seen for the past two years. Predominantly, companies are guiding us toward lower earnings expectations.
Investors should take this subpar outlook with a grain of salt. Management teams across America fear the stock market’s swift and harsh punishment for missed estimates. With information such as this triggering trades in nanoseconds in computerized trading programs, corporate America has every reason to be cautious when contemplating expected future results and should temper their forecasts accordingly.
In times like these, the best advice is to stay focused on your long-term goals and tune out the short-term noise.
Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.
