A Spring Swoon? Maybe, but Not Likely
A spring swoon? This is the fourth year in a row we've seen an economic slowdown in the spring. March economic data were a reverse of the stronger data we saw in January and February.
Maybe, but a lot of the issues that roiled the markets in the last few years (housing weakness, a European meltdown, etc.) are not present. If China growth—now expected to be 7 percent to 8 percent this year—dropped to zero, that might do it, but that's unlikely.
This morning: global markets are up. Europe trading is up, with Italy up almost two percent, as Italian President Giorgio Napolitano was reelected to a second term. This has created hope of a grand coalition of center right/center left parties that would pass reforms.
Another rally in Japan; with the Nikkei at a five-year high. Nothing much out of the G-20 meeting, other than complete capitulation to the Japanese. It was given a green light to go ahead with its massive bond-buying program. Bank of Japan will hold its second policy meeting this Friday; and the focus will be on the inflation forecast of its members.
1) This is the big week for earnings. Critical are the industrial/material names: AK Steel, Air Products, Dupont, Ingersoll-Rand, Illinois Tool Works, and United Technologies all report tomorrow. Reports so far have been mixed from this group.
Caterpillar reported this morning, with $1.31 a share, a miss of $0.09 a share, and revenue of $13.21 billion was light by about $500 million. Revenue is down about 45 percent from the same period last year. More importantly, its outlook for 2013, at $7 a share, was at the bottom of prior guidance of $7 to $9 a share, and well below consensus of $7.68 a share. Expected revenue at $57 billion to $61 billion was also below consensus of $62.69 billion.
What's the problem? Machinery and power systems revenue was well below expectations, as was mining equipment (25 percent reduction in sales), the divisions that matter. Dealers are continuing to reduce inventory.
Caterpillar CEO Doug Oberhelman, on CNBC, noted signs of stability in the global market, calling China was "pretty good" and noting that he expected production schedules to go up. "It feels better than the last two springs," he said. On coal: "Why I don't see a spike, I certainly don't expect more downside."
2) At the end of last week, there were dire warnings about flight delays due to sequestration cuts, but there was already evidence of problems. March passenger revenue per available seat mile (PRASM), a main metric for airlines, was weaker than expected. Many (Delta Air Lines, for example) blamed sequestration cuts. According to Morgan Stanley, this is a bit of a fig leaf—most airlines have only two percent exposure to direct government travel. Hmm.
We'll get a clearer understanding of what's going on tomorrow, when we get results from Delta and US Airways.
3) Apple: Can it get any worse? Apple reports tomorrow after the close. I think analysts have covered themselves enough on Apple ... almost every one thinks it will come in below Street consensus of $10.04 a share, with revenue of $42.386 billion. The hope is that the current quarterly dividend of $2.65 (2.7 percent yield) will be raised, at least to $3 a share, which would provide a dividend of more than 3 percent, along with a "special dividend" like Microsoft did some time ago, and an increased share buyback.
—By CNBC's Bob Pisani