Earnings Crystal Ball Looks Pretty Scary
Recapping the day's news and newsmakers through the lens of CNBC.
Earnings Crystal Ball Isn't Pretty
It's earnings season, and first out of the gates, as always, is aluminum company Alcoa, which reported after the closing bell Monday. Revenue was slightly higher than expected ($5.85 billion versus $5.83 consensus estimate), and it beat the Wall Street view by a penny, with 7 cents earnings in the second quarter. But even if first, Alcoa may not be as good an earnings bellwether as recent S&P 500 preannouncements.
Ninety-seven S&P 500 companies had negative preannouncements, versus 15 positives. That's the most negative guidance from S&P 500 companies since the first quarter of 2001, according to Thomson Reuters.
Telcom and financial stocks are expected to deliver the highest earnings growth for the quarter, while technology and utility stocks are expected to be the laggards. Technology stock earnings are projected to decline by 3.7 percent, in what would be the worst quarter for tech since 2009. The second-quarter S&P 500 blended-earnings growth rate is projected at 2.9 percent.
"There's some cause for concerns when you look at the preannouncements."
—Seema Mody, CNBC
Dow to 60,000? Give It Some Time
Given the recent market volatility, it helps to take a long-term view of things. How long? Well, if you are famed buy and hold fund manager Ron Baron of Baron Capital, forecasting the Dow Jones Industrial Average 20 years out is no problem.
Baron told CNBC that he expects stock market returns for the next 20 years to approximate the 7 percent annual returns U.S. stocks earned for generations. He even quoted some illustrious scientists to help make his argument, noting that Albert Einstein once said "the most powerful force in the universe is compound interest."
Based on compounding, the Dow Jones will be at 30,000 in 10 years, and 60,000 in 20 years, according to Baron.
"Everyone thinks they are advantaged by trading on news. They are not. This is why the average investor in mutual funds makes 3 percent per year, while the average mutual fund earns 7 percent per year."
Getting Sick Doesn't Pay
Ever wonder why so many people come to work under the weather, spreading their germs among the cubicles?
Because there's no national policy and the choice to provide sick leave is pretty much left to businesses, an estimated 38 percent of U.S. workers, or almost 40 million, lack any paid sick leave, according to the Center for American Progress.
Going to work ill can be expensive in other ways. The center estimates that sick workers cost employers $160 billion a year in lost productivity. The Centers for Disease Control and Prevention says the annual flu season alone constitutes a $10.5 billion hit to companies in direct costs for hospitalizations and outpatient visits for adults.
Just last month, New York joined the short list of cities—San Francisco, Washington, Seattle and Portland, Ore.—and the state of Connecticut in passing a law to provide workers with paid sick time.
"It's a terrible situation for someone who has a serious health condition or a sick child and can't stay home for fear of losing wages."
—Charles Lamberton, an employment lawyer who has his own firm in Pittsburgh
Dell Wins a Round
In a surprise to some market speculators, influential proxy firm Institutional Shareholder Services recommended that Dell shareholders take the offer from founder Michael Dell and Silver Lake Management, stating that the deal "provides certainty of value" to shareholders in an uncertain future for the PC market.
Last week, many people who were aware of meetings between ISS and the Dell parties had come out with the decided opinion that it did not go well for Michael Dell, said CNBC's David Faber. The ISS endorsement is a blow to Carl Icahn and Southeastern Asset Management, who have been pressing for an alternate deal for Dell shareholders that Icahn contends offers better value.
Some big shareholders of Dell are still expected to vote against the Michael Dell-led buyout offer, including Pzena Investment Management, which owns 0.7 percent of the PC company. Richard Penza told CNBC's Scott Wapner on Monday afternoon that the Dell offer sets a bad precedent and exploits a weak share price for the personal benefit of a CEO. Pzena called the Icahn proposal, "a reasonable way to exit at a better price for those who want to sell."
"Unexpectedly this has bolstered the hopes of Michael Dell not even having to 'raise' to get his deal done."
—David Faber, CNBC
China Invades the Fortune 500
For the second year in a row, Royal Dutch Shell is the No. 1 company on the Fortune 500 global list. Shell was followed by Walmart, Exxon Mobil, Sinopec, China National Petroleum, BP, China's State Grid, Toyota, Volkswagen and Total. The ranking is based on revenues rather than profits, with the result that seven of the 10 companies at the top of the 500 are in the oil industry.
The biggest trend in the Fortune 500 is the continued rise of China, which now has 80 companies on the list, 16 more than last year. The last decade is a snapshot reflecting changes in the Chinese economy, which is no longer just a domestic economy as Chinese businesses expand globally.
Even as its stock fortunes have swooned, Apple went from No. 55 to No. 19 on the list.
The Fortune 500 represents $30.3 trillion in total revenue.
"Apple is punching way above its weight."
—Stephanie Mehta, Fortune executive editor, on a company whose revenue pales in comparison to the oil companies featuring so high on the Fortune 500 list
Top States for Business in 2013 Are ...
Get ready to figure out where your company should expand its business or found a new one. On Tuesday, CNBC begins revealing its annual Top States for Business ranking.
—By Eric Rosenbaum, CNBC.com