It also remains my view that the consumer remains particularly vulnerable to policy.
With inflation running low, sales and profits will be challenged. Business pricing power is limited, but costs are likely to trend higher (raw materials, interest rates, etc.). Meanwhile, productivity is starting to decline -- it was down -2% in fourth quarter 2012 -- and wage rates are rising. This spells a threat to unprecedented high profit margins, which are not likely to be stable (as many prognosticators expect) but are more likely to mean revert (over the many years ahead).
Bulls look at the slight beat from (modest) expectations in fourth quarter 2012 S&P 500
results thus far; I prefer to look forward rather than in the rearview mirror.
As I previously wrote, last month about 56 companies in the S&P 500 issued first-quarter 2013 earnings guidance: 45 were negative, and 11 were positive. That rate of negative guidance (80%) is the worst since FactSet
started to keep these numbers (in 2006) and above the previous high established in last year's third quarter (74%).
I remain net short
Position: Short SPY
Originally published on Friday, Feb. 5 at 11:40 a.m. EST.
My biggest long and short plays over the past week:
My largest equity long purchase in the last week -- Northwest Bancshares (NWBI).
My largest new equity long purchase in the last week -- Apple (AAPL).
My largest equity short sale in the last week -- Henry Schein (HSIC).
My largest new equity short sale in the last week -- Herbalife (HLF).
My largest index long purchase in the last week -- none.
My largest index short sale in the last week -- iShares Russell 2000 Index Fund (IWM).
Position: Long NWBI, AAPL; short HSIC, HLF, IWM
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