Yahoo Finance Stealth signs of consumer strength emerges amid earnings
Pro money manager Carlton Neel has been sifting through earnings release after earnings release. He’s found a meaningful trend.
“In the past few weeks we’ve seen consumer stocks (XLY) report numbers that have shown earnings and revenue growth,” said Neel, senior managing director and portfolio manager at Euclid Advisors. “I think that’s a positive sign for the market.”
Largely Neel noted that although many companies beat estimates, in many case those estimates had been lowered. “They did what we needed them to do, but the bar was low.” However, in the case of consumer stocks, Neel believes the pockets of strength confirms a trend that he’s been anticipating for quite some time – that lower energy prices will ultimately be positive for most companies and therefore the broad S&P 500 (^GSPC).
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“You often hear analysts equate a drop in prices at the pump with a tax cut. But tax cuts are immediate. In the case of lower oil, it takes time.” In part that’s because so many people pay for gas with plastic, it takes months of lower credit card statements before consumers feel richer, and therefore change spending habits.
However, the revenue growth at consumer companies suggests to Neel that his thesis has gotten a foothold and spending habits are beginning to change. Therefore, going forward, he suggests focusing on stocks that benefit from the trend.
“My read is that last year, between July and end of year, yield plays did well. Utilities (XLU) and consumer staples ( XLP) were leaders because there was concern about the economy and interest rates were so low, these dividend yielding stocks became bond proxies. However, going forward, I think money goes elsewhere. I think we see a shift into a more consumer driven market.”
* Neel manages the Zweig Fund (ZF) and the Zweig Total Return Fund (ZTR).
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