US fund managers fear consumer slowdown
FOURTH-QUARTER EARNINGS ARE EXPECTED TO SLOW
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With expectations for slowing growth escalating, US fund managers are selectively avoiding stocks in consumer companies as lofty valuations, concerns about declining earnings estimates, and consumer confidence keep them on guard.
Low US unemployment and rising wages should point to a healthy consumer, but worries about global growth, domestic US politics and a US-China trade war have been wearing on consumer and investor moods.
Wall Street expects fourthquarter earnings growth of 14.5 per cent for the S&P 500’s consumer discretionary index — below the 17.8 per cent consensus from October at the beginning of the fourth quarter, according to Refinitiv data.
And for the first quarter, analysts expect discretionary earnings to fall 1.4 per cent, compared with expectations for 6 per cent growth on October 1.
For consumer staples, fourthquarter earnings are expected to grow 4.5 per cent, down from the 6.7 per cent consensus in October, and are expected to shrink to 0.9 per cent growth for the Shawn Kravetz, Esplanade Capital LLC’s chief investment officer, said while the “consumer remains generally robust, most people have had something in their life in the past few months that has given them pause.” “For the wealthy it was watching the stock market go down 15 per cent in the fourth quarter,” Kravetz said. “For government workers, it was weeks of no cash flow and uncertainty. For many it was the uncertainty of the shutdown and what the secondary effects might be to them directly, to their jobs or businesses, or the economy at large ... everyone was touched.” first quarter. In comparison, the broader S&P benchmark is expected to report fourth-quarter earnings growth of 16.2 per cent.
“Our thoughts on the global consumer is that the marginal data points coming in are more negative than positive,” said Eric Freedman, Chief Investment Officer at US Bank Wealth Management in Minneapolis. His firm is “market weight to slightly underweight” on consumer discretionary while it views consumer staples valuations as “fair to slightly overvalued.”
US consumer confidence fell to a 1-1/2 year-low in January as a partial shutdown of the government and financial markets turmoil left households nervous, according to a Conference Board survey.
The consumer discretionary index trades at roughly 19.8 times forward earnings estimates compared with 17.3 for consumer staples and a 15.8 multiple for the broader S&P, according to Refinitiv data.
So far, 72 per cent of consumer discretionary firms have beat Wall Street’s fourthquarter earnings expectations, with almost half of the results already released. About 62 per cent of staples companies have beat estimates, with reports out from more than half of the sector, according to Refinitiv data.
In a recent Reuters poll a majority of economists saw the shutdown having a significant impact on first quarter gross domestic product growth, with the median expectation for a 0.3 percentage point trim.
Trafigura Group Ltd, the world’s third-largest independent oil trader, is fine as a customer. But the Port of Corpus Christi doesn’t want to see it as a competitor with billions of dollars at stake.
Port officials are urging Trafigura to scrap a proposed export terminal located 20 kilometres off the coast that would compete with an onshore expansion by the port. The proposals come at a time when analysts see US crude exports exceeding 8 million barrels a day after 2021, supported by a growing system of new pipelines now being built to serve the Permian Basin.
It’s a fight that’s becoming increasingly fierce. In its push to waylay the Trafigura plan, port officials have asked regulators to deny the application, spotlighted past criminal allegations against the Swiss-based trader, raised environmental concerns and accused the subsidiary leading the project of exploiting a loophole to rush through its application.
“Those are all factually correct statements,” said Sean Strawbridge, the port’s chief executive officer. “None of them are conjecture, speculation, misinformation or fake news.”
The port has teamed up with the Carlyle Group to build an onshore export terminal that can load the biggest supertankers at Harbor Island in Corpus Christi Bay. Trafigura’s facility will be located in deep water off the coast of North Padre Island, and fed by subsea pipelines.
10 per cent plan
The system planned by Trafigura is expected to handle about 10 per cent of the expected growth in US oil production, according to an emailed statement by Texas Gulf Terminals, the Trafigura subsidiary behind the project. The trader has rejected environmental concerns, and dismissed the suggestion that it opted for an offshore proposal
As one of Corpus Christi’s biggest customers, Trafigura has invested in a marine export terminal there and two condensate splitters, according to its website. At one point, the two sides discussed a joint effort to develop an onshore deepwater facility to handle tankers, Strawbridge said.
Then Trafigura announced its rival proposal. “At that point, we had to tell Trafigura: Look, we can’t be going down two parallel paths here,” Strawbridge said.
Since then, Corpus Christi has been on a wartime footing. Strawbridge, for instance, said Texas Gulf Terminals is attempting to get early approval for its project by exploiting “an arcane federal statute that was enacted in 1974 in another time for another purpose.”
In another instance, a lawyer for the port wrote a letter to regulators complaining the trader’s application was incomplete, that it was unclear who would hold eventual ownership of the terminal and spotlighting a guilty plea in a Texas courtroom in 2006 over the Iraq Oil-for-Food Programme. Oil falls 1% as supply concerns fade
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