Sometimes the data make no sense. Todayʼs reading on Consumer Confidence fell to a four month-low, in spite of consistently rising home prices, continued mortgage affordability, low gasoline prices and months of steady employment gains. Blame the lingering impact of the so-called soft patch from the first quarter, when the polar vortex choked off travel and retail sales.
In fact, much of the reported data of the past several months has fallen significantly short of expectations. Consider the snapshot provided by Citigroup Economic Surprise Indicator, where better than expected data adds to the index while worse data subtracts. Recently it fell to a two year low, suggesting either conditions are really bad or economists have been way too optimistic.
The good news? It seems to have bottomed.
This data disconnect is also at odds with first quarter results. Based on figures collected by Bloomberg, 72 percent of the 203 companies in the S&P 500 Index reporting earnings have beaten estimates by an aggregate 6.3 percent. As strategist Michael Purves of Weeden & Company notes to clients this morning, the rise provides a stark contrast to last yearʼs first quarter decline of nearly the same amount (6.0).
Economist Don Rissmiller of Strategas Research Partners tell investors to look past the disappointments of the first quarter, and instead to focus on his +2.9 percent consumer spending forecast for the second half of the year. Heʼs keying off wage growth and the highest small business hiring outlook since 2007, based on data from the National Federation of Independent Businesses.
We agree. We also note consumer staplesʼ earnings performance ranks #1 this quarter among all ten sectors in the S&P 500 Index. The group has beaten earnings estimates by 88 percent and sales estimates by 65 percent, compared to 72 and 46 for the index as a whole. The easiest way to gain exposure is the Consumer Staple Select Sector SPYDER fund (XLP). We think it makes good sense, especially since it yields 2.5 percent and costs just 0.15 percent.