What Intel’s Forecast Means (INTC, F, CAT)
There is a budding divergence between economic data and corporate forecasts. We’ve seen a stark deterioration of economic data across the board. Manufacturing surveys have weakened, auto sales were down in May and then, of course, we got the icing on the cake with the pitiful employment numbers last week.
Economists and strategists have been falling all over each other as they lower their 2011 GDP estimates. (Of course, Daily Profit readers had a heads up, as we noted the change in the Fed’s outlook after the last FOMC meeting.)
But many corporations are sticking to their bullish outlooks for revenues and profits, despite the “soft patch.”
Intel is the latest company to reaffirm its quarterly numbers. And we should pay heed, because computers (and chips) are one of the main areas that would be affected by a prolonged slowdown. And of course, that would affect the technology sector and the market as a whole.
Intel’s outlook is for 11% PC sales growth this year and is even more interesting because it directly contradicts estimates form research firms IDC and Gartner. Gartner says that PC sales will grow only 4% this year.
At issue is how Intel and the research firms account for emerging market sales. Personally, I’ll trust Intel’s outlook over the research firms. After all, Intel is the one making the actual sales. I’d expect they have a better handle on their own business than IDC or Gartner.
*****Still, there some more significant takeaways to this story. First and foremost, it’s a pretty clear indication that growth in emerging markets is still robust. And when you consider the outlooks from multinationals like Caterpillar (NYSE:CAT) and even a company like Ford (NYSE:F), it’s clear that emerging markets are the primary source of growth these days.
Investors should have absolutely have exposure emerging markets, either through foreign stocks, ETFs or American companies that do a lot of business overseas.
*****The other takeaway from Intel’s bullish sales forecast is that it might be just Intel that’s seeing good growth in the PC industry. Recall that Intel posted blowout numbers last quarter, while Hewlett-Packard (NYSE:HPQ) bombed and Dell (Nasdaq:DELL) was just so-so.
It would be wise to pay close attention to the newsflow from individual companies to gauge how the next earnings season will go.
*****Oil prices have dropped back below $100. In a general sense, we see this as a reflection of weaker economic growth here in the U.S. But it is also related to tomorrow’s OPEC meeting. Saudi Arabia has been talking about boosting production and higher quotas will be on the table tomorrow.
Whether the desire to raise production is a reaction to the market or to political instability is up for debate. Saudi Arabia has promised something like $60 billion in public spending to pacify its citizens. That money has to come from somewhere.
Lower oil prices based on increased production would be a good thing, as it would provide a compelling counterpoint to the relationship between growth expectations and oil prices.
*****For a little more color on the market’s recent declines, let’s turn to Jason Cimpl, of TradeMaster Daily Stock Alerts:
The market was hit hard again yesterday. Volume raced higher as all major indices plunged at the open. Perhaps the worst (and most telling) aspect of the decline is that it occurred on no news.
News flow from across the globe, from Japan to the U.S., was minimal yesterday. Despite the lack of news-flow, the market tanked again.
Strong selling without immediate causation is a warning sign. And it is an indication that the market's true desire is to move lower.
Sometimes when news is insignificant the market will decline, but volume will also be light. That is not what happened yesterday. Participation was high in the market, and the indices forcefully moved lower. Such a firm display of momentum indicates that the bears are in control of this market - and the bulls need to take it back.
The bears took out 1301 support yesterday, which we expected, but oil also lost its support, which I did not expect. It is not a coincidence that both occurred on the same day. As mentioned last week, a strong rally in oil was the market's only chance of holding 1301 and rallying. At this point the bulls need to make a stand at either 1280 or 1250 to have any chance of moving higher over the next few months. A break below 1250 signals a much more bearish move is on the horizon, and confirms a larger bear trend began in May (again).
Last week, Jason’s readers took a nice 30% gain on Accelr8 Technology (AMEX:AXK). Also, the Top 10 Trades for June special report is out. You can get your copy HERE
