Pat Dorsey recently discussed how earnings of certain companies can do well even in a weak economic enviroment. Dorsey explained how exposure to non-U.S. markets and business spending has boosted earnings. Dorsey specifically discussed 3M, Yum Brands, Wells Faro, Caterpillar, and Boeing.
Below is a brief except followed by a video of Dorsey:
With earnings season winding down, it's worth taking a look back and seeing what we now know. Earnings season is always a good time to check in on the bottom-up health of the economy.
You get these macro level data points every week, whether it’s the labor report or inflation, or this or that, and the various pundits seize on these to make giant sweeping conclusions.
But at the end of the day, the stock market is driven by, shocker, earnings. And we now have a lot of data to look at and see what's been going on.
So, over the past few weeks, we’ve seen a not terribly surprising trend: basically the strongest revenue streams came from exports, companies that were selling to markets outside the U.S., companies exposed to a lot to business spending, technology in particular, in addition to firms like, say, Illinois Tool Works and Caterpillar also turned in pretty respectable numbers.
And of course, any company that was very closely tied into the consumer, especially discretionary spending, results were not so good. And this is pretty consistent with what we've seen and the thesis we've been advocating for a while now, which is consumer deleveraging--the consumer paying down their balance sheet, paying down their credit card balances, borrowing less money given that home prices are down, you can't use your house as an ATM anymore. That is going to act as a big drag on companies exposed to consumer spending.
Disclosure: Long WFC