CFO CONSENSUS (Negative Consensus/Bull Market Indicator) Bean counters not a happy bunch 

July 22, 2015

When observing economic conditions, it's always preferable to get the boots on the ground perspective. The people actually living and breathing and doing business not people perched up in some ivory tower.  One of those constituencies are Chief Financial Officers which control the company purse strings and make fundamental decisions on how to allocate the scarce capital they have been entrusted. These days all is not well in the Chief Financial Officer suite. Chief financial officers interviewed this quarter expect earnings and revenue over the next 12 months to grow at the slowest rate in the last five years, according to a new survey by professional services firm Deloitte. Almost two-thirds of CFO's surveys said that the markets were overvalued, where 46 percent felt the same way in the previous quarter.

In the Deloitte survey, North American CFOs predicted median earnings growth for their companies of around 5 percent (mean 6.5 percent), and the lowest domestic hiring expectations in over a year. Interviewed executives pointed to worries about the volatility of the global economy, commodity prices and other concerns.

"Something changed this quarter," the authors wrote. "Perhaps most notably, public debate escalated around whether or not the U.S. economy is as healthy as many had thought."

More than 70 percent of U.S. CFOs said the equity markets are overpriced—only 3 percent said they were undervalued—and the percentage of finance chiefs who said equity financing is an attractive option rose significantly.

If CFO's are that pessimistic then chances are they will be less likely to make the key capital investment decisions that will put the US economy on a more long term sustainable path. The script the last seven years has been to instead pursue financial engineering strategies (share buybacks and dividend payouts via increased leverage) and as long as that game is in play, the incentive for stock prices to rise in the short term are there. The reality also is that the Federal Reserve has been much more vocal about raising interest rates this year, so it appears the CFO Consensus is making its way closer to the exit signs.