Diageos(LSE: DGE) first-half results, released last week, impressed the market and sent the companys shares to a 52-week high following the news.
However, upon closer inspection, Diageos results revealed a worrying underlying trend that could signal trouble ahead.
You see, Diageo is a bellwether forglobal consumer confidence. When consumers are confident about the state of the economy, they spend more money on luxury goods, in this case, Johnnie Walker scotch or Smirnoff vodka. However, when consumers are feeling downbeat about their prospects, they seek out the cheaper, unbranded products.
Unfortunately, consumers seem to be moving away from the premium brands. This could be due to a number of factors. However, when you also take into account the falling price of key commodities, such as copper another bellwether for economic health its easy to conclude that the global economic outlook is darkening.
Indeed, Diageo reported that first-half sales ofJohnnie Walker fell 14%, adjusted for forex while sales of Smirnoff vodka dropped 7%. These sales declines are concerning. Sales of premium products, such as Johnnie Walker and DiegosCaptain Morgan rum, should increase in line with economic growth. It seems that consumers are now trying to spend less on the good things in life.
Diageos falling sales are not just bad news for the company profits fell 1% excluding forex during the first half they are also bad news for theFTSE 100.
The FTSE 100 is a truly global index. Around77% of FTSE 100 revenues come outside of UK. So, if the global economy starts to stutter, the FTSE 100 will take a hit.
Diageos falling sales could indicate that the global economy is not as strong as many think and theres one other factor that supports this conclusion.
Copper has a reputation for its ability to predict turning points in the global economy. Copper is used in almost all industries so high demand, or increasing economic output, usually pushes the price of the base metal higher.
However, a lack of demand and falling prices may indicate an economic slowdown.
The bad news is that the price of copper has recently crashed to a low not seen since the financial crisis. For the FTSE 100 this is really bad news. Collapsing commodity prices and a falling demand for consumer goods, signal that global economic growth could be slowing.
For a global stock market index thats highly exposed to the commodity sector, it looks as if the FTSE 100 is heading fro trouble.
Still, nobody really knows what the FTSE 100 will do over the next few days, weeks or even months. However, the best way to ride out market turbulence is to build a portfolio of trusty dividend paying stocks. That way you still receive an income while the market is throwing its toys out of the pram.
To help you choose the companies with the best dividend prospects, the Motley Fool is here to help. And you would like to uncover the fivestocks we believe should have a place in your dividendportfolio, download ourfreereporttoday!
The report reveals the secrets on how you can“Create Dividends For Life”and is totally free, with no obligation.
What’s more, for a limited time onlyyou can get two reports in one. Along with “How To Create Dividends For Life” we’re throwing in a new report entitled “My 5 Golden Rules for Building a Dividend Portfolio”.
Justclick hereto download the free report double pack today!
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.