Thursday, January 31, 2013
Stocks will likely remain in a tentative mood today ahead of
Friday's non-farm payroll, with this morning's Jobless Claims
data reversing the gains of the last two weeks. The Personal
Income & Outlays data this morning appears to be on the
positive side, but the report's internals likely have some
transitory factors that should make us a bit skeptical of the
strength, particularly on the income side.
On the earnings side, we got solid positive surprises from oil
companies like
Marathon
(
MPC
),
Philips 66
(
PSX
),
Valero
(
VLO
),
ConocoPhillips
(
COP
), but
Dow Chemicals
(
DOW
) came short of expectations. Overall, we have a relatively mixed
picture on the data front ahead of market open, with the Chicago
PMI coming out a later that is expected to give us a preview of
Friday's manufacturing ISM reading.
I had been skeptical of the sharp drop in initial Jobless
Claims numbers the last two weeks and this morning's data
confirms that view. The data shows an almost complete reversal of
the last two weeks' gains, with initial claims going up 38K to
368K; initial claims were at 355K two weeks back. The four-week
average remained essentially unchanged at 352K.
Seasonal adjustments are problematic at this time of the year
and that was the primary reason for the wild swings in this
series the last few weeks. That said, the overall tone of labor
market appears to be favorable, as indicated by Wednesday's ADP
reading. I am looking for a positive surprise in tomorrow's
January non-farm payroll report, with consensus looking for
something in the 160K vicinity. A jobs reading in the 190K to
200K range will provide a solid catalyst for this market to mount
a fresh bid to scale the fall 2007 peak.
The other data we got this morning was for the December Personal
Income & Outlays, with Personal Income coming in way better
than expected, while Outlays (or personal spending) a smidge
weaker than expected. On the Personal Income front, the strength
is no doubt welcome, but it likely reflects income being pulled
forward in the month in the run up to expected tax hikes due to
the 'Fiscal Cliff' issue. There was a flood dividend
announcements by companies in the month and bonuses also likely
got paid out early, which will likely show up as a sharp drop in
January data. The Outlays data doesn't carry as much
informational value since we got the fourth quarter consumer
spending numbers in Wednesday's GDP report (up +2.2%), but this
morning's monthly spending gain was a bit on the weak side.
On the earnings front,
we now have fourth quarter reports from 223 S&P 500
companies, or 56.4% of the index's total market
capitalization
, as of this morning. Total earnings for these 206 companies are
up +2.5% from the same period last year, with 66.4% of companies
beating earnings expectations with a very healthy median surprise
of +3%. On the revenue side, total revenues for these companies
are up +0.4%, with 57.8% companies beating top-line expectations
with a median surprise of +0.9%. The composite growth picture for
the fourth quarter, where we combine the result from the 223
companies that have come out with results already with the 277
still to come, is for growth rates of +1.5% for earnings and
+0.3% on revenues. This would be an improvement over the
essentially flat performance in the third quarter.
This has been a decent enough earnings season, particularly
relative to the very low expectations in the run up to the start
of the reporting season. The stronger looking beat ratios and
surprises relative to the third quarter reflect those low
expectations. But the quality of guidance hasn't been that
worrisome either. While guidance was invariably negative in the
third quarter, it has been less so this time around. That said,
expectations for 2013 have started coming down, particularly for
the first half of the year. But they still seem to be on the
elevated side and will need to come down more. It is interesting
to see the market at multi-year highs with earnings estimates
coming down. But who says the market is always right.
Sheraz Mian
Director of Research
CONOCOPHILLIPS (COP): Free Stock Analysis
Report
DOW CHEMICAL (DOW): Free Stock Analysis
Report
MARATHON PETROL (MPC): Free Stock Analysis
Report
PHILLIPS 66 (PSX): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis
Report
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