Monday, January 7, 2013
With nothing much on the economic calendar this week, the
market's attention will likely shift to the fourth quarter
earnings season which gets under way with
Alcoa's
(
AA
) report after the close on Tuesday. The reporting season gets
into high gear next week as the big banks report results, but a
number of major companies including
Wells Fargo
(
WFC
) and
Monsanto
(
MON
) will come out with fourth quarter results this week.
All indicators are pointing towards another underwhelming
earnings season, not much different from what we saw in the third
quarter reporting cycle. But while expectations for fourth
quarter earnings have been steadily coming down in recent weeks,
investors appear unwilling to bring down estimates for 2013 as
they hold on to hopes of a ramp in corporate profitability in the
coming quarters. Guidance from management teams on earnings calls
is always very important, but it is particularly important this
reporting season given the lofty-looking earnings expectations
for 2013.
Total earnings in the fourth quarter are expected to be up +0.4%
from the same period last year. This is a sharp drop from the +7%
earnings growth rate that consensus expected just three months
ago. Overall, ten of the 16 Zacks sectors will have negative
earnings growth, with even the Tech sector experiencing earnings
decline of -3.5% (Tech sector earnings were barely in the
positive column in the preceding quarter). The Construction
sector has the best earnings growth profile off all sectors, a
function of the positive momentum in the housing sector. Total
earnings in the Construction sector are expected to up +33.3% in
the fourth quarter. The only other sector with double-digit
earnings growth this quarter is Business Services.
The key question at this stage is whether the stock market
momentum can be sustained in the face of negative momentum on the
estimate revisions front. The bulls point towards the
attractiveness of equities relative to other asset classes and
pin their hopes on an
expanding market multiple and declining risk premiums. May be the
bulls a point, but it will still pay to stay focused on the
evolving earnings picture in the coming days.
Sheraz Mian
Director of Research
ALCOA INC (AA): Free Stock Analysis Report
MONSANTO CO-NEW (MON): Free Stock Analysis
Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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