We will see a very interesting interplay of competing forces
in today's market action, with the
) overhang and the strong Jobless Claims numbers pushing stocks
in opposite directions. The positive-looking data out of China
about that country's factory sector will likely tilt the balance
in favor of the bullish forces. After all, the Apple miss
notwithstanding, the overall tone of fourth quarter earnings
reports has been reassuring enough to belie pre-season fears.
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I had been skeptical of buying into last Thursday's huge drop
Jobless Claims, suspecting that perhaps seasonal factors so
prevalent in this part of the year had been at play. But this
morning's further drop in Jobless Claims provides further
confirmation that momentum in the labor market may be shifting.
Initial Jobless Claims dropped 5K last week to 330K, while the
consensus expectation was for a reversal to the preceding week's
drop and an increase to 360K. The four-week average dropped by
8.3K to 351.8K, the lowest level since early 2008. If sustained
over the coming weeks, this will represent a major positive
change in the economic picture, as big and consequential as the
ongoing housing recovery.
When you combine this emerging labor market trend (two weeks of
data doesn't qualify as a trend, but still) and the improving
housing story, you have enough material to get optimistic about
the domestic economic scene. Add to this today's report about the
preliminary January PMI data out of China and you have the
makings of a positive picture about the global economy.
The ongoing Q4 earnings season may not be showing much growth and
momentum, but if the economic indicators keep improving as this
morning's Jobless Claims data and China's PMI reading shows, then
one could expect for the trend to reverse. Including results this
) and others, we now have Q4 results from 129 companies in the
S&P 500 that combined account for 35.4% of the index's total
We still have a long way to go in the reporting season, but we
have enough of a sample size to start passing judgments. The most
obvious conclusion is that the earnings picture may not be
improving and growth may have flatlined, but it isn't
deteriorating either. Importantly, outside of a few notable
players, the overall tone of company guidance has not been as bad
as many of us had started fearing in the run-up to the earnings
Total earnings for the 129 companies are up +0.9% from the same
period last year, with 62.8% beating earnings expectations and a
median surprise of +2.5%. Revenues are up +5.8%, with 55.8% of
the companies coming ahead of top-line expectations with a median
revenue surprise of +0.6%. This is a better performance than what
this same group of 129 companies reported in the third quarter.
The composite growth rate for the fourth quarter, where we
combine the results of the 129 companies that are out with the
371 still to come, is for a drop of -0.1% in total earnings and a
-0.6% drop in revenues. In the third quarter, total earnings were
down -0.1% while total revenues were -0.7%.
As such, while earnings reports are better relative to pre-season
expectations, there is no effectively no growth. Even the mighty
Apple had flat earnings relative to the same period last year,
despite generating 18% more in revenues.