Follow through from last evening's strong
) reports and a mixed-bag Durable Goods report provide the
backdrop for the stock market today.
The Durable Goods orders report for September came in better than
expected on the 'headline', but the report's internals point to
softening trends in business capital spending ahead of the
government shutdown. The 'headline beat was primarily a function
of strong orders for
) commercial aircraft, which we knew already from the company's
strong Q3 earnings report. Business spending has been
underwhelming in recent quarters and likely weakened some more as
a result of the shutdown.
On the earnings front, we are now past the halfway mark, with
results from more than half of the market capitalization of the
S&P 500 index already out. After a shaky start, the Q3
earnings season has been steadily improving in recent days.
Guidance still remains on the weak side, prompting estimates for
Q4 to come down. But the scorecard for Q3 has bloomed lately,
with growth rates and beat ratios that were earlier tracking
below the last few quarters now outpacing them. A big driver of
Q3's recent sprint relative to the last few quarters is the
momentum in the Technology sector.
The Microsoft report is a good example of the sector's improving
picture. The company's beat was driven by strong sales to
businesses, an area that has been under pressure in recent
quarters as a result of restrained capital spending by
businesses, as this morning's September Durable Goods orders
report reconfirmed. But the company's Q3 report shows that not
only its legacy enterprise business remains strong, but that it
can leverage its Windows and Office foothold to sell other
related services like Cloud.
Including this morning's reports from
Proctor & Gamble
) and many others, we now have Q3 results from 243 S&P 500
members that combined account for account for 54.7% of the
index's total membership. Total earnings for these 243 companies
are up +8.1%, with 67.9% coming ahead of consensus earnings
expectations. Total revenues are up +3.4% and 49% are beating
This is better performance than what this same group of companies
reported in Q2 and what on average they reported in the preceding
quarters. A major contributor to the improved picture relative to
the last few quarters is the Technology sector where earnings and
revenue growth is tracking materially higher. The composite
earnings and revenue growth rates for Q3, combining the results
for the 243 companies that have reported with the 257 still to
come, are +3,2% and +1.3%, respectively. This means that Q3 is on
track to be along the lines of what we saw in the last few
quarters, likely a little better.
Expectations for 2013 Q4 have started coming down, but they still
represent a material ramp up in the growth pace, with total
earning for the S&P 500 expected to be up +8.9%, down
from +9.1% yesterday and higher than +10% at the start of the
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