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
) 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
), 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
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. Maybe the
bulls have a point, but it will still pay to stay focused on the
evolving earnings picture in the coming days.
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