Stocks appear determined to keep pushing higher, though the
lack of any material news today and the coming days will likely
slow the process down. Confidence remains high despite domestic
budget uncertainties and renewed questions about Europe. But
while the near-term momentum remains to the upside, it is far
from clear if the trend can sustained longer term.
Europe has raised its head in recent days after laying low for
quite a while. The calm and stability engineered by Mario Draghi,
the head of the European Central Bank (ECB), appears to be under
threat from unsettling political developments in Spain and Italy.
Corruption allegations against the Spanish government undermine
its ability to implement tough austerity measures when more than
a quarter of the workforce is unemployed. The political situation
in Italy is no less uncertain given the growing popularity of the
discredited Silvio Berlusconi party in the upcoming elections.
The ECB's monetary tools may not be of much use if doesn't have
credible political partners in these countries. There is no
imminent threat of a full-blow resumption of what the markets
endured in the last two years, but the European scene is steadily
On the earnings front, we got positive results from
(TWX) this morning and Disney (DIS) after the close on Tuesday,
continuing the parade of 'good enough' Q4 earnings reports. As of
this morning, we have earnings results from 299 S&P 500
companies, with 66.6% of companies beating earnings expectations
and 63.5% coming ahead of revenue expectations. The 'beat ratio'
on the earnings front is better than the third quarter, but
roughly in-line with historical averages. The notable improvement
is on the revenue side, with a bigger percentage of companies
relative to the last few quarters coming ahead of
The revenue outperformance is largely a function of subdued
expectations as there is almost no accompanying growth. Total
earnings and revenues for the 299 companies that have reported
already (accounting for roughly 72% of index's total market cap)
are up +2.8% and +0.5%, respectively. The composite earnings and
revenue growth rates for the fourth quarter, where we combine the
actual results for the 299 with estimates for the remaining 201
companies, are +1.6% and +0.5%, respectively. This is better than
the third quarter, but nevertheless the second lowest growth pace
since the earnings recovery got underway in 2009.
The market doesn't seem to be overly concerned about the lack
of growth as it is looking ahead to the expected resumption of
growth in the second half of the year. Earnings growth in 2013
and 2014, which mirrors estimates for economic growth, are
expected to show a material ramp up. The relatively less
worrisome tone of company guidance on the Q4 earnings calls and
the recent turn of favorable economic data have raised in
confidence in those expectations. This has been at play, to some
extent, in the market's positive momentum.
are scheduled to be released today at 10:30 AM EST. For the week
ending January 25, crude inventories increased by 5.9 million
barrels from the previous week to 369.1 million barrels.
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