Hopes of economic rebound both in the U.S. as well abroad have
pushed stocks to new highs, but ground realities haven't caught on
with the soaring sentiment yet. We now have data showing that GDP
growth in the entire developed world - Europe, Japan, and the U.S -
was in the negative territory in the final quarter of 2012.
Granted, the U.S. negative GDP surprise was caused by transitory
factors that will partly get reversed in the current period, as
this morning's seasonality-distorted but nevertheless positive
Jobless Claims data would indicate. Some optimism about Japan may
also have a basis given the new government's plans for activist
monetary and fiscal policies. But it's hard to discard the nagging
feeling that the market has likely gotten ahead of ground
realities. Today's trading action will likely reflect the downbeat
GDP data out of Europe and Japan, with the sharp drop in U.S.
Jobless Claims likely getting chalked up to the effects of the East
Coast snow storm.
Fourth quarter GDP reports from Europe this morning show that
region's collective economy contracted more than expected in the
final quarter of 2012. This is the third straight quarter of
negative GDP growth for the region and the fifth since the region
has had any growth. Even Germany, the region's core and engine, and
France were not immune from the forces pulling the region down. The
pain in Italy, Spain, and Portugal deepened from the preceding
The consensus expectation is that the region's economy will
start stabilizing in the second half of the year and produce a
modest growth next year. There is some evidence to suggest that the
German economy could get out of its slump in the current period,
but conditions appear to be worsening for the rest of the region.
The outlook for France is definitely not getting better and
political instability in Spain and Italy threaten the reform gains
of the recent past. The Spanish prime minister's fast dwindling
political capital limits his ability to implement the tough
austerity measures demanded by Germany. And the growing popularity
of Silvio Berlusconi in the coming Italian polls threaten the
reform gains under the technocratic Mario Monti government. Bottom
line, the region's outlook is far from satisfactory. And that's a
major headwind not only for Germany, but also for China and the
In corporate news, Berkshire Hathaway's ( BRK.B ) purchase of
Heinz ( HNZ ) this morning adds
to growing list of corporate transactions in recent days. This
follows Comcast's ( CMCSA ) purchase the
other day of the remaining 49% of NBC Universal from
General Electric ( GE ) that it didn't own
already. These multi-billion deals are another reflection of the
all around optimism in the market. High stock prices and dirt-cheap
credit makes it easy for companies to buy growth instead of
generating it organically.
On the earnings front, Cisco ( CSCO ) came out ahead
of expectations on in-line revenues after the close on Wednesday,
though its outlook for the current quarter left many underwhelmed.
John Chambers, the company's typically upbeat CEO, appeared to be
cautious about China, Europe and purchases by government
purchasers, highlighting the continued challenging Tech spending
backdrop. Of the major earnings results this morning,
Pepsi ( PEP ) came out with
ahead of expectations, while General Motors ( GM ) missed.
The fourth quarter scorecard as of this morning is showing Q4
results from 387 S&P 500 companies or 85.4% of the index's
total market capitalization. Total earnings for these companies are
+2.7%, with 66.4% of companies beating earnings expectations.
Revenues are up 1%, with a much stronger 61.8% of companies beating
revenues expectations. This has been a better than expected
earnings season, largely due to the subdued expectations ahead of
the reporting season. Expectations for the coming quarters been
coming down, particularly for the first half of the year. But there
is still plenty of room for further downward adjustments.To read this article on Zacks.com click here.Zacks Investment