Fed in Focus as 2013 Q3 Earnings Season Gets
The market's focus is justifiably on the Fed this week, given
expectations that the FOMC will start 'Tapering' its
bond-purchase program. Also of interest will be the FOMC members'
updated economic forecasts and the Bernanke press conference
where the outgoing Fed Chairman will try to explain their 'Taper'
decision, or lack thereof.
Some in the market continue to hope that the Fed will hold off on
the 'Taper' decision this week given the still-tepid economic
picture and the potentially destabilizing upcoming budget and
debt-ceiling debates in Congress. With the Syria debate now
moving to the background, Congress's attention will be shifting
to these divisive topics in the coming days, not to mention a
potentially noisy Senate confirmation battle for Larry Summers as
the next Fed Chairman, should he get the nod as many speculations
seem to suggest.
Please check out the very informative post by Nick Kalivas on the
evolving monetary policy picture and the issues facing the Fed.
The Fed will no doubt be the big subject this week, but we are
getting close to the start of the 2013 Q3 earnings season as
well. In fact, the Q3 earnings season will actually get underway
this week with the earning release from Adobe Systems (
) after the close on Tuesday, followed by reports from such
bellwethers as FedEx (
) and Oracle (
) on Wednesday.
Alcoa (AA) typically gets credited for kick-starting each
earnings season, but since we count all companies with quarters
ending in August as part of our Q3 tally, the Q3 earnings season
will have gotten underway weeks before Alcoa reports on October
8th. It will be interesting to see how much attention the
aluminum giant's earnings report will get this earnings season
since it will have lost its position in the Dow Jones Industrial
Average. In total, we have 20 companies reporting Q3 results this
week, including 5 S&P 500 members.
As has been the case at the start of recent quarterly earnings
cycles, expectations for the Q3 earnings season have fallen
sharply over the last three months. Total earnings for companies
in the S&P 500 are now expected to be up only +1.3% from the
same period last year. This is down materially from what was
expected at the start of the quarter in early July, as the chart
This negative revisions behavior is hardly unusual as we have
been repeatedly seeing this pattern play out in recent quarters.
Companies have been overwhelmingly guiding lower, prompting
analysts to cut estimates for the following quarter. The
revisions behavior ahead of the Q2 earnings season was no
different and most of the same sectors have experienced negative
revisions this time around as well. The 'regulars' on the
negative estimate revisions beat include Technology, Basic
Materials, and Industrials. But Retail and Consumer Discretionary
have played material roles in bringing down expectations for
The chart below compares the Q3 total earnings growth expected
for these five sectors at the start of the quarter and where
those expectations stand at present
Estimates for other sectors have come down as well, with even the
Finance sector earnings expected to be up +7% now vs. the +8.1%
that was expected in early July. Energy, Utilities, Conglomerates
and even Construction have suffered negative revisions in varying
While estimates for Q3 have come down, the same for Q4 and the
following quarters have held up fairly well, as the chart below
Part of the extremely strong growth expected in Q4 is a function
of easier comparisons, as 2012 Q4 represents the lowest quarterly
earnings total for the S&P 500 in the last six quarters, with
the comps particularly easy for the Finance sector. But it's not
all due to easy comparisons, as the expected earnings totals for
Q4 represent a new all-time quarterly record. Total earnings for
the S&P 500 reached a new record at $255.9 billion in Q2,
surpassing Q1's $253.9 billion record. But they are expected to
reach $273.6 billion in 2013 Q4, with total earnings growth
outside of Finance expected at +8.5%.
Judging by what has happened over the past year or so, these Q4
estimates will come down as companies share their outlooks on the
Q3 earnings calls. The market didn't care much as estimates came
down in the last few quarters, hoping for better times ahead.
Will it do the same this time as well, pushing its hopes of
earnings ramp up into 2014? We will find out the answer to that
question over the next two months.
- We will get the August Industrial Production index and
capacity utilization numbers in the morning. The expectation is
for +0.4% increase in IP and an uptick in utilization.
- We will also get the September Empire State manufacturing
index, with consensus expectations of a modest improvement from
August's 8.2 reading.
- The Fed's two-day meeting gets underway today.
- August CPI and September homebuilder sentiment index will
be coming out in the morning. The CPI reading is expected to
remain benign and the homebuilder index is expected to remain
unchanged from the prior month's 59 reading. The recent spike
in interest rates is a net negative for the housing sector and
could show up in this reading.
- The Q3 earnings season gets underway today, with earnings
reports from FactSet Research (
) in the morning and Adobe Systems (
) after the close.
- The big news of the day is whether the FOMC meeting will
result in the 'Taper' announcement or not. Economic projections
of FOMC members and the Bernanke press conference will be other
key events of the day. But the Fed activities will take place
in the afternoon.
- In the morning, we will get the August Housing Starts and
Permits numbers, with expectations of gains on the Starts and a
decline on the Permits fronts.
- FedEx (
), General Mills (
) and Cracker Barrel (
) will be the key Q3 earnings reports in the morning, while
) will report after the close.
- Jobless Claims, Existing Home sales, Philly Fed and Leading
Indicators round out a busy economic docket.
- ConAgra (
), Pier 1 Imports (
) and Rite Aid (
) will report results in the morning.
- Nothing major on the economic or earnings calendars.
Here is a list of the 20 companies reporting this week,
including 5 S&P 500 members.
ALCOA INC (AA): Free Stock Analysis Report
ADOBE SYSTEMS (ADBE): Free Stock Analysis
CONAGRA FOODS (CAG): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
FACTSET RESH (FDS): Free Stock Analysis
FEDEX CORP (FDX): Free Stock Analysis Report
GENL MILLS (GIS): Free Stock Analysis Report
ORACLE CORP (ORCL): Free Stock Analysis
PIER 1 IMPORTS (PIR): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis
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