Tuesday, April 23, 2013
Global growth concerns are back in the spotlight today, with
weaker than expected manufacturing surveys out of China and
Germany. Partly offsetting these concerns are reassuring-looking
earnings reports this morning from the likes of
). The market will be keenly waiting for
) quarterly report after the close today, even though few expect
any fireworks from the iPhone maker in this release as
expectations have been steadily coming down in recent weeks.
) April flash PMI for China came in lower than expected at 50.5
vs. expectations of 51.5 and the prior month's 51.6 level. This
follows the 2013 Q1 GDP miss a few days back, raising concerns
that the Chinese economy may be losing steam all over again.
These China concerns have been at the core of the sell off the
commodity complex that has kept investors on edge in recent days.
) bounce on Monday after the mining and construction equipment
maker's weak quarterly results largely reflected the market's
appreciation of the company's 'throwing in the towel' on the
global mining market and not a reflection of better growth
prospects. Caterpillar had been holding hopes in recent quarters
on that front and its current guidance is believed to be
excessively conservative. The growth outlook issue was also
spotlighted by the weak flash PMI reading for Germany by Markit,
which dropped to 48.8 in April from March's 50.6 reading.
Including this morning's reports from DuPont, Coach and others,
we now have Q1 results from 124 S&P 500 companies or 36.1% of
the index's total market capitalization. For the Finance and
Technology sectors, the two largest in the index, we now have Q1
results from 55.7% and 48.7% of the sectors' market
Total earnings for these 124 companies are up +4.4% from the
same period last year, with 69.4% beating earnings expectations.
Revenues are up +3.9%, but only 38.7% of the companies coming
ahead of top-line expectations. The growth rates and earnings
'beat ratio' is comparable to what these same 124 companies
reported in 2012 Q4, though the revenue 'beat ratio' is
materially weaker (38.7% vs. 62.1%). The composite growth rate
for Q1, where we combine the results of the 124 companies that
are out with the 376 still to come, is for 'flat' or 'no growth'
in earnings on +0.4% higher revenues.
Q1 earnings aren't that bad, particularly relative to pre-season
expectations. But the issue is with respect to the earnings
picture for the coming quarters, particularly the back half of
2013 and next year. The consensus expectation is for a strong
rebound in the second half of the year after 'flattish' growth in
the first half. But given the global growth questions as
spotlighted by the recent commodity price sell-off, those
earnings expectations may be due for a revision.
The question is what the market's reaction will be to this
expected downward adjustment to earnings expectations. In my
view, the recent uncertainty in the market is essentially a
reflection of the market's struggles with this very same
APPLE INC (AAPL): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis
COACH INC (COH): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis
HSBC HOLDINGS (HBC): Free Stock Analysis
TRAVELERS COS (TRV): Free Stock Analysis
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