Markets have plenty to chew on this week - from a flood of Q3
earnings reports, including more than 140 from S&P 500
members, to a host of economic data that got delayed as a result
of the shutdown. The earnings season has been underwhelming thus
far, with companies struggling to beat expectations despite the
lowered estimates. But investors may not be looking for
inspiration to the earnings season. The growing likelihood of a
Fed Taper delay as a result of the shutdown is good enough for
investors to push stocks higher, with or without earnings growth.
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On the earnings front,
) was able to edge past earnings and revenue expectations,
despite modestly weaker than expected same-store sales numbers.
The company expects the challenging operating environment to
continue pressuring results.
) came out with a solid earnings beat though it missed on
revenues, as margins benefited from greater focus on
higher-margin merchandize. In other reports,
) beat on both the top and bottom-lines, while
) modestly beat on EPS, but missed on the top line.
) are the key reports coming out after the close today. Including
this morning's reports, we now have Q3 results from 104 S&P
500 members that combined account for account for 31% of the
index's total membership.
Total earnings for these 104 companies are up +1.3%, with 63.5%
coming ahead of consensus earnings expectations. Total revenues
are up +2.2% and 41.3% are beating top-line expectations. The
results thus far are weaker than what we have seen for this same
group of companies in recent quarters. The +1.3% earnings growth
in Q3 for these companies compares to +11.4% in Q2 and the
4-quarter average of +5.9%, while the +2.2% revenue growth is
below Q2's +4% and the 4-quarter's average of +4.1%. The beat
ratios are similarly tracking lower.
With results from more than 50% of the sector's total market
capitalization already known, Finance has perhaps the most
representative sample of Q3 results of the major sectors. Total
Finance sector are earnings are up +14.6% from the same period
last year, with strong year-over-year gains at
Bank of America
) driving most of the gain. Bank of America had a particularly
easy comparison this quarter, resulting in a positive $3 billion
swing in total earnings.
The Bank of America strength helped total earnings growth for the
'Major Banks' industry, which alone accounts for more than 45% of
the Finance sector's total earnings, to +15.3% in Q3, below Q2's
) were far smaller contributors to growth this time around.
Finance sector results in Q3, in terms of growth rates and beat
ratios, are weaker than what we saw from the sector in Q2 and the
last few quarters. The sector's decelerated growth picture
notwithstanding, it is still solely responsible for keeping the
aggregate growth rate for the S&P 500 in the positive column.
Beyond earnings, we will be getting a slew of economic reports
this week that couldn't come out at their scheduled dates due to
the shutdown. We will be getting the September CPI and PPI
numbers, but the most important report this week will be the
September non-farm payroll report now coming out tomorrow
(October 22nd). The expectation is for gains of 185K on the
'headline' after August's 169K reading, with the unemployment
rate remaining unchanged at 7.3%.
The market will be looking at the jobs data with the Fed's next
week's meeting in mind. Given the shutdown related distortions to
data and also the still-unsettled budget battles in Congress that
have only been deferred for a few more months, many in the market
expect the Fed sit pat on the QE question in next week's meeting.
In fact, many in the market don't expect the Fed to start
'Tapering' QE till late Spring 2014.
Hard to tell at this stage how the Fed question will evolve,
particularly given the scheduled succession at the top of the
central bank. What we do know, however, is that the Taper is on
the way, but it's starting point is unclear at this stage.
Nothing makes investors happier than a Taper delay and we are
seeing evidence of tha t in the stock market's push ever higher