Earnings expectations for Q4 are falling but stock prices
(NYSEARCA:SPY) keep rising. Will it continue?
In October, analysts lowered Q4 2013 EPS estimates for the
S&P 500 by 1.5%, yet the index rose 4.5% for the month. Odd as
it may seem, this particular trend has consistently repeated
"In recent quarters, it has not been unusual. In fact, it has
occurred in seven of the past nine quarters (including Q4 2013).
During these seven quarters, the average decrease in the
bottom-up EPS has been 2.6%, while the average increase in the
value of the index has been 4.7%."
Among the 460 companies within the S&P 500 that have
reported Q3 earnings, 75% have beaten profit estimates, according
Still, there have been some disappointments.
In the retail sector (NYSEARCA:XLP), Wal-Mart beat profit
estimates by a penny, but total revenue was up just 1.7% from a
year ago and the company gave a weak outlook for Q4.
For previous quarters this year, here's how Wal-Mart's earnings
reports have looked:
Q1: Wal-Mart Misses Revenue, Guides Below Expectations: Weather
Among Factors Blamed
Q2: Wal-Mart Misses, Guides Below Expectations; Blames Weak
Consumer Spending, Payroll Tax, FX And Lack Of Inflation
When industry blue chips like Wal-Mart report poor results, it
could spell trouble ahead for the rest of the retail
Performance wise, Wal-Mart's stock has badly underperformed its
peer group, the Consumer Staples Sector SPDR (
), by almost 15% over the past year alone and by a whopping 37%
over the past five years.
Comparing the performance of individual stocks versus their peer
industry group and the ETF's tracking them is one easy way to see
whether a stock is a leader or a laggard.
Similarly, Cisco Systems Inc. (NasdaqGS:CSCO) has badly lagged
its peer group, the Technology Sector SPDR (NYSEARCA:XLK). Over the
past five years, Cisco's stock price has risen just 58% compared to
a 147% gain for S&P technology stocks (
). Cisco is the world's largest maker of
computer-networkingequipment and the company is forecasting its
first quarterly sales decline in four years.
On a valuation basis, the S&P 500's (^GSPC) current
price-to-earnings ratio (P/E) is 19.67 using trailing twelve month
"as reported" earnings. That's slightly above its historical median
"The expectation of continued monetary accommodation has trumped
economic fundamentals to become the main factor determining the
near-term outlook for U.S. equities," said Scott Minerd, Global CIO
at Guggenheim Partners.
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