Stocks today appear on track to reverse the gains from the day
before as the emerging market angst threatens to become a full
blown contagion enveloping the entire developing world. Renewed
Euro-zone deflationary fears are getting cited as the cause for
today's sell-off. But investors have been on edge lately, causing
stocks and treasury yields to pullback.
Not all emerging markets are the same as countries like Turkey,
Argentina, and South Africa have lot more serious problems than
others like India, Brazil and even China. But markets tend to
lump them all together on first signs of trouble, resulting in
capital outflows across the board. Signs of nervousness about the
otherwise sound economies of central Europe like Hungary, the
Czech Republic and Poland are indicative that the emerging market
fear may still have plenty of room to run. It is reasonable to
assume that markets will eventually differentiate between the
'haves' and the 'have-nots' in the emerging market space, but we
probably need to be endure some more pain before we reach that
point. We are not there yet.
On the earnings front,
) results this morning had none of the strength that
) showed in its results the other day.
Including this morning's reports, we now have 2013 Q4 results
from 251 S&P 500 members, or 50.2% of the index's total
membership that combined account for 66.4% of its total market
Total earnings for these companies are up +11.4% from the same
period last year, with 70.1% beating earnings expectations. Total
revenues are up +1.6%, with 59.4% beating revenue expectations.
This is better performance, particularly on the earnings front,
than we have seen from this same group of companies in recent
quarters, even through the strong 'headline' earnings growth rate
is mostly due to easy comparisons for a few big companies. The
ratio of companies beating top- and bottom-line expectations is
better than what we saw from this same group of 251 S&P 500
members in recent quarters. Even the blended beat ratio, the
ratio of companies coming ahead of both consensus EPS and revenue
estimates, in Q4 is tracking higher than recent quarters.
While the growth rates and beat ratios in Q4 are better relative
to recent quarters, we haven't seen much difference on the
guidance front, with companies still providing an underwhelming
outlook for the current and coming quarters.
) pre-announcement this morning provides further confirmation of
this negative trend. As a result, estimates for current quarter
have been steadily coming down as the Q4 reporting season has
Total earnings for the S&P 500 are now expected to be down
-1.3% in 2014 Q1 compared to expectations of +2% growth at the
start of the month. Nothing new there as we have been seeing this
negative estimate revisions trend play out quarter after quarter.
The market didn't pay much attention to this negative revisions
trend the last couple of years, but it may already be becoming
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