Inconsistent Market Behaviour Prevails - Economic Highlights

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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, MasterCard' s ( MA ) results this morning had none of the strength that Visa ( V ) 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 capitalization. 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. Wal-Mart' s ( WMT ) 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 unfolded.

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 more discriminating.

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Economy

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