With not much on the economic calendar, stocks will likely
remain in a tentative mood ahead of earnings results from big
banks later this week. Media reports about tepid demand for
) iPhone 5 could also be material to today's trading action.
Expectations for fourth quarter earnings that had been coming
down throughout the quarter went down some more last week
following the major foreclosure related settlement. As a result
estimates for all major banks came down, but the downward
adjustment was particularly notable for
Bank of America
), which saw a roughly $2 billion swing in its fourth quarter
earnings estimate. The Finance sector as a whole which was
expected to achieve earnings growth of +9.7% in the fourth
quarter is now expected to see only +2% growth instead.
We got a solid earnings and revenue beat from
) last week, driven largely by the bank's strong mortgage
business, only partly offset by weakness in its net interest
margin. This means that other banks that have smaller mortgage
businesses will be even more at the mercy of the unfavorable net
interest margin backdrop. We will know more as Bank of America,
) and many of the major regional banks report results this week,
but expectations are low enough that positive surprises may not
be hard to come by.
Apple does not report quarterly results till Wednesday next
week, but the demand outlook for its flagship iPhone 5 appears
less than robust. Media reports indicate that the company has
cancelled orders for key components. The stock has been under
pressure over the last few months as a number of analysts have
been cutting their estimates in recent days. Given Apple's
enormous weight in the market - it accounts for roughly a quarter
of all Tech sector earnings - the company's travails will have a
much broader impact.
Stocks have made impressive gains lately. But for the gains to
be sustained, we need confirmation from the earnings front. I
wouldn't take much to produce positive surprises given how low
expectations have fallen. But even more so than prior reporting
cycles, guidance will be key this time around. The reason is that
while expectations for the fourth quarter came down over the last
few months, we have yet to see any material adjustments to
estimates for 2013. Guidance from management teams will determine
whether those expectations remain in place or come down.
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