A surprisingly strong Jobless Claims report and growing optimism
about Spain will likely be the key drivers of today's market
action, distracting market participants from earnings-related
worries.
The market appears to be seeing a silver lining to the debt
rating downgrade of Spain to one notch above the junk category in
the hope that the move will force the Spanish government's hand in
asking for a bailout. It is far from clear at this stage whether
this expectation will pan out, but it is nevertheless adding to
market optimism on the European front.
Europe aside, we got an unusually sharp drop in weekly Jobless
Claims data this morning, which will likely add to the growing
optimism on the U.S. labor market front. The jobless claims report
showed the big drop in initial claims to 339K, taking this key
measure of unemployment to its lowest level in almost four years.
The four-week average, which tends to reduce volatility in the
weekly measure, dropped by 11.6K to 364K, the lowest level in six
months. The Jobless Claims report adds to the strong gains in the
unemployment rate in last week's September non-farm payroll report
that brought the jobless rate to less than 8% for the first time
since 2009.
Offsetting these favorable reports about the domestic and European
scene is the uncertain corporate earnings picture coming out of the
third quarter reporting season. While the reporting season has
gotten off to a weaker start relative to the previous quarter, the
final tally of companies beating third quarter earnings
expectations will likely be not much different from what we have
been seeing in recent quarters. This is a testament to management
teams' impressive track record of under-promising and
over-delivering.
But more important than what proportion of companies beat third
quarter expectations will be the quality of guidance of fourth
quarter and beyond, as this will determine how much earnings
estimates for the coming quarters need to come down. Given what we
have heard from
Alcoa
(
AA
),
FedEx
(
FDX
) and
Nike
(
NKE
) on their earnings calls thus far and pre-announcements from the
likes of
Intel
(
INTC
) and
Cummins
(
CMI
), the overall trend on the guidance front will likely be to the
downside. We will know more in the coming days as the earnings
season unfolds.
ALCOA INC (AA): Free Stock Analysis Report
CUMMINS INC (CMI): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
NIKE INC-B (NKE): Free Stock Analysis Report
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