The flood of earnings reports this morning presents a mixed
picture, with positive momentum from the likes of
) undercut by the pronounced weakness from
). The results from these three corporate leaders aren't
surprising and fit neatly into a broader narrative of a slowing
global economy with pockets of strength in commercial aviation
worldwide and domestic auto and housing.
China's weak July manufacturing numbers overnight further
confirm that while the outlook for the U.S. economy may be
improving, the decelerating trend in the Chinese economy has not
fully played out yet. Caterpillar didn't cite China specifically
for its earnings miss and lowered guidance, but the global mining
slowdown that some are referring to as the end of the commodity
super cycle is a direct offshoot of developments in China.
The downshift in China's growth outlook is likely more secular
and enduring than equipment suppliers like Caterpillar and
commodity exporting nations like Australia and Brazil are willing
to acknowledge at this stage. Caterpillar blamed temporary
inventory issues and mining weakness as the reason for the
quarterly miss and lowered guidance. But they probably need to
realign their business for a long period of sub-par demand growth
from the emerging world.
) will be reporting after the close today, but including this
morning's reports from Boeing, Ford, Caterpillar,
) and others,
we now have Q2 results from 170 S&P 500 companies or 34%
of the index's total membership that combined account for 46.6%
of its total market capitalization.
Total earnings for these 170 companies are up +3.8%, with
64.1% beating earnings expectations. On the revenue side, we have
a growth rate of +3.6%, with 44.1% coming ahead of top-line
expectations. The earnings and revenue growth rates and the
revenue beat ratio seen thus far are broadly in-line with what we
saw from the same group of 170 companies in Q1, while the
earnings beat ratio is tracking a bit lower.
As we have been pointing out from the get-go in this space
that while the aggregate numbers for the S&P 500 as a whole
look not so bad, a lot of that respectability is coming from the
strong Finance sector results.
Once we take Finance out of the earnings reports that have
come out thus far, what is left behind isn't satisfactory by any
measure. Total earnings growth outside of Finance is tracking a
decline of -4.2% (vs. +3.8% for the S&P 500 as a whole). Even
the beat ratios are tracking below what we have been seeing in
recent quarters once Finance is stripped out of the aggregate
Lack of growth notwithstanding, total Q2 earnings are on track
to reach a new all-time quarterly record. But it is extremely
hard to square this sub-par earnings growth picture with a stock
market that is making new all-time highs almost daily. Makes one
wonder whether earnings growth has become a non-issue for stock
market investors in the current environment of a very supportive
Fed. Perhaps investors will start paying attention to the
earnings picture once the Fed shifts its stance. For now at
least, investors are behaving as if there is no tomorrow.
BOEING CO (BA): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis
FORD MOTOR CO (F): Free Stock Analysis Report
FACEBOOK INC-A (FB): Free Stock Analysis
PEPSICO INC (PEP): Free Stock Analysis Report
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