Stocks started off the New Year hung over from last year's
festivities, but 'normal' trading activities only get underway
today as folks get back to work from the holidays. Hard to
imagine, however, how things can get back to 'normal' with the
deep freeze across the Midwest and much of the country today.
The chilly weather notwithstanding, the growth outlook for the
U.S. economy has certainly perked up lately, with many across
Wall Street looking for data to validate the Fed's Taper
decision. Last week's manufacturing ISM data was along those
lines and we will likely get further support to that thesis from
today's service sector ISM reading as well. The global PMIs were
a mixed bunch, with the picture particularly underwhelming in the
emerging markets. In China, both the private sector and
government PMI readings showed a loss of momentum from the
preceding month. The key report now is the year's first U.S. jobs
reading coming out Friday, which is expected to show gains close
to the recent monthly run rate.
The market's strong gains also need to be validated by corporate
earnings fundamentals. We will get another look at the earnings
picture with the 2013 Q4 earnings season about get into the
spotlight. The earnings picture certainly isn't bad, with
quarterly earnings totals in record territory over the last
couple of quarters. But it isn't consistent with a market sitting
pretty in record territory either. We haven't had much growth
lately and estimates have consistently been coming down as
companies have guided lower.
The same has happened with Q4, with current expectations of +6.3%
total earnings growth for the S&P 500 down sharply from what
was expected at the start of the quarter. While actual growth
will most likely be higher than what is expected at present, a
function of the corporate world's expectations management game,
even the lowered +6.3% growth pace will be the highest of 2013.
But a big contributor to the perked up Q4 growth rate is easy
comparisons - 2012 Q4 was lowest quarterly total in the last two
Comparisons are particularly easy for the Finance sector, with
Bank of America
) enjoying a roughly $2 billion swing from the year-earlier
level. The Insurance industry had to deal with unusually tough
conditions in the wake of the Sandy disaster and its growth
picture also looks a lot better in comparison. Total Q4 earnings
growth for the S&P 500 drops to almost half once is Finance
is excluded. Others like
) also have easy comps.
Not to belabor the easy-comps issue too much, but the point is
that Q4's stronger-looking growth pace is no evidence of a growth
acceleration. Consensus expectations are for a strong growth ramp
this year and beyond, with total earnings for the S&P 500
expected to be up in double-digits. The question is will the
markets continue the upward trajectory this year, even at a
slower pace as many seem to be looking forward to, if those
earnings expectations start coming down.
We will have to wait and see.
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