Pre-open sentiment is on the weak side as the emerging market
scare is back and the U.S. Fed is expected stick with its Taper
plan in Bernanke's last FOMC meeting as Chairman. Adding to the
uncertain backdrop is a slew of mixed Q4 earnings reports this
morning, with companies beating estimates but guiding lower.
The Fed isn't expected to produce any surprises in its
statement this afternoon. Bernanke had effectively outlined a $10
billion Taper pace at each meeting in his December press
conference (there is no press conference or forecasts after
They will evaluate the economic landscape at each meeting, but
public comments from the FOMC members following the December
meeting point towards a high threshold level for them to deviate
from the announced Taper plan. The weak December jobs reading and
the recent soft Durable Goods report certainly wouldn't cut it
They are unlikely acknowledge the emerging market turmoil
either; they didn't do it last summer either when the emerging
market currency and bond markets reacted sharply to the first
Taper indication. Not that they will ever publicly concede it,
but I don't think they mind the recent pullback in Treasury
yields as a result of the emerging market noise. While the
possibility of some subtle changes to the post-meeting statement
can't be ruled out, the market will be perfectly fine with the
Fed sticking with the announced Taper plan.
If there is any question or doubt in the market's collective
mind over Fed policy, it is about the prospect of an accelerated
Taper in the event of an above-trend economic turnaround. But as
some of the more recent economic reports have showed, we are not
On the earnings front, we got better-than-expected results
) beat estimates but came up a bit short on guidance. The
guidance shortfall is also present in the
) reports this morning and last evening's
Including these reports, we now have 2013 Q4 results from 164
S&P 500 members, accounting for 45.3% of the index's total
market capitalization. Total earnings for these companies are up
+16.6% from the same period last year, with 70.7% beating
earnings expectations. Total revenues are up +4%, with 57.9%
beating revenue expectations.?????? These are better results 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
164 S&P 500 members. Even the blended beat ratio -- the ratio
of companies coming ahead of consensus EPS and revenue estimates
-- thus far in Q4 is higher than recent quarter 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. As a
result, estimates for the 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% 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 revisions trend the
last couple of years, but they will need to be a bit more
discerning and discriminating in the coming days.
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