As the first FOMC meeting of 2013 gets underway today, it is
perhaps appropriate to acknowledge the Fed's contribution to
pushing stocks to within striking distance of new all-time
highs. The Fed is not the sole source of the all -around
optimism in the market; there is, after all, a positive turn in
economic data lately, earnings season has turned out to be decent
enough and Europe has become less worrisome.
That may be so, but interest rates would be a lot less supportive
if the Fed (and rich country central banks) wasn't deploying its
enormous balance sheets to keep them low. The Fed balance sheet
recently crossed the $3 trillion mark, more than triple its size
when the stock market last peaked in the fall of 2007. At its
current pace, it is reasonable to expect that it will be close to
$4 trillion by the end of this year. The stock market loves
liquidity (who doesn't?) and the Fed seems determined to keep the
spigots open for quite some time to come.
??????We don't have the Bernanke press conference this time
around and wouldn't be getting updated estimates from the FOMC
members either. The post-meeting statement coming out Wednesday
afternoon is not expected to show any changes, though minutes of
the last meeting had raised fears that the easy-money policy may
be ending sooner than the announced timeline. The Fed aside, we
will get the November Case-Shiller Home Price index and the
Conference Board's Consumer Confidence data a little
On the earnings front, investors have been finding enough
reassuring data to sustain the positive stock market momentum. A
big part of the earnings outperformance is due to lowered
expectations that made it easier for companies to come out ahead.
We see this in this morning's batch of earnings releases, with
better-than-expected results from
), though the Pfizer's guidance was on the weak side and generic
competition to Eli Lilly's flagship drugs seem to be heating up.
) also came out ahead of expectations, but guided towards
continued problems in Europe, resulting in a 2013 loss in the
region equivalent to the 2012 level.
) also beat earnings and revenue expectations, with positive
momentum in the housing sector driving the homebuilder's orders
) will be the key earnings release after the close
We have positive earnings surprises from 64.5% of the 172
S&P 500 companies that have reported results as of this
morning, with total earnings for these 172 companies up +1.1%
from the same period last year. Please note that these 172
companies account for 47.5% of the S&P 500's total market
Unlike in the third quarter, the revenue picture doesn't look
that bad either, with 56.4% of the companies coming ahead of
revenue expectations and total revenues up +4.3% from the same
period last year. This is better performance than what these same
companies reported in the third quarter and broadly in-line with
results over the past year.??????
But to say that the market has solely become satisfied due to
the ratio and magnitude of these beats would be unfair. Company
guidance has been favorable as well, particularly relative to
what we heard from management teams in the third quarter.
Companies are not raising guidance, but neither are they
lowering them, by and large. And that helps investors gain
confidence in estimates for 2013, over which many of us had been
raising doubts for quite some time.??????
The overall positive tone in the market, however, shouldn't
hide the fact that earnings growth has effectively flatlined. The
composite earnings growth rate -- combining the results of the
172 that have come out with the 328 still to come -- is for only
+0.8% growth. The final growth tally for Q4 will most likely come
in at around +2%. This would mean that total earnings were up
about +3% in 2012.
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LILLY ELI & CO (LLY): Free Stock Analysis
PFIZER INC (PFE): Free Stock Analysis Report
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But expectations for 2013 suggest the growth pace picking up,
particularly in the back half of the year and carrying into 2014.
This reflects the second-half recovery narrative imbedded in
current GDP growth estimates referred to earlier. I have been
skeptical of these growth expectations for awhile, but the market
has been shrugging the growing evidence thus far.