Stocks will likely remain in a tentative mood today ahead of
Friday's non-farm payroll, with this morning's Jobless Claims
data reversing the gains of the last two weeks. The Personal
Income & Outlays data this morning appears to be on the
positive side, but the report's internals likely have some
transitory factors that should make us a bit skeptical of the
strength, particularly on the income side.
On the earnings side, we got solid positive surprises from oil
) came short of expectations. Overall, we have a relatively mixed
picture on the data front ahead of market open, with the Chicago
PMI coming out a later that is expected to give us a preview of
Friday's manufacturing ISM reading.
I had been skeptical of the sharp drop in initial Jobless Claims
numbers the last two weeks, and this morning's data confirms that
skepticism. The data shows an almost complete reversal of the
last two weeks' gains, with initial claims going up 38K to 368K;
initial claims were at 355K two weeks back. The four-week average
remained essentially unchanged at 352K.
Seasonal adjustments are problematic at this time of the year,
and that was the primary reason for the wild swings in this
series the last few weeks. That said, the overall tone of labor
market appears to be favorable, as indicated by Wednesday's ADP
I am looking for a positive surprise in tomorrow's January
non-farm payroll report, with consensus looking for something in
the 160K vicinity. A jobs reading in the 190K to 200K range will
provide a solid catalyst for this market to mount a fresh bid to
scale the fall 2007 peak.
The other data we got this morning was for the December
Personal Income & Outlays, with Personal Income coming in way
better than expected, while Outlays (or personal spending) a
smidge weaker than expected. On the Personal Income front, the
strength is no doubt welcome, but it likely reflects income being
pulled forward in the month in the run up to expected tax hikes
due to the 'Fiscal Cliff' issue.
There was a flood of dividend announcements by companies in the
month and bonuses also likely got paid out early, which will
likely show up as a sharp drop in January data. The Outlays data
doesn't carry as much informational value since we got the fourth
quarter consumer spending numbers in Wednesday's GDP report (up
+2.2%), but this morning's monthly spending gain was a bit on the
On the earnings front,
we now have fourth quarter reports from 223 S&P 500
companies, or 56.4% of the index's total market
, as of this morning. Total earnings for these 206 companies are
up +2.5% from the same period last year, with 66.4% of companies
beating earnings expectations with a very healthy median surprise
On the revenue side, total revenues for these companies are up
+0.4%, with 57.8% companies beating top-line expectations with a
median surprise of +0.9%. The composite growth picture for the
fourth quarter, where we combine the result from the 223
companies that have come out with results already with the 277
still to come, is for growth rates of +1.5% for earnings and
+0.3% on revenues. This would be an improvement over the
essentially flat performance in the third quarter.
??????This has been a decent enough earnings season,
particularly relative to the very low expectations in the run up
to the start of the reporting season. The stronger looking beat
ratios and surprises relative to the third quarter reflect those
low expectations. But the quality of guidance hasn't been that
worrisome either. While guidance was invariably negative in the
third quarter, it has been less so this time around.
That said, expectations for 2013 have started coming down,
particularly for the first half of the year. But they still seem
to be on the elevated side and will need to come down more. It is
interesting to see the market at multi-year highs with earnings
estimates coming down.
But who says the market is always right?
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