Stocks will likely remain in a wait-and-see mode ahead of
tomorrow's jobs report, which is expected to provide some clarity
about the U.S. economy's growth momentum. Softer recent data has
raised doubts the earlier robust U.S. growth outlook, which added
to ongoing concerns about stability in the emerging markets. A
favorable jobs report tomorrow will no doubt be a net positive
for market sentiment, but it wouldn't do anything for the
emerging market questions.
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Economic data remains in focus, but we are also in the midst of
the 2013 Q4 earnings season. Including this morning's reports
) and others, we now have Q4 results from 321 S&P 500 members
that combined account for 75.5% of the index's total market
capitalization. Total earnings for these companies are up +11.7%
from the same period last year, with 70.9% coming ahead of
consensus EPS estimates. Total revenues are barely positive, up
only +0.1%, and 61.3% have beat revenue expectations.
Relative to results from the group of 321 companies over last few
quarters, this is better performance in terms of earnings growth
and earnings & revenue beat ratios. Revenue growth has been
weak for some time, but the trend emerging from these Q4 results
presents an even weaker picture, with the +0.1% top-line growth
down from +3.1% in Q3 and the 4-quarter average of +2.6%. The
revenue growth picture improves a bit once the Finance sector is
excluded from the aggregate data, but even then it's on the weak
side relative to other recent quarters.
Guidance has been on the disappointing side as well, showing no
improvement from the trend we have been seeing consistently for
more than a year now. As a result, estimates for 2014 Q1 have
been coming down, with current consensus expectation of -1.7%
drop in total earnings in Q1 down from +2.1% at the start of the
Q4 reporting cycle.
This is no different from what we have been seeing quarter after
quarter for more than a year now. But investors didn't get overly
concerned about this issue as the super accommodative Fed policy
convinced them to look for better times ahead. With the Fed now
getting out of the QE business and new questions about the global
and U.S. growth pictures, investors don't appear to be as
understanding of the earnings picture as they have been in the
past. Tomorrow's jobs report will answer some of the questions
about the U.S. growth outlook, but other issues will likely
remain with us for some time.