Stocks are indicated to open lower today after ending last
week on a high note despite disappointing data. With not much on
the docket today and the rest of this week, market action will
likely reflect earnings release and further follow through to
last week's data.
Investors will likely get disappointed if they are angling from a
slower Fed Taper as a result of the recent softer economic data.
The drop in the unemployment rate and uptick in participation
rates do little to change the overall disappointing tone of
Friday's jobs report, the second weak labor market tally in two
months. This followed the weak ISM survey and soft durable goods
and factory orders readings. The unmistakable takeaway from these
releases is that the economy lost some steam as it entered 2014.
The most logical explanation for the 'slowdown' appears to be
weather which has been unusually harsh this winter. Since weather
didn't let up in February either, we will have to wait some more
before moving past the weather-induced hiccup. We wouldn't get
much this week given the light economic docket, though we do have
the new Fed Chairwoman's Congressional testimony tomorrow
morning. Those looking for Yellen to indicate any rethink to the
Taper plan will likely be disappointed as the bar for any changes
to the QE program are likely very high.
On the earnings front, the bulk of the Q4 earnings season is now
behind us, but the cycle is far from over. Including this
morning's reports from
) and others, we now have Q4 results from 346 S&P 500 members
that combined account for 78.7% of the index's total market
capitalization. Total earnings for these companies are up +11.5%
from the same period last year, with 69.5% coming ahead of
consensus EPS estimates. Total revenues are barely positive, up
only +0.5%, and 63.4% have beat revenue expectations. Lack of
revenue growth stands out and is weaker than what we have seen
from this same group of companies in recent quarters, with the
Finance and Energy sectors as the primary drags on top-line
Comparing the results from this same group of companies to the
last few quarters, performance is tracking better in terms of
earnings growth and earnings & revenue beat ratios. Revenue
growth is notably weak this time around, but most of that is due
to the Finance and Energy sectors, particularly tough comparison
). Outside of these sectors, the revenue growth picture is not
materially different from what we have been accustomed to in
Overall, it has been an 'ok' earnings season, no better or worse
than other recent quarterly reporting cycles. Companies have beat
earnings and revenue estimates at an above-average rate, but they
continue to guide lower, prompting estimates for the current
quarter to come down. This has been an ongoing trend for more
than a year now, but investors have generally been not terribly
concerned about this issue as the super accommodative Fed policy
convinced them to look for better times ahead.
But with the Fed now getting out of the QE business and new
questions about the global and U.S. growth pictures taking the
spotlight, investors may not be as accommodative as they have
been in the past.
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