The market can't seem to make up its mind about interpreting Ben
Bernanke's comments, particularly with respect to the need and
timing of more QE. But the simplest explanation could very well be
that the Fed, like everyone else, is watching the economy slow down
and looking for confirmation of whether it's something temporary or
But keeping aside the question of how effective more QE will be
in reversing the slowing trend, one can be reasonably sure that the
Fed will 'do something' should the slowing trend be confirmed.
For many, myself included, the sub-par jobs and retail sales
reports of recent months provide plenty of evidence that the
economy has slowed. But perhaps the Fed needs to confirm this trend
with more data in the coming days. Bernanke will again be
testifying today, this time to the House, and will perhaps be a
little clearer today in building and anchoring the market's
???Bernanke aside, we got a mixed housing report this morning,
with Housing Starts better than expected and Permits coming in
lower than expected. This is a complete reversal of what we saw
last month when Permits were stronger than the Starts.
The June Housing Starts data came in better than expected, up
6.9% to a seasonally adjusted annual rate of 760K, compared to the
4.8% drop in May to 711K. Permits were down 3.7% to 755K, reversing
the strong 8.4% gain to 784K in May. The strength in Starts was
both in single family and multi-family starts, with most regions of
the country showing gains. This is the highest Starts level since
late 2008 and further confirmation of the positive momentum on the
We should keep in mind, however, that the improvement is from a low
base as the long-term historical average for Starts is around
double the current level, while Starts at the 'bubbly' peak were
north of the 2.2 million mark. We will probably never go back to
that level, but we do need to see a sustainable recovery in this
key sector of the economy. Sales and inventories have stabilized,
but a pricing recovery will like take much longer given the shadow
inventory of foreclosure pipeline and the recent loss of momentum
in the labor market.
The second quarter 2012 earnings season is in full swing and the
picture that is emerging appears to be less bad relative to
pre-season fears. Results for the big banks, including from
Bank of America
) this morning, have met or exceeded earnings expectations. That
said, revenue gains are difficult to come by and the overall tone
of company guidance is on the weak side.
) results after the close on Tuesday were far better than what we
Advanced Micro Devices
) a few days back, but they nevertheless also have revenue issues.
It is hard to tell whether Intel's top-line 'problem' is a function
of the global economic slowdown or the secular demand shift from
PCs to tablets is hard to tell at this stage, but we are seeing
many companies struggle with revenue gains.
Total earnings for the 52 companies that have reported results
as of this morning are down 2.3% from the same period last year,
while earnings for these same companies were flat (up 0.5%, to be
precise) in the previous quarter. After a fairly weak start, the
ratio of companies beating earnings expectations has steadily
improved. As of this morning, 67% of the companies have beat
expectations, with a median surprise of 2.5%. This is weaker than
what we saw from these same companies in the first quarter, when
75% beat expectations and the median surprise was 3.9%.
ADV MICRO DEV (AMD): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis
INTEL CORP (INTC): Free Stock Analysis Report
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Bottom line, the second quarter earnings season is weaker than what
we have been seeing in recent quarters, but corporate profits are
not falling off the cliff either. But all this could change in the
coming days as roughly 90% of the reports are still to come.
(This article was originally published as
Ahead of Wall Street - July 18, 2012