While there is no shortage of issues for this market, ranging
from the weak global growth outlook to the sub-par corporate
earnings picture, the key concern for the market at present is
the looming Fiscal Cliff situation. It is perhaps fair to assume
that a full-blown crisis will get averted, but the continued
impasse is taking a toll on business confidence as this morning's
Empire State survey shows. The New York Fed's manufacturing
survey showed that the region's industry sector contracted again
in November. The similar survey from the Philly Fed coming out a
little later is expected to show the gauge in positive territory,
but drop from the previous month's level.
In other news this morning, the Euro-zone economy is now
formally in a recession after experiencing back-to-back GDP
contraction in the third quarter. The economic growth performance
in Germany and France, which combined account for about half of
the region's output, was positive in the third quarter. France is
not in that good a shape and it's hard to envision that Germany's
export centric economy can remain immune from the region's
problems for long. The consensus view is that the Euro-zone
economy will come out of the slump in the second half of the
2013. But given the enormity of problems facing Spain, Italy, and
others, it is hard to buy into that sunny view.
On the home front, we got a benign looking inflation reading
this morning from the October CPI report, though the 'core'
reading (excluding food and energy) came in a bit higher. The
weekly initial Jobless Claims data this morning appears to have
been distorted by the East Coast storm. Jobless Claims dropped
surged 78K to 439K last week from the previous week's revised
361K level. The four-week average, which smoothes out
week-to-week volatility, increased by 11.8K to 383.8K. We will
have to wait a few more weeks to get 'cleaner' jobless claims
data undistorted by the storm as this morning's numbers don't
reflect true underlying trends.
On the earnings front, the positive earnings beats from
Wal-Mart
(
WMT
) and
Target
(
TGT
) this morning and
Cisco
(
CSCO
) the other day cannot camouflage the overall weak corporate
earnings picture. We are at the last leg of the third quarter
reporting season at this stage, with results from 466 companies
in the S&P 500 or 93.2% of the index's total membership
already known. Total earnings for these 466 companies are down
3.7% from the same period last year, with 63.1% of the companies
beating earnings expectations. The growth rates look even weaker
when Finance is excluded from the aggregate numbers. Excluding
Finance, total earnings are down 8.6% from the same period last
year.
Importantly, estimates for the fourth quarter have been
steadily coming down has companies have guided lower. While there
may still be room for downward adjustments, the current fourth
quarter earnings growth rate of 3.5% is less than half of the
7%-plus expected just a few weeks back.
A prompt resolution of the Fiscal Cliff issue could
undoubtedly serve as a positive catalyst for the market. But
while both sides are making conciliatory statements, they still
remain poles apart, making a prompt resolution less than likely
at this stage. But even when this issue is resolved, the market
still has to come to grips with a sub-par corporate earnings
picture and a weak global growth backdrop.
Crude Inventories
are scheduled to be released today at 10:30 AM EST. For the week
ending November 9, crude inventories increased by 1.8 million
barrels from the previous week to 374.8 million barrels.
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