There is a lot going on this big data for data, ranging from a
flood of third quarter earnings to a reassuring-enough Chinese
GDP report and a U.S. Jobless Claims report that reverses all of
the gains from the previous week. It gets hard at times to make
sense of it all in real time, but the bottom-line is that the
deceleration in China's growth appears to have bottomed, limiting
the odds of a hard landing in that economy.
With respect to the ongoing third quarter earnings season, the
overall picture emerging is far less inspiring even as this
morning's reports from Verizon (VZ), Morgan Stanley (MS),
and Travelers (TRV) all came in better than expected. With more
than a quarter of the aggregate third quarter earnings for the
S&P 500 already known (from the 93 companies that have
released results as of Thursday morning), we have enough of a
sample size to draw some preliminary conclusions. Revenue gains
are hard to come by and far fewer companies are able to beat
revenue expectations. In fact the proportion of companies beating
earnings expectations is also running at a pace that is below
what these same companies achieved in the second quarter.
Importantly, the overall tone of company guidance is on the weak
side, increasing the odds that estimates for the fourth quarter
and beyond will come down in the coming days.
Here is a real-time scorecard for the reporting season as of
this morning (Thursday, October 18th). We have reports from 93
S&P 500 companies or 18.6% of the index's total membership.
But earnings from these 93 companies account for 27.2% of total
S&P 500 third quarter earnings. Total earnings are down 0.5%
for these 93 companies, with 58.1% of the companies beating
earnings expectations. On the revenue side, total revenues are up
0.5%, with only 32.5% of the companies beating revenue
expectations. This compares to beat ratios of 68.8% on the
earnings side and 39.8% for the same companies in the second
quarter. Outside of Finance, total earnings are down 0.4% vs. a
gain of 1.5% for the same ex-Finance group in the second quarter.
For the 407 companies still to report results in the third
quarter, total earnings are expected to be down 2.9% from the
same period last year (and down 8% excluding Finance).
The key earnings reports today are from Google (GOOG) and
Microsoft (MSFT) after the close. Google shares have been in a
strong momentum lately, likely indicating investors' optimism
about the company's ability to monetize its growing mobile
Android franchise. The Zacks ESP or 'Earnings Earnings Surprise
Prediction' or proprietary leading indicator of earnings
surprises, is showing Google coming short of earnings
expectations today. With respect to Microsoft, the issue is not
so its third quarter results, but the outlook for its upcoming
Windows 8 operating system and its bet on the tablet market
through its Surface offering. Some of the comments on the Intel
(INTC) conference call did not inspire much confidence about the
demand outlook for Windows 8, but we will know more in the coming
days. These company-specific questions aside, it will be
interesting to see whether these two companies can buck the trend
of coming short of revenue expectations.
China's third quarter GDP growth came in broadly in-line with
expectations at 7.4%, below the second quarter's 7.6% pace. This
is the weakest quarterly growth rate since early 2009 and the
seventh consecutive quarter of decelerating growth. China's small
domestic consumption has been unable to offset the weak export
demand and lower domestic investment spending in recent quarters.
The decelerating GDP growth trend in today's third quarter GDP
report notwithstanding, other recent data appears to be showing
that a bottoming process may have already gotten underway.
The September data for industrial production, exports, retail
sales, and even inflation show noticeable improvement from the
preceding month's trend. What this means is that the decelerating
GDP growth trend line of recent quarters may have already run its
course, which will most likely show up in the fourth quarter GDP
report. On the flip side, this means that the new leadership team
taking over early next month may not need to come out with a
major stimulus program as many in the market appear to be holding
Leading Indicators Index
is scheduled for release today at 10:00 AM EST and is expected to
increase by 0.2% after decreasing by 0.1% in August to 95.7.
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