The ISM report today will likely give stocks the reason to
reverse some of the losses from Monday. But the relative dearth
of high-impact news over the next few days will likely come in
the way of the market's push towards new all-time highs.
That wouldn't be indicative of a trend reversal, which continues
to be driven by broad optimism about the economy and earnings
picture. Some Europe-related headlines have started getting
traction in the market again, but that is more due to lack of
news on the home front than a full-blown resumption of Euro-zone
The overall mood seems to be of optimism, with market
participants genuinely happy with how things are shaping up. The
favorable narrative notes that potentially problematic policy
pitfalls like the 'Fiscal Cliff' and debt ceiling issue have been
avoided or deferred for the time being.
The U.S. economy is showing signs of health, China seems to be
in good shape and even Europe's situation may not be that
worrisome, notwithstanding the improving poll numbers of Italy's
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The fourth quarter earnings season currently winding down may not
be showing a lot of growth, but that should show up in the coming
quarters as the economy's growth momentum resumes. Bottom line,
investors seem satisfied that the economic and earnings picture
may not be in great shape at present, but the outlook on both
counts remains strong.
We have started seeing estimates for the coming quarters and
full-year 2013 come down in recent days. But the market is
looking for a noticeable ramp-up in earnings growth later this
year, particularly in the second half. This reflects outlook for
the underlying economy, which is also expected to show much
better growth in the second half of the year. The market's recent
positive momentum reflects this happy outlook and will likely not
reverse till this view remains in place.
This morning's basket of earnings reports show a mixed picture,
Automatic Data Processing
) coming out with positive earnings surprises, while
) missed expectations.
) will be reporting after the close. Overall though, the Q4
earnings season has been good enough, both relative to pre-season
expectations and the preceding quarter.
As of this morning, we have Q4 earnings reports from 276 S&P
500 companies or 68.2% of the index's total market
capitalization. Total earnings for these 276 companies are up
+2.7%, with 67% of the companies beating expectations with a
median surprise of +3.1%.
Revenues are up +0.3%, with 62% of the companies coming ahead of
top-line expectations and a median surprise of +0.8%. The growth
numbers are low relative to historical averages, but the beat
ratios and median surprises are inline with what we have been
seeing in the typical reporting season.