Stocks have moved back close to the record level where we
started 2014 as some of the worries that weighed on the market
over the last few weeks have started to ease. Today's session
will likely reflect further follow through on this theme.
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Investors appear willing to look past the recent run of soft U.S.
economic data, with weather generally getting all the blame and
growth expected to resume in the second half of the year.
Investors appear to be applying a similar logic to the earnings
picture as the Q4 reporting season winds down, with near-term
growth challenges expected to eventually ease up along with the
The weather explanation for the recent run of soft economic data
certainly makes sense - it has been one hell of a winter this
year. The expectation is that data will improve as the economy's
deep freeze thaws with the arrival of Spring. What this means is
that February's data arriving in March will be no better and we
will need to wait at least through April (for March data) to
start seeing some light. As such, investors have given up on GDP
growth in the first quarter, with the economy's growth momentum
expected to resume in the second of the year. All of this sounds
plausible enough, though last week's negative revision to
December and November Retail Sales numbers runs counter to this
weather-centric narrative and is likely reflective of less
consumer spending momentum in Q4 than earlier believed.
On the earnings front, including this morning's reports
) and others, we now have Q4 results from 404 S&P 500
members. Total earnings for these companies are up +11.1% from
the same period last year, with 68.6% coming ahead of consensus
EPS estimates. Total revenues are up only +0.9% and 61.6% have
beat revenue expectations. Revenue weakness has been a recurring
theme in recent quarters and Q4 is no different, though the
unusually low growth pace thus far is mostly due to the Finance
and Energy sectors, particularly one-off tough comps for
The Q4 earnings season has overall been not that bad, with the
earnings growth rate the highest of 2013, total earnings on track
to reach a new all-time quarterly record, and companies beating
estimates at an above-average rate. But they continue to guide
lower, prompting estimates for the current quarter to come down.
Total earnings for 2014 Q1 are now expected to decline by -2.4%,
down from estimates of +2.1% at the start of the Q4 reporting
season. With weather an even bigger factor for companies in the
retail sector that will be coming out with results in the coming
days, we will likely see even more downside pressure on Q1