Tuesday, August 5, 2014
The market had a good day on Monday and appears on track to
start today's session on modestly down note. The service sector ISM
survey coming out after the market's open will likely set the tone
for today's session. Uncertainty about the Fed following the recent
run of positive economic readings, which is at the core of the
market's ongoing tentativeness, isn't going away anytime soon.
We will see if today's non-manufacturing ISM survey will show
similar momentum to what we saw from the manufacturing survey last
week, but the overall tone of recent economic data has undoubtedly
been positive. This should be a reassuring backdrop for stock
market investors as it improves the odds of stronger corporate
earnings down the road. And this is starting to show up in the
ongoing Q2 earnings season where management teams have broadly been
describing the business landscape in better terms than we have been
seeing in recent quarters. The earnings and revenue growth numbers
are better, more companies are beating estimates, and
notwithstanding this morning's weak guidance from Target (
), there is even some modest improvement on the guidance front.
The updated Q2 scorecard, including this morning's releases from
), Archer Daniels Midland (
) and others shows that we now have results from 398 S&P 500
members that combined account for 86.2% of the index's total
market capitalization. Total earnings for these companies are up
+9% from the same period last year on +4.8% higher revenues, with
67% beating EPS estimates and 61.3% coming out with positive
The revenue growth and surprises are particularly notable, with
the current top-line growth pace and beat ratio the best we have
seen for this group of companies in a very long time. This has
started to show up in estimates for the current period, as well.
Estimates for 2013 Q3 are coming down along the lines of the
long-established trend, but the pace of negative revisions is lower
relative to any other quarter in more than a year.
This improved earnings backdrop should have been more than
enough to offset the emerging Fed-centric worries. But interest
rates have as much if not more sway on stock prices as earnings do.
It won't be easy to navigate this period of Fed worries, but the
improvement on the earnings front is nevertheless a reassuring
source of support for stocks.
Director of Research
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