Positive GDP growth data out of China and another day of mixed
Q3 earnings reports provide the backdrop for today's trading
action. The China data may not be enough to answer all questions
about that country's growth outlook, but today's data is
nevertheless reassuring. The picture emerging out of the earnings
season is on the weak side, with no growth outside of the Finance
sector and most companies missing revenue expectations.
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China's Q3 GDP growth matched expectations by coming in at +7.8%,
up from +7.5% in Q2 and +7.7% in Q1. These growth numbers should
go some way towards easing concerns about the country's growth
outlook. Data about industrial production and retail sales for
September released today also matched expectations and broadly
point towards growth stabilization.
Other recent data, particularly export growth in September, has
been indicating some loss of momentum late in Q3, raising
questions that the GDP growth pace may not be sustainable in the
final quarter of the year. The Q3 earnings season hasn't provided
much reassurance on the China question either, with the IBM (
) and Yum Brands (
) reports particularly raising doubts about that country.
Including this morning's reports from Morgan Stanley (
), General Electric (
), Schlumberger (
), Baker Hughes (
) and others, we now have Q3 results from almost one-fifth of the
S&P 500 members. Total earnings for these companies are up
+1.1% year over and 64% of the companies are beating earnings
Total revenues are up +1.7%, with only 37.2% of companies beating
top-line expectations and median revenue surprising by +0.1%.
This is weak performance than we have seen from this same group
of companies in Q2. Total earnings growth for these companies is
in the negative, outside of the Finance sector.
The evolving expectations for Q4 are a point of key interest in
the earnings picture at this stage. Consensus expectations are
for strong growth rebound in Q4, which is then expected to
continue into the following quarters.
The recurring pattern over the past year or so has been for
companies to guide lower, prompting analysts to cut estimates. We
have started seeing Q4 earnings estimates come down a bit in
recent days, but the pace of revisions is expected to accelerate
in the coming days as more companies provide Q4 guidance.