Tuesday, May 7, 2013
How do you interpret news stories that cite interest rate cut by
Australia's central bank as the reason for stocks to open higher
today? It tells you that there is no real news, forcing media
people to come up with something that makes some sense. And rate
cut announcements, even by far-off countries that have little
relevance to dynamics in the U.S. economy, make for a plausible
enough explanation for positive start for U.S. stocks.
The reality is that we are passing through a relatively quiet
news period this week. There is still some activity on the
earnings front as this week is effectively the last major
reporting week of the Q1 earnings season. But not much will
happen on the economic calendar till the following week when the
April Retail Sales numbers come out May 13th. We will also get
Industrial Production, housing, and inflation data next week.
Last Friday's non-farm payroll report has raised hopes that fears
of a Spring Swoon may have been premature. We have to keep in
mind though that the jobs data runs counter to what we have been
seeing lately from all other economic indicators. Next week's
Retail Sales numbers will give us a better idea of whether the
tax hikes and spending cuts are having any bearing on consumption
trends. But as far as the stock market is concerned, all it cares
about is the Fed. As long as the Fed remains on its easy-money
track, investors will be more than willing to stomach soft
economic reports. We saw this play out multiple times in recent
weeks when stocks sustained their uptrend even in the face of
weak economic data.
The Q1 earnings season is winding down. Including this morning's
) and others, we now have Q1 earnings reports from 423 S&P
500 companies that combined account for 87.9% of the index's
total market capitalization.
) will report after the close today.
Total earnings for these 423 companies are up +3.7% from the
same period last year, with 66.4% beating earnings expectations.
Revenues are down -0.8%, with only 41.1% of the companies coming
ahead of top-line expectations. The composite growth rate for Q1,
where we combine the results of the 423 companies that have
reported results with the 77 still to come, is for +2.4% growth
in earnings on -0.7% lower revenues. This earnings growth rate
compares to the modest decline expected at the start of the
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Consensus expectations for the coming quarters have started
coming down, with total earnings in 2013 Q2 now expected to be up
+1.6% on -0.5% lower revenues. This is a drop from the +3.9%
total earnings growth expected in Q2 on +0.5% higher revenues
less than four weeks ago. Expectations for the back half of the
year still remain elevated, though they have started coming down
modestly. For full-year 2013, total earnings are now expected to
be up +6.1%, down from the +6.8% growth pace expected a few weeks
Director of Research