Tuesday, February 12, 2013
Stocks haven't done much in recent days after reaching milestone
levels, but they haven't lost much ground either. Today's session
will likely be not much different given the dearth of any
positive catalysts. This morning's batch of earnings reports was
a bit on the mixed side, with
Coke
(
KO
) and
Avon
(
AVP
) coming out with positive surprises, while G
oodyear Tire
(
GT
) providing an underwhelming outlook for the year.
The major event of the day is the President's State of the
Union address to Congress later this evening where he is expected
to touch on the economy. There is no indication from both sides
in Congress of any plans in the works to stop the budget
sequester from taking effect in about two weeks time.
Notwithstanding the budget uncertainty, the state of our economy
is in fairly decent shape. The last GDP report may have showed a
negative growth rate, but that was largely due to factors that
are not the most enduring pillars of growth anyway. The factors
that matter - household and business spending - showed excellent
momentum in the fourth quarter and appear resilient enough to
keep the economy afloat. The reviving housing sector adds further
to this improving outlook. The automatic spending cuts resulting
from the budget sequester pose a threat to headline GDP growth
this year, but many not do much damage to this underlying
improving trend in the economy.
Government spending matters, but what matters even more is the
spending outlook for the private sector. And based on what we saw
in the fourth quarter GDP report, the outlook for private sector
spending - from consumers and businesses - remains positive. A
key question at this stage is what impact the payroll tax
increases that went into effect at the start of the year as a
result of the Fiscal Cliff deal will have on consumer spending.
We will get some idea on that front from the January Retail Sales
numbers coming out Wednesday, but we will know the full impact
only over time.
The fourth quarter earnings season is winding down, though we are
still weeks away from officially closing the books on this
reporting season. In addition to the earnings reports this
morning from Coke, Avon, and Goodyear Tire referred to earlier,
we got positive surprises from
Michael Kors
(
KORS
) and
Fossil
(
FOSL
). As of this morning, we have fourth quarter earnings reports
from 355 S&P 500 companies or 79.4% of the index's total
market capitalization. Total earnings for these companies are
+2.9%, with 66.5% of companies beating earnings expectations.
Revenues are up 1%, with a much stronger 62% of companies beating
revenues expectations. This has been a better than expected
earnings season, largely due to the subdued expectations ahead of
the reporting season. Expectations for the coming quarters been
coming down, particularly for the first half of the year. But
there is still plenty of room for further downward adjustments.
Sheraz Mian
Director of Research
AVON PRODS INC (AVP): Free Stock Analysis
Report
FOSSIL INC (FOSL): Free Stock Analysis Report
GOODYEAR TIRE (GT): Free Stock Analysis
Report
COCA COLA CO (KO): Free Stock Analysis Report
MICHAEL KORS (KORS): Free Stock Analysis
Report
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