The China-centric scare from Thursday appears to have merged
with concerns about the broader emerging market space. This
emerging market scare has coincided with the less than reassuring
picture emerging from the Q4 earnings season currently underway
and provided another reason for stocks to stall out.
We all knew that emerging markets were vulnerable to sentiment
shift in a post-Taper world. After all, we had seen a preview of
what's happening when Bernanke first broached the Taper talk in
May last year. Now that Taper has gotten underway, currencies of
countries as far apart as Argentina and Turkey to Indonesia and
South Africa are under pressure. What is common among these
otherwise very different countries is their reliance on external
funding sources. And they are starting to face competition for
capital as interest rates in the developed world start rising.
On the earnings front, we got solid reports from
) Thursday evening and decent numbers from the likes of
Proctor & Gamble
) and almost 10 other S&P 500 members this morning. Including
the results this morning, we now have Q4 results from 122 S&P
500 members that combined account for 33% of the index's total
market capitalization. The reporting cycle really gears up next
week, with 123 S&P 500 members releasing Q4 results. By the
end of next week, we will have seen Q4 results from almost half
of the index's total members.
Total earnings for the 122 companies that have reported results
already are up +18.8% from the same period last year, with 66.4%
beating earnings expectations with a median surprise of +2.0%.
Total revenues for these companies are up +3.8%, with 58.2%
beating revenue expectations with a median surprise of +0.9%.
This is better earnings growth performance than we saw from this
same group of 122 companies in Q3 and the 4-quarter average.
But a big contributor to the strong Q4 growth is easy
comparisons for just three companies -
Bank of America
). Exclude these three and total earnings growth for the S&P
500 companies that have reported drops to +7.1% from the
'headline' +18.8%, which is about where growth has been in recent
The composite picture for Q4 - combining the results for the 122
companies that have reported already with the 378 still to come -
is for earnings growth of +8.4% on +1.8% higher revenues and 52
basis points higher margins. Not only would this be the highest
quarterly growth pace of 2013, but the tally of total earnings
for the quarter is also on track to reach a new all-time record,
surpassing the record reached in the preceding quarter.
Notwithstanding the emerging narrative of bad or mixed
earnings, earnings aren't really that bad. In many respects, the
picture emerging from the Q4 earnings season is no different from
what we have been seeing repeatedly in recent quarters. What may
be different, however, is that folks have finally started paying
close attention to corporate earnings. And while earnings aren't
bad, they are not consistent with a stock market sitting pretty
in record territory either.
We have been saying this for a while now, but it may finally
be sinking in.
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