Washington Spotlight Clouds All Else
Developments in Washington DC are in the spotlight, stealing the
limelight from a host of top-tier economic data and a steady
trickle of 2013 Q3 earnings reports. Reporting season has gotten
underway and 17 S&P 500 companies already come out with
results, as of Friday September 27, 2013. This week brings
earnings reports from 20 companies, including 4 S&P 500
members. Walgreens (
), Monsanto (
), and Constellation Brands (
) are some of the notable companies reporting results this
We have had a few strong earnings reports already, particularly
from Nike (
), FedEx (
), and AutoZone (
), but the overall trend at this admittedly very early stage is
mixed. The market isn't paying much attention to the Q3 earnings
season at this stage as all the focus is on handicapping the odds
of a government shutdown and, more importantly, the debt ceiling
issue. The day of reckoning on the budget/shutdown issue is upon
us, though we still likely have a couple of more weeks before the
debt ceiling will positively need to be raised. Needless to say
that this DC spotlight isn't market friendly as it heightens the
real or perceived risks to the economy.
Low Expectations for Q3
As has been the case at the start of recent quarterly earnings
cycles, expectations for the Q3 earnings season have fallen
sharply over the last three months. Total earnings for companies
in the S&P 500 are now expected to be up only +1.1% from the
same period last year, down from +1.2% last week and +5.1% at the
start of the quarter in early July, as the chart below shows.
This negative revisions behavior is hardly unusual as we have
been repeatedly seeing this pattern play out in recent quarters.
Companies have been overwhelmingly guiding lower, prompting
analysts to cut estimates for the following quarter. The
revisions behavior ahead of the Q2 earnings season was no
different and most of the same sectors have experienced negative
revisions this time around as well. The 'regulars' on the
negative estimate revisions beat include Technology, Basic
Materials, and Industrials. But in addition to those sectors,
Retail and Consumer Discretionary have played material roles in
bringing down expectations for Q3 as well.
The chart below compares the Q3 total earnings growth expected
for these five sectors at the start of the quarter and where
those expectations stand at present
Estimates for other sectors have come down as well, with even
the Finance sector earnings expected to be up +6.2% now vs. the
+8.1% that was expected in early July. Energy, Utilities,
Conglomerates and even Construction have suffered negative
revisions in varying degrees.
High Expectations for Q4
While estimates for Q3 have come down, the same for Q4 and the
following quarters have held up fairly well, as the chart below
Part of the extremely strong growth expected in Q4 is a
function of easier comparisons, as 2012 Q4 represents the lowest
quarterly earnings total for the S&P 500 in the last six
quarters, with the comps particularly easy for the Finance
sector. But it's not all due to easy comparisons, as the expected
earnings totals for Q4 represent a new all-time quarterly record.
Total earnings for the S&P 500 reached a new record at $256.5
billion in Q2, surpassing Q1's $254.1 billion record. But they
are expected to reach $273.5 billion in 2013 Q4, with total
earnings growth outside of Finance expected at +8.5%.
Judging by what has happened over the past year or so, these Q4
estimates will come down as companies share their outlooks on the
Q3 earnings calls. The market didn't care much as estimates came
down in the last few quarters, hoping for better times ahead.
Will it do the same this time as well, pushing its hopes of
earnings ramp up into 2014? We will find out the answer to that
question over the next two months.
The Washington Drama
Headlines from Washington DC will be all the rage this week, but
we have a full docket of top-tier economic data coming out this
week as well. Most of recent economic data, like Jobless Claims,
New Home sales, and Personal Income/Spending has been good enough
to allow the Fed to start the Taper process. But perhaps the Fed
was justifiably wary of going that route in the last meeting
given the coming budget/debt ceiling battles in Congress.
The most important report coming out this week is the September
non-farm payroll report coming out on Friday. We will also get
the two ISM surveys, the private sector jobs tally from ADP and
other economic readings this week.
Monday - 9/30
- The Chicago PMI coming out after the market opens will give
us a preview of the national manufacturing ISM survey on
Tuesday. The expectation is for the Chicago PMI to modestly
lose ground from August's 55.7 reading.
- Paychex (
) is the only notable earnings release today, coming out after
Tuesday - 10/1
- We will get the September manufacturing ISM index, August
Construction Spending, and September motor vehicle sales
numbers coming out.
- The expectation is for the ISM reading to modestly pullback
from August's 55.7 level, while Construction Spending is
expected to show a +0.6% increase after July's similar
- Walgreen's (
) is the key earnings report in the morning, while Global
) will report after the close.
- Zacks Earnings ESP, our proprietary leading indicator of
earnings surprises, is showing Global Payments to come out with
a positive earnings surprise.
- For More details on Earnings ESP, check the ESP page
Wednesday - 10/2
- We will get the September private sector jobs report from
payroll processor Automatic Data Processing (
) in the morning, with expectations of 175K jobs in September,
essentially unchanged from August's 176K tally.
- Monsanto (
) is the only notable earnings report coming out today.
Thursday - 10/3
- Jobless Claims and the service-sector ISM survey are on the
- Constellation Brands (
) and International Speedway (
) are the only major earnings reports today.
Friday - 10/4
- The key economic report today is the September non-farm
payroll report from the government's Bureau of Labor Statistics
(BLS). The consensus expectation is for 'headline' job gains of
180K vs. 169K in August.
- No major earnings report coming out today.
Here is a list of the 20 companies reporting this week,
including 4 S&P 500 members:
AUTOMATIC DATA (ADP): Free Stock Analysis
AUTOZONE INC (AZO): Free Stock Analysis
FEDEX CORP (FDX): Free Stock Analysis Report
GLOBAL PAYMENTS (GPN): Free Stock Analysis
INTL SPEEDWAY (ISCA): Free Stock Analysis
MONSANTO CO-NEW (MON): Free Stock Analysis
NIKE INC-B (NKE): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis
CONSTELLATN BRD (STZ): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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