This morning's weaker than expected ADP jobs reading is likely
indicative that the loss of momentum in the labor market in the
second half of the year liked got further weakened as a result of
the shutdown. The stock market is interpreting this emerging
economic landscape as sufficiently soft to keep the Fed's foot on
the QE paddle. We will find later this afternoon what the Fed has
to say about this, but current consensus expectations don't
expect any changes to the QE program before April 2014.
The Fed isn't expected to announce any changes this afternoon,
but it's assessment of the economic picture will provide useful
clues to the Taper timeline. At the September meeting, they had
described the pace of economic growth as 'moderate', an upgrade
from the 'modest' descriptor they had used before. It will be
interesting to see how they describe the underlying economy now,
particularly with the government shutdown believed to have taken
a bite out of Q4 GDP growth as this morning's ADP shows.
The market's attention is justifiably on the Fed, but we are also
in the midst of the Q3 earnings season. Just like economic data,
the earnings season is neither too hot, nor too cold. Earnings
aren't great, but they aren't terrible either. The overall level
of earnings remains quite high, though there isn't much growth.
The market seems to be ok with that, particularly if the Fed
continues to remain on the QE beat.
Including this morning's reports from
), and others, we now have Q3 results from 310 S&P 500
members that combined account for account for 68.2% of the
index's total market capitalization.
) will be reporting after the close today. Total earnings for
these 310 companies are up +6%, with 67.4% coming ahead of
consensus earnings expectations. Total revenues are up +3% and
49.7% are beating top-line expectations.
This is better performance, particularly on the earnings side,
than what this same group of companies reported in Q2 and the
4-quarer average. The variance of the last few quarters is
particularly notable outside of the Finance sector, which has
picked up this quarter. The growth pick up in the Technology
sector relative to what we have been seeing in recent quarters
spotlights the ex-Finance improvement, though the growth pace in
other sectors like Transportation, Energy and Basic Materials has
Despite the negative comparisons at sector leader
), total earnings for the Technology sector are currently up
+5.1% from the same period last year, which compares to earnings
decline of -11.9% in Q2 and the 4-quarter average earnings
decline of -3.5% for the sector companies that have reported
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The composite earnings and revenue growth rates for Q3, combining
the results for the 310 companies that have reported with the 190
still to come, are +3.6% and +2%, respectively. This puts Q3's
earnings growth rate on track to be modestly better than what we
saw in the first two quarters of 2013. Expectations for 2013 Q4
have started coming down, but they likely still have plenty of
room for coming down, with total earning for the S&P 500
expected to be up +8.5%, down from +9.1% last week and
higher than +10% at the start of the reporting season.