Friday, February 14, 2014
Stocks have been up this week were up in five of the last six
sessions and remain on track to close the week on a positive
note, with favorable data out of Europe adding to an overall air
of calm about the global economic backdrop. Sentiment shifted
materially this week, particularly following Janet Yellen's
Tuesday testimony, helping erase most of the year-to-date losses.
Investors seem to have decided that the recent run of soft
economic data is nothing more than a weather-induced speed bump
and will disappear as the skies clear.
Europe's economy expanded at a modestly better than expected
pace, driven by German which accounts for about a third of the
region's economic output. Growth did expand to formerly weaker
economies, with France, Italy, and Spain, with even Greece
contracting less than expected. The Euro-zone economy came out of
recession in the second quarter of 2013 and has been stay in the
positive column for three quarters in a row, but still remains
below the pre-2008 peak level. That said, this is good news for
the European Central Bank which has lately been under pressure to
cut interest rates to fight dis-inflation and low growth.
On the earnings front, including this morning's reports from
), we now have Q4 results from 401 S&P 500 members that
combined account for 86.2% of the index's total market
capitalization. Total earnings for these companies are up +11.1%
from the same period last year, with 68.6% coming ahead of
consensus EPS estimates. Total revenues are up only +0.8% and
61.1% have beat revenue expectations. Revenue weakness has been a
recurring theme in recent quarters and Q4 is no different, though
the unusually low growth pace thus far is mostly due to the
Finance and Energy sectors, particularly one-off tough comps for
The Q4 earnings season has overall been not that bad, with the
earnings growth rate the highest of 2013 and total earnings on
track to reach a new all-time quarterly record. Companies have
beat estimates, both EPS and revenue, at an above-average rate.
But they continue to guide lower, prompting estimates for the
current quarter to come down. Total earnings for 2014 Q1 are now
expected to decline by -2.3%, down from estimates of +2.1% at the
start of the Q4 reporting season. With weather an even bigger
factor for companies in the retail sector that will be coming out
with results in the coming days, we will likely see even more
downside pressure on Q1 estimates.
Director of Research
CAMPBELL SOUP (CPB): Free Stock Analysis
PRUDENTIAL FINL (PRU): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
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