Monday, October 14, 2013
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The stock market is open today, but not much else is. The bond
market is closed and the parts of federal government unaffected
by the shutdown are closed today as well in observance of
Columbus Day. Hopes of a deal between the two parties that pushed
stocks higher late last week faded over the weekend and has
brought us back to square one, with just three days left to go
before the country reaches the borrowing limit.
The issue is now in the Senate, where majority leader Harry Reid
and minority leader Mitch McConnell are looking for common
ground. The negotiations are ongoing, though the two leaders are
reportedly not making much progress. But the issue will still be
whether any deal reached in the Senate can pass through the House
given the well-known roadblocks in that chamber. Perhaps neither
side has enough incentives to climb down from their stated
positions and move us towards a resolution.
This lack of progress out of DC is threatening to eclipse the
2013 Q3 earnings season which ramps up this week with more than
160 companies reporting results, including 70 S&P 500
members. This week's reporting docket is weighted towards the
Finance sector, but we have plenty of reports from other sectors
to give us a representative snapshot of the earnings picture. In
addition to banks and brokers like
Bank of America
), Q3 results are expected from the likes of
) and many others. By the end of this week, we will have seen Q3
results from more than a fifth of the S&P 500 members
spanning a representative cross section of the U.S. economy.
With no major earnings reports this morning, the Q3 scorecard
stands at 31 S&P 500 companies having reported results. Total
earnings for these 31 companies are up +9.8% with 51.6% beating
earnings expectations, while total revenues for these companies
are up +1.4% and 45.2% are beating top-line expectations. The
results thus far are weaker than what we have seen for this same
group of companies in recent quarters. The +9.8% earnings growth
in Q3 for these companies compares to +18.2% in Q2 and the
4-quarter average of +17.8%, while the +1.4% revenue growth is
below Q2 and the 4-quarter's average of +4.2%. The beat ratios
are similarly tracking lower.
The weak comparisons are primarily because of the Finance sector.
If we exclude results from the Finance sector, the remaining
companies that have reported results are tracking better than
what those same companies reported in Q2 and the last few
quarters. We will have a better sense of how the Q3 earnings
season is unfolding by the end of this week as by then we will
have seen results from more than 100 S&P 500 members. Let's
hope that DC worries don't cloud the picture any further.
Director of Research