The mixed PMI surveys out of Europe and China notwithstanding,
the spotlight firmly remains on the Q4 earnings season. The key
take-away from the European and Chinese PMIs is that the outlook
for Europe is steadily improving, while China seems to be losing
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The Euro-zone PMI surveys were broadly positive, with the
manufacturing survey coming in better than expected at 53.9 vs.
52.7 in December. France's PMI reading still remains in
contractionary territory, though it showed improvement as well.
The German economy continues to show broad based gains, both on
the manufacturing as well as service sides. Unlike Europe, the
PMI survey in China slipped below the 50 level, the lowest in 6
months. Part of the Chinese weakness could be ascribed to reduced
factory output ahead of the pre-Lunar Year slowdown, but it's
consistent with the tepid GDP growth momentum that emerged
December quarter figures earlier this week.
The trend shaping place in the global economy for some time now
is that the developed economies of Europe, US and Japan now
promise better times ahead relative to emerging markets like
China and others. The hope for the emerging markets is that they
can ride the momentum in the developed world to get their
economies out of the current downbeat phase. We have started
hearing about this global growth divergence in the earnings calls
as well. We saw the other day about
s atrocious sales numbers out of China.
Including this morning's reports from
) and others and
) after the close on Wednesday, we now have Q4 results from 102
S&P 500 members that combined account for account for 27.3%
of the index's total market capitalization. Total earnings for
these companies are up +22.8%, with 65.7% coming ahead of
consensus earnings expectations. Total revenues are up +3.6% and
54.9% are beating top-line expectations. The composite growth
rate for Q4, where we combine the results for the 102 companies
that have reported with the 398 still to come, is for +7.6%
growth on +1.7% revenue gains.
The results thus far are not materially different from what we
have been seeing in recent quarters. Revenue and earnings growth
rates for these 102 companies are roughly in-line with what we
saw from this same group of companies in recent quarters and the
quality of guidance isn't much different either. The beat ratios
stood out for their weakness relative to recent quarters
earlier on, but even they have started improving a bit over the
last couple of days.
So, why is everybody so hung up on calling this a weak or
mediocre earnings season? Seems like the market was looking
something better, particularly on the guidance front. The hope
was, and still is, that given the improving domestic economic
scene and signs of stabilization in Europe, we will get
relatively reassuring guidance from management teams. But we are
not seeing that, with managements continuing to provide sub-par
outlook for the coming quarter(s). In other words, management
teams are dishing out what they have been doing for more than a
What this means for the market is that we will continue to see
the same negative estimate revisions trend play out in the coming
weeks and months that we have been seeing since mid 2012. The
market wasn't overly concerned about that trend back then, but
seems to be a bit cautious this time around. With the Fed getting
out of the QE business, the market seems to be looking for a
reassuring enough earnings backdrop to sustain the rally. But
they aren't getting reassured, at least not.