Earnings remain front and center as the markets open after the
MLK holiday. The overall tone of the reports this morning from
the likes of
) is positive, though
Johnson & Johnson's
) guidance is a bit on the soft side.
) is on deck to report results after the close amid reports that
the company is in talks with China's Lenovo to sell its server
Including this morning's reports, we now have Q4 results from
60 S&P 500 members that combined account for account for
17.8% of the index's total market capitalization. Total earnings
for these companies are up +34.4%, with 61% coming ahead of
consensus earnings expectations. Total revenues are up +3.6% and
50.8% are beating top-line expectations.
Despite the lowered Q4 estimates, fewer companies are coming
out with positive surprises. This may change in the coming days
as the reporting cycle ramps up further, but it is nevertheless
notable at this stage.
The earnings beat ratio of 61% for the companies that have
reported thus far compares to the Q3 and four-quarter average of
67.8% for the same group of companies. The revenue beat ratio is
similarly tracking lower.
Finance is the only sector where we have a representative
sample of results, with Q4 results from almost half of the
sector's total market capitalization already out. Total earnings
for the sector are up +17% from the same period last year on
-0.8% lower revenues, with strong year-over-year gains at
Bank of America
) driving most of the gain.
The sector's growth rates and beat ratios don't compare
favorably to what we have seen from this same group of companies
in recent quarters. The picture may improve a bit in the coming
days as the insurance industry, the second largest in the Finance
sector after the banks, starts releasing results. Effective cost
controls, reserve releases and favorable trends in the mortgage
business helped banks offset tepid loan growth and net interest
margin pressures in recent quarters to produce earnings growth.
But the effect of these forces is diminishing already and need to
be replaced by improvement in core earnings power.
As we start seeing results from companies beyond the Finance
sector, management guidance will take the spotlight. Guidance has
been overwhelmingly negative in recent quarters, but the
improvement in the U.S. economic outlook and stabilization in
Europe have raised hopes of a turnaround on that front. We will
get some sense of that later today with the IBM report, though
the earlier reports from
) and others don't look very inspiring.
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