Wednesday, October 9, 2013
The elevation of Janet Yellen to replace Ben Bernanke as Fed
Chair should help remove one source of uncertainty from the
market, though the development was largely expected after Larry
Summers was no longer in contention. The bigger source of
uncertainty for the market is the budget fight in Washington that
now appears on track to morph into debt ceiling fight. Investors
are still hanging onto hopes that we will move past this issue
before next week's debt ceiling deadline, but each passing day
brings unhappy reminders of how destabilizing the 2011 fight had
turned out to be.
Janet Yellen is a known commodity for the markets, a strong
advocate of Bernanke's easy-money and transparent communications
policies. The Bernanke Fed wasn't very successful on the
communications front, particularly with respect to the Taper
question. They were unsuccessful in convincing the bond market
that Tapering and tightening were two different things.
Perhaps the confirmation hearings will give us some clues as to
how different she will be in communicating with the markets, but
those hearings will have to wait for the current budget battles
to end. Another development on the Fed front today will be the
release of minutes of the last FOMC meeting when the central bank
surprised the markets with the no-Taper decision.
Beyond the Fed and the Congressional fight, the 2013 Q3 earnings
season has gotten underway. This morning's reports from
) were broadly on the weak side, as was the report from
) after the close on Tuesday. But
) was broadly positive in its release, reiterating their
favorable demand outlook for aluminum.
Including this morning's earnings releases, we now have Q3
results from 26 S&P 500 companies. Total earnings for these
26 companies are up +7.9%, with 53% beating earnings expectations
with a median surprise of +0.9%. Total revenues for these
companies are up +5.1%, with 46.2% beating top-line expectations
with a median surprise of +0.1%.
The earnings and revenue growth rates at this admittedly very
early stage is tracking a bit better than what we saw from these
same companies in Q2 and the 4-quarter average, while the beat
ratios are roughly in-line with recent history.
A lot will be riding on guidance for Q4 given the elevated
expectations for that quarter, when total earnings for the
S&P 500 are expected to be up almost +10%. The overwhelming
trend in recent quarters has been for companies to guide lower,
prompting analysts to cut estimates.
It is still early in the Q3 reporting cycle, but that same trend
appears to be at play this time around as well. If this trend
remains in place in the coming days as well, we should brace
ourselves for major estimate cuts. This could become a material
headwind for the market beyond the current Washington fight.
Director of Research
ALCOA INC (AA): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis
FASTENAL (FAST): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report