January 21: Earnings Flood Gates Open Tomorrow - Economic Highlights
With the markets closed today for Martin Luther King Jr. Day, the earnings season takes the day off as the reporting flood gates open from Tuesday onwards. It has been a relatively uneventful earnings season thus far, but this week promises to give us a good taste of what's really in store as we will see more earnings reports this holiday shortened week than the last couple of weeks combined. The focus will be on the Technology sector with Apple ( AAPL ) on Wednesday, IBM ( IBM ) and Google ( GOOG ) on Tuesday and Microsoft ( MSFT ) coming out with fourth quarter results on Thursday. Beyond Technology, we will hear from top players in a variety of industries from DuPont ( DD ) to McDonald's ( MCD ) and Starbucks (SBUX).
Friday's announcement about an apparent decoupling between the debt ceiling and the pending budget issues is a major positive for the market, which should help sustain the recent momentum in stocks. The market wasn't showing any outward signs of fear to begin with, but this announcement has really pushed the CBOE's VIX Index, generally considered a proxy for fear or anxiety in the market, to levels not seen since the first half of 2007. You would be perfectly justified in wondering if investors are being a bit complacent here as there is no shortage of clouds on the horizon. It may not be the lull before the storm, but the level of calm in the market is nevertheless a bit unnerving.
The relatively uneventful fourth quarter reporting season thus far may also have played a role in contributing to market calm. Results from the 67 S&P 500 companies that came out with fourth quarter earnings as of Friday January 18th were a tad bit better than what that same group reported in the third quarter. But that may not be saying much as the third quarter was the weakest earnings season on record since the start of the earnings cycle in 2009. Overall, the corporate earnings picture remains quite weak, but you would hard pressed to see that in current earnings expectations. Estimates for 2013 have started coming down a bit lately, but they still represent a significant ramp up from the low single-digits growth pace of 2012. It will be interesting to see how the stock market behaves in the coming weeks and months as those expectations start coming down.
Today also marks the inauguration of President Obama's second term. Americans may take presidential inaugurations for granted, by for someone like me was born and raised in a foreign country, this is always an awe-inspiring moment. I am not talking about the pageantry of the event and the lofty words of the inaugural speech, but the spectacle of the peaceful transfer of power that the event symbolizes. Many nations rely on a monarch to ensure continuity and peaceful transfer of power, but this country has been able to ensure that in a republican framework. No country does the peaceful transfer of power better than America. Irrespective of your political leanings, don't lose sight of this fact as you follow today's inauguration.
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