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Post-Fed, but Pre-Earnings - Earnings Preview
6/21/2013 5:36:00 AM
The market was looking for clarity from the Fed about the future
of the QE program. But it didn't like the surprisingly explicit
timeline from Chairman Bernanke, and has been in a somewhat
downbeat mood ever since.
This is sharply down from +3.9% growth expected in the quarter
in early April. Total earnings were up +2.3% in Q1, but growth was
expected to be in negative territory at this stage before that
All the industries within the Finance sector -- major banks,
regional banks, brokers and insurers -- are expected to have
positive growth. But the growth picture is particularly notable for
the brokerage and investment management industry players like
), with total earnings for the group expected to be up +39.6% in Q2
after the +2.6% gain in Q1.
The weakest group within the Technology sector is the PC makers,
with total earnings for the Computers and Office Equipment industry
expected to be down -16.1% in Q2 after the -14.1% decline in Q1.
Semiconductors and electronics are other Tech industries with
negative earnings growth in the quarter.
The +6.1% growth in total earnings this year, down from +6.8% in
early April, reflects a material ramp up in the second half of the
year that is then expected to carry into 2014. Combining the actual
results for Q1 with estimates for Q2 gives us +1.5% year-over-year
growth in total earnings in the first half of 2013. But total
earnings are expected to be up +9.4% in the second half of the year
and a further +11.5% in full-year 2014.
Finance is reclaiming its dominant earnings position in the
index which was taken over by the Tech sector following the 2008
crash. Tech remained the biggest earnings producer for the S&P
500 from 2008 through 2012, but the leadership role moves back to
Finance this year. Finance is on track to produce $198.5 billion in
2013 (19.3% of the total), up from $173.6 billion in 2012 (17.9% of
the total), while Tech is expected to produce $183.1 billion this
year (17.8% of the total), up from $182.9 billion in 2012 (18.9% of
The ratio doesn't tell you the 'magnitude' of the revisions,
only the direction. The '50%' level (the dark line) is the dividing
line between positive and negative trends, with readings above 50%
implying more positive than negative revisions. That said, our
analysis shows that readings between 45% and 55% don't offer
material insights into the magnitude of revisions. It is only
readings above 55% and below 45% that offer bullish and bearish
signals about the magnitude of earnings revisions.
Hard to tell how sustainable the trend will prove to be, but the
sector's revisions ratio for 2013 currently (as of 6/14) stands at
59.6%, the highest level in over 12 months. Some of the stand-out
revisions in the sector were industry players like
Advanced Micro Devices
Flat net-interest margins have been a permanent feature of the sector's, particularly banking's, earnings picture in recent quarters. The Finance sector's positive earnings outlook is a function of the rising trend in interest rates.
On the negative side, the revisions trend is decidedly in bearish territory for Industrials and Basic Materials both for this year and next. Peabody Energy ( BTU ), U.S. Steel ( X ), Joy Global ( JOY ), Freeport-McMoran ( FCX ) have all suffered significant negative estimate revisions lately.
Fed aside, we have a bunch of housing related data on deck this week, including Housing Starts and Existing Home Sales data. We will also have the Empire State and Philly Fed regional manufacturing surveys and the May CPI numbers this week. But everyone will be looking ahead to the Bernanke press conference on Wednesday afternoon.
ALCOA INC (AA): Free Stock Analysis Report
ADOBE SYSTEMS (ADBE): Free Stock Analysis Report
ADV MICRO DEV (AMD): Free Stock Analysis Report
PEABODY ENERGY (BTU): Free Stock Analysis Report
CONAGRA FOODS (CAG): Free Stock Analysis Report
DARDEN RESTRNT (DRI): Free Stock Analysis Report
FREEPT MC COP-B (FCX): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JOY GLOBAL INC (JOY): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
ORACLE CORP (ORCL): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis Report
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