Monday, October 14, 2013
The stock market is open today, but not much else is. The bond market is closed and the parts of federal government unaffected by the shutdown are closed today as well in observance of Columbus Day. Hopes of a deal between the two parties that pushed stocks higher late last week faded over the weekend and has brought us back to square one, with just three days left to go before the country reaches the borrowing limit.
The issue is now in the Senate, where majority leader Harry Reid and minority leader Mitch McConnell are looking for common ground. The negotiations are ongoing, though the two leaders are reportedly not making much progress. But the issue will still be whether any deal reached in the Senate can pass through the House given the well-known roadblocks in that chamber. Perhaps neither side has enough incentives to climb down from their stated positions and move us towards a resolution.
This lack of progress out of DC is threatening to eclipse the 2013 Q3 earnings season which ramps up this week with more than 160 companies reporting results, including 70 S&P 500 members. This week's reporting docket is weighted towards the Finance sector, but we have plenty of reports from other sectors to give us a representative snapshot of the earnings picture. In addition to banks and brokers like Bank of America ( BAC ) and Goldman Sachs ( GS ), Q3 results are expected from the likes of Google ( GOOG ), IBM ( IBM ), Coke ( KO ), GE ( GE ) and many others. By the end of this week, we will have seen Q3 results from more than a fifth of the S&P 500 members spanning a representative cross section of the U.S. economy.
With no major earnings reports this morning, the Q3 scorecard stands at 31 S&P 500 companies having reported results. Total earnings for these 31 companies are up +9.8% with 51.6% beating earnings expectations, while total revenues for these companies are up +1.4% and 45.2% are beating top-line expectations. The results thus far are weaker than what we have seen for this same group of companies in recent quarters. The +9.8% earnings growth in Q3 for these companies compares to +18.2% in Q2 and the 4-quarter average of +17.8%, while the +1.4% revenue growth is below Q2 and the 4-quarter's average of +4.2%. The beat ratios are similarly tracking lower.
The weak comparisons are primarily because of the Finance sector. If we exclude results from the Finance sector, the remaining companies that have reported results are tracking better than what those same companies reported in Q2 and the last few quarters. We will have a better sense of how the Q3 earnings season is unfolding by the end of this week as by then we will have seen results from more than 100 S&P 500 members. Let's hope that DC worries don't cloud the picture any further.
Director of Research