Tuesday, April 16, 2013
We have plenty of positive catalysts today that should help stocks recover from Monday’s turmoil, but it’s hard to tell if the rebound will have any staying power. The economic and earnings data this morning is for the most part on the reassuring side.
Positive earnings surprises from Goldman Sachs (GS), Coca Cola (KO), and Johnson & Johnson (JNJ) will likely help sentiment about the Q1 earnings season that gets into high gear week. Importantly, the strong Housing Starts data should help offset some of the concerns raised by the loss of momentum in the homebuilder sentiment index in recent months. We also have Industrial Production data coming out a little later.
Housing Starts for March came ahead of expectations and the number for February were revised higher. Starts went above the seasonally adjusted one million annualized rate for the first time since 2008, a psychologically important milestone for the sector. The current Starts level represents a significant improvement over the year-earlier level, but still remains below the roughly 1.3 million level considered ‘normal’ for the U.S. housing sector (Starts were above 2 million during the bubble).
On the negative side, Permits were on the weak side today and could potentially be a sign of trouble down the road when read in conjunction with the weakness in the homebuilder index over the last three months.
On the earnings side, in addition to the positive surprises from Goldman, JNJ and Coke, we got solid beats from BlackRock (BLK) and M&T Bank (MTB), while US Bancorp (USB) came short of expectations. The Earnings scorecard as of this morning shows first quarter reports from 41 S&P 500 companies or 8.2% of the index’s total membership that account for 12.6% of the index’s total market cap.
Total earnings for these 42 companies are up +13.1% from the same period last year, with 65.9% beating earnings expectations. Revenues are up 5%, with 39% of the companies coming ahead of top-line expectations. This is weaker performance than what this same group of 42 companies reported in the fourth quarter. The composite growth rate for the first quarter, where we combine the results of the 42 companies that are out with the 458 still to come, is for a drop of -1.6% in total earnings and an equivalent drop on the revenue side.
Director of Research