Friday, May 17, 2013
Stocks will likely reverse the modest decline from the day before in today’s trading session if the positive pre-open sentiment carries through to the end of the day. But we do have the University of Michigan Consumer Sentiment and the Conference Board’s Leading Indicators coming out a little later, with consensus expectations of both surveys showing improvement from the prior levels. These surveys will have some bearing on how the market behaves today.
There is nothing on the earnings calendar this morning, though last evening’s reports from J.C. Penney (JCP), Applied Materials (AMAT) and others were on the weak side. We have now seen Q1 results from 465 S&P 500 companies, with total earnings for these companies up +2.8% from the same period last year, with 65.3% coming ahead of earnings expectations. This earnings growth and beat pace is respectable enough by the standards of the last few quarters, through the revenue performance stands out for its weakness. Total revenues are down 1% from the same period last year, with only 41.5% of the companies beating top-line expectations.
The overwhelmingly negative tone of company guidance has prompted analysts to materially cut their estimates for 2013 Q2, through estimates for the second half of the year and next year have held up fairly well. Total earnings are expected to be up +9.7% in the second half of 2013 after increasing by +1.7% in the first half of the year. This growth momentum is then expected to continue into 2014, with total earnings growing +11.4%.
Hard to see these growth expectations coming through in the current constrained economic growth backdrop. But investors appear more than willing to overlook this reality as long as the Fed doesn’t change the stance of its monetary policy. Next week will shed a bit more light on the course of Fed policy with the Bernanke testimony before Congress and the release of the minutes of the last FOMC meeting. But the fact remains that the Fed’s QE program is essentially the only game in town when it comes to handicapping the direction of the stock market.
Director of Research
Friday, May 17, 2013