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The Seasonally Quiet Period

Sheraz Mian

Tuesday, June 24, 2014

We are in a seasonally quiet period in the market, with stocks barely moving and volumes remaining on the light side. We saw that trend play out on Monday and today’s session will likely be no different, with the housing and consumer confidence data on tap for release a little later unlikely to move the needle much. Stocks are expected to remain in this holding pattern near all-time highs for the next few days till next week’s top-tier jobs and ISM data. Attention will shift to the Q2 earnings season beyond next week.

With respect to earnings, we don’t have a good enough picture of the 2014 Q2 reporting cycle despite having seen results from about 10 S&P 500 members, including industry leaders like FedEx (FDX), Oracle (ORCL) and Costco (COST). It has been a mixed picture thus far, but estimates for the quarter followed the by-now familiar pattern of coming down as the period unfolded, with current consensus estimate of +3% growth in total earnings for the S&P 500 down from +5.5% in late March. The lowered estimates notwithstanding, earnings growth in Q2 will be more than double the pace we saw in Q1.

The expectation is for the growth pace to pick up materially in the following quarters, with total earnings growth in the second half of 2014 accelerating to +8.5% and into double-digits in 2015. If these expectations have to hold, we will need to get some signs of a stabilizing if not improving outlook from management teams on the Q2 earnings calls. The favorable guidance from Intel (INTC) recently has raised hopes that we will see some improvement on the guidance front this time around. But it’s too soon to tells whether Intel is an outlier or a sign of things to look forward to this coming earnings season.   

In corporate news, Walgreen (WAG) came out with weaker than expected May quarter results (part of our Q2 tally), while Micron Technology (MU) beat expectations after the close on Monday. In other news, shares of Vertex Pharmaceutical (VRTX) will be in the spotlight following positive results for the company’s cystic fibrosis drug.

Sheraz Mian
Director of Research

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