Tag: earnings results

October Flummox

It was a week that should have resonated differently as it’s reasonable to conclude that it was important for the average investors’ psychology to see GDP data beating estimates.  The expectation was a 1.8% increase, so when U.S. GDP grew 2% in the third-quarter, the clouds should have gone away and the sun should have come out.  That pesky little rumor of burgeoning growth is becoming evident and there is some actual momentum happening.  Consumer spending was the principal factor of the increase, furthered by purchases of durable goods.  Not too shabby it would appear right?  Ahem, for the week, the Dow fell 1.8 percent, the S&P 500 lost 1.5 percent and the NASDAQ dropped 0.6 percent.  D’oh!

The familiar culprit of lack of business investment provided a headwind to stronger growth.  Lighter revenues are a concern this earnings season with just about 37 percent of S&P 500 companies have reported revenues that beat forecasts, compared with the 62 percent that typically exceed expectations, according to Thomson Reuters data.  Sales missed forecasts at 59 percent of companies, the data also showed.  Third-quarter earnings at about 71 percent of the index’s companies beat analysts’ estimates, according to data compiled by Bloomberg.   The data and the overall GDP sentiment have presented a sort of alternative reality where the confused and perplexed reign supreme.   Hurricane Sandy is only going to add a new twist to the narrative, with the potential of market closures into Wednesday, Insurers preparing for the worst in storm damage to property and lives of as much as $4.9 billion, according to Kenetic Analysis Corp.  Home and business owners are bracing for potential economic losses ahead during what may be a challenging storm recovery.  This wasn’t the October Surprise they were expecting, not even close.

I remain optimistic.  This earnings season has been a very challenging one and Investors should look beyond some disappointments and focus on an improving economy.  A growing economy will underpin growth in stocks and all other instruments.  External bearish factors include concern about the European debt crisis after Spanish unemployment rose to a record 25% and after Germany expressed more doubts about whether Greece will be able to meet requirements for its European bailout.  Our own ‘Fiscal Cliff’ is rapidly approaching, not to mention the elections next week.  It’s understandable why confidence is missing; present circumstances present a mixed bag of joy and distress concerning weaker global and domestic economic growth.  I remain optimistic, but cautious and defensive.

Expectation and interpretation

The U.S. market began the week with better than expected economic data and by the end of the week, earnings results actually had beaten expectations (true, the bar had been lowered) but the revenue beat rate and outlook have been disappointing.  Approximately 20% of the S&P 500 companies have reported thus far, only 42.3% of them have beat Q3 revenue expectations and 57.7% have missed.  However, 64.9% have beat earnings per share (EPS) estimates.   As I’ve mentioned before, this market is all about expectation and interpretation.  To close the week off, the S&P and Dow finished the week with minuscule gains, the Russell 2000 with a small loss, and the NASDAQ proved to be the worst performer with a 1.26% drop.  There is a noticeable change in sentiment, again with little response to good news. Stocks had the worst week in a few months all the while the data has actually been somewhat positive.  On the global perspective things were considerably better, with eleven of twelve major foreign indexes posting gains.  The under performer was Brazil and they missed by .41%.

Overall it was a quiet but positive week for economic data.  Retail sales, industrial production, housing starts and building permits all beat expectations right on up until Thursday’s employment numbers.  First time unemployment claims took the wind right out of the swelling sails and then Friday’s sell off, which just by coincidence happened on the 25th anniversary of the Crash of 1987, capped off a surprisingly vexing week.  Uncertain outcomes remain and the market’s fluid reaction bears caution.

I remain optimistic.  I won’t be making any predictions when the overall earnings story is this mixed, the Doom and Gloom crowd will be providing more than enough downbeat outlook commentary.  Adding to the neurosis of the market, the last Presidential debate happens Monday evening.  I am curious which candidate (the fake Mitt or fake Barack) will play to undecided voters via their foreign policy positions.  The last two events were certainly eyebrow arching to say the least.  My short-term outlook predominately screams for caution and risk control due to market psychology and sentiment.  Mid to long-term, I remain optimistic as there are many immediate opportunities for long-term growth potential; once the equilibrium shifts and the fundamentals are once again recognized by a sane market place.