MorningWord 4/29/13: As a trader focussed on single stock stories, earnings season is obviously the main event 4x a year where corporate transparency is expected to be at its highest. While I spend most of my energy listening to and reading individual releases with eye towards gleaning the state of affairs at a particular company and attempt to extrapolate to competitors, customers, suppliers etc, often times the data taken as whole of a large contingent can help inform ones macro view. As FactSet research reported on Friday,
With more than half of the companies in the S&P 500 reporting actual results, the number of companies reporting earnings above estimates is slightly above recent averages, while the percentage of companies reporting revenues above estimates is below recent averages.
Overall, 271 companies have reported earnings to date for the fourth quarter. Of these 271 companies, 73% have reported actual EPS above the mean EPS estimate and 27% have reported actual EPS below the mean EPS estimate. Over the past four quarters on average, 70% of companies have reported actual EPS above the mean EPS estimate.
The percentage of companies beating sales estimates is below the percentage recorded last quarter (64%) and below the average over the previous four quarters (52%).
A continued theme from 2012, into Q1 was large U.S. company’s ability to manage costs well in a environment where end market demand continues to hinder sales growth, and thus manage earnings through share buybacks and other financial engineering tricks coupled with said cost controls. While Q1 results are backward looking and “baked into the cake” with the SPX near all time highs, guidance for Q2 and the balance of the year should be one of the more important determining factors of near term price performance, on that front FactSet had the following observation:
Of the 59 companies that have issued EPS guidance for the second quarter, 48 have issued projections below the mean EPS estimate and 11 have issued projections above the mean EPS estimate. Thus, 81% (48 out of 59) of the companies that have issued EPS guidance to date for Q2 2013 have issued negative guidance. This percentage is well above the five-year average of 61%.
Since the start of the second quarter (March 31), analysts have also reduced earnings growth expectations for Q2 2013 (to 2.4% from 4.5%). However, they are predicting earnings growth of 8.4% for Q3 2013 and 13.6% for Q4 2013. Revenue growth rates for Q3 (3.5%) and Q4 (1.9%) are expected to be below the estimated earnings growth rates for both quarter.
To Sum it up on the Micro, there have been few surprises both positive and negative on the earnings front, despite having fairly low expectations. One take-way from where I am sitting though was the high profile misses were treated much more harshly than some of the beats. For instance the high volume beatings stocks like T, PG, BMY, GE, IBM, AMZN & AMGN took from 52 week or all time highs, were not commensurate with the rallies in stocks like GOOG, AXP & JNJ. From an options market perspective, the ratio of stocks that hit the implied move on the upside vs those that hit it on downside has been skewed towards the downside. Put another way, volatility seems predisposed for misses rather than reward those who beat and raise.
I have also been left scratching my head on some reports that we met with selling for what appeared to be rotation out of winners in names like EBAY and QCOM where the growth stories appear to be intact at very reasonable valuations. SO the most obvious takeaway, is that demand will need to pick up to keep stocks moving higher, multiple expansion can not remain the primary driver for price appreciation.
As far as surprises go, some of the most unsuspected negative surprises in the past few weeks have been on the Macro front (both here and abroad), and this week will be massive on the data front. We get start the week with some housing, auto sales and consumer (good summary from IBTIMES below), and head into FOMC-hell for their 2 day meeting tomo and end the week with the ALL IMPORTANT JOBS data, much like the March print, this could be a market mover depending on the set up heading in:
8:30 a.m. — Economists expect a 0.3 percent rise in personal income and a 0.1 percent increase in personal spending in March.
10 a.m. — The pending home-sales index, tracking signed contracts on single-family homes, condos, and co-ops, is likely to increase 1 percent in March to kick off the spring selling season. This forecast would leave the series 7.1 percent ahead of year-ago levels and consistent with the overall improvement in existing home sales and the housing market.
TBA — The Federal Open Market Committee will conduct the first day of its two-day meeting.
9 a.m. — Economists expect the S&P Case-Shiller home price index to rise 1 percent month-over-month in February, similar to January’s increase, for a 9.2 percent year-over-year rise. The gain in prices reflects a tight housing market, as can be seen by low inventory, falling time on the market and increasing bids per house. The 20-city index has risen for 12 straight months, and economists expect this momentum to continue.
9:45 a.m. — The April Chicago PMI probably remained largely unchanged at 52.5 after a print of 52.4 in March. Although the Empire State and Philadelphia Fed indices both declined on the month, the Chicago PMI has been running a bit higher than these other indices recently on a relative basis, and economists expect this trend to persist.
10 a.m. — After dropping to 59.7 in March, the Conference Board measure of consumer confidence probably edged up slightly to 60.0 in April.
All day — Auto sales for April. Analysts polled by Reuters expect the annual sales pace to be 15.28 million in April, essentially unchanged from March. While other areas of the economy have shown signs of weakness, the auto sector continues to ride strong, persisting demand.
7 a.m. — The Mortgage Bankers Association’s, or MBA’s, mortgage-applications indexes for the week ended April 26.
8:15 a.m. — Economists forecast the ADP employment report will show private payrolls increased by 150,000 in April, compared with 158,000 in March and 237,000 in February. The main driver of the weakness in March was a longer-lasting winter, as manufacturing and construction payroll growth was especially weak. Because the weather has improved, economists expect a reversal in April. Since the new ADP methodology was put in place, the average difference between the ADP and U.S. Bureau of Labor Statistics private-payroll figures has been around 44,000.
8:58 a.m. — Markit Manufacturing PMI for April, final reading.
10 a.m. — Construction spending likely increased by 0.8 percent in March, following a 1.2 percent gain in February.
10 a.m. — The Institute for Supply Management manufacturing indexunexpectedly fell to 51.3 in March, and economists look for another small decline to 50.9 in the April reading. This would be consistent with similar drops in the regional manufacturing surveys, but would suggest that manufacturing activity has remained in expansionary territory, despite overall economic growth slowing in the second quarter.
2 p.m. — At the May FOMC meeting (April 30-May 1), economists do not expect any change in the Fed’s policy stance and they anticipate few changes to its statement. There is no press conference or release of economic projections associated with this meeting, so investors will have to await subsequent FOMC minutes and communications for additional detail.
7:30 a.m. — Challenger layoffs for April.
8:30 a.m. — Economists see initial jobless claims at 345,000 in the week ending April 27, up from 339,000 in the prior week.
8:30 a.m. — The trade deficit likely narrowed further, to around $42.5 billion in March from $43.0 billion in April.
8:30 a.m. — Productivity (output per hour worked) in the nonfarm business sector likely posted an increase of 1.9 percent in the first quarter of this year, consistent with growth in output outpacing growth in hours worked. Economists are also looking for an increase in unit labor costs of 0.4 percent, reflecting the combination of a modest gain in output per hour and a stronger rise in compensation per hour.
8:30 a.m. — Economists forecast a soft employment report in April with job growth of 150,000, following March’s disappointing 88,000-job gain, and an unchanged unemployment rate of 7.6 percent. The government probably cut 18,000 workers, while the private sector added 168,000. Budget sequestration has resulted in furloughs and hence income reduction across the federal government, but only limited job cuts thus far. Economists believe the private sector will respond with a lag to the decline in government spending. The private-sector workweek probably remained unchanged at 34.6 hours in April, while average hourly earnings only increased 0.2 percent from March.
10 a.m. — Factory orders are expected to show a decline of 2.5 percent in March, following a 3.0 percent increase in the prior month.
10 a.m. — The softness of retail spending may have further dampened the ISM nonmanufacturing index in April. Economists have penciled in a drop to 54.0 in April from 54.4 in March.
12:45 p.m. — Federal Reserve Bank of Richmond President Jeffrey Lacker (an FOMC nonvoter this year) speaks on the “Economic Outlook, May 2013” before the Risk Management Association of Richmond.