MorningWord 9/16/13: Main Event This Week Could Be Earnings Outlook From $FDX & $ORCL

by Dan September 16, 2013 9:22 am • Commentary

MorningWord 9/16/13:  Forget Mayweather, the main-event this week is now the Fed’s 2 day meeting that starts tomorrow and culminates in the rate decision on Wednesday at 2pm.  While there are no expectations on the rate-front, it appears to be a forgone conclusion that the Fed will signal their intent to buy less bonds as part of their quantitative easing program in the months going forward, and with the SPX set to make an attempt at new all time highs this morning, it would appear that markets are taking it all in stride, despite the fact that the yield on the 10 year Treasury has held much of its recent advance.  It just today broke the very steep uptrend it has been in since the word “Taper” entered the financial world’s lexicon back in May.

U.S. 10yr Treasury Yield from Bloomberg
U.S. 10yr Treasury Yield from Bloomberg

Equity markets are getting an eye-popping boost this morning from Larry Summers withdrawing his name from the Fed Chief nominee list, widely thought as someone who would look to end QE more aggressively than some of the more Dovish names on Obama’s short list.  But with the Taper course soon to be in motion, and a possible nominee that will not have an acrimonious confirmation process, the markets will once again be focused on corporate earnings.

Not only will Wednesday be Fed-tastic, but the day will be book-ended by 2 fairly important earnings reports that could shed some light on the health of the global economy, FDX (pre-open) and ORCL (post close).

What’s interesting about these 2 companies is that they both get a large portion of their sales from overseas (in 2012, FDX ~29% and ORCL ~57%), and the trade for the better part of the last 2 years was to be long U.S. domestic names as Europe and emerging markets remained in near recessionary environments.   Both stocks have under-performed the broad market.  ORCL’s 2.5% decline on the year sticks out like a sore thumb, while FDX’s 17% gains is a tad shy of the SPX ytd.   Rotation is the key to healthy internals for any market, and investors chasing performance and shopping for laggards could be the fuel for the next leg of the rally.

Given that S&P 500 companies get about 45% of their revenues from overseas (breakdown courtesy of BI), improvement in the international outlook will significantly bolster the bull case for future earnings.  A big portion of the stagnation in earnings growth over the last 2 years has been due to ex-U.S. weakness.  Guidance and results from FDX and ORCL should provide more food for thought in that regard.