Thursday, February 7, 2013
Stocks have been struggling to break out in recent days after reaching milestone levels and today’s session will likely be not much different. This morning’s initial Jobless Claims and productivity data on the home front and the interest rate decision by the European Central Bank came in as expected. And with the Q4 earnings season winding down and not much on the data docket for the coming days either, stocks simply lack the catalyst sustain the upward thrust.
Initial Jobless Claims dropped and fourth quarter productivity deteriorated, with both data coming in largely as expected. The Jobless Claims level is now at 366K, down 5K from an upwardly revised 371K the week before. The 4-week average dropped to 351K from 353K, a new low for this cycle, no doubt helped by the unusual drops two weeks back when initial claims dropped to roughly 330K.
The key takeaway from recent labor market readings is that there is a slow and steady improvement underway and today’s numbers make no changes to that assessment. The productivity numbers were on the weaker side, but they reflect underlying GDP trends and the initial read on fourth quarter GDP presented an exaggeratedly weaker take on the economy. Just like the unusually weak GDP numbers last week, the market will likely shrug the deteriorating productivity and unit labor cost picture emerging from this report.
On the earnings front, we got better looking results from Cigna (CI), Sprint (S), and Starwood Hotels (HOT) this morning. We now have fourth quarter reports from 232 S&P 500 companies, or 75.5% of the index’s total market capitalization, as of this morning. Total earnings for these 232 companies are up +2.6% from the same period last year, with 67.2% of companies beating earnings expectations with a very healthy median surprise of +3.3%. On the revenue side, total revenues for these companies are up +0.4%, with 62.7% companies beating top-line expectations with a median surprise of +0.9%. The composite growth picture for the fourth quarter, where we combine the result from the 232 companies that have come out with results already with the 168 still to come, is for growth rates of +1.7% for earnings and +0.7% on revenues. This would be an improvement over the essentially flat performance in the third quarter.
This has been a decent enough earnings season, particularly relative to the very low expectations in the run up to the start of the reporting season. The stronger looking beat ratios and surprises relative to the third quarter reflect those low expectations. But the quality of guidance hasn’t been that worrisome either. While guidance was invariably negative in the third quarter, it has been less so this time around. That said, expectations for 2013 have started coming down, particularly for the first half of the year. But they still seem to be on the elevated side and will need to come down more.
Director of Research