Tuesday, October 22, 2013
A barrage of Q3 earnings reports and a disappointing government jobs report provide the backdrop for the stock market today. The jobs report is the second in the last two months that missed expectations and would add to hopes that the Fed’s QE program will remain in place longer than wouldd otherwise be the case. The consensus view is that Taper is not coming at next week’s Fed meeting and may be delayed as much as through Spring 2014. Today’s jobs report will provide further support to those expectations.
On the earnings front, we got solid earnings reports from DuPont (DD), Travelers (TRV), and Delta Airlines (DAL) this morning and Netflix (NFLX) after the close on Monday. Coach (COH) missed expectations, as the company’s North American same-store sales suffered due to stiff competition from the likes of Michael Kors (KORS). United Technology’s (UTX) report was also on the weak side, particularly in revenues and guidance. Including this morning’s long line-up of reports, we now have Q3 results from 130 S&P 500 members that combined account for account for 35.2% of the index’s total membership.
Total earnings for these 130 companies are up +7.8%, with 63.8% coming ahead of consensus earnings expectations. Total revenues are up +2.2% and 41.5% are beating top-line expectations. The growth rates and beat ratios have improved as more results have come out, though they still track below what this same group of 130 companies reported in 2013 Q2. The composite earnings and revenue growth rates for Q3, combining the results for the 130 companies that have reported with the 370 still to come, are +2.3% and +0.9%, respectively.
Today’s weaker than expected jobs reading was the last ‘clean’ set of labor market report before the government shutdown. Next month’s jobs data, coming in about two weeks time, will be all distorted by shutdown effects and those effects may not clear out in the following month either. So, if the Fed is data dependent, as it keeps reminding us, and there is no ‘clean’ data for quite some time, then it’s reasonable to expect them to stay away from the Taper narrative for some time.
That said, today’s soft jobs report shows that the economy didn’t have much momentum as it entered the shutdown, which likely further weakened it. The shutdown impact will no doubt be temporary and get reversed in the following quarter, but it’s nevertheless a negative for an economy already operating sub-par.
Sheraz Mian
Director of Research
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