Thursday, October 30, 2014
The strong GDP report and a flood of Q3 earnings results provide the backdrop for today’s trading action. Stocks aren’t expected to do much in today’s session either, but the market’s overall reaction to Wednesday’s Fed announcement has largely been constructive.
The Q3 GDP report came in better than expected – up +3.5% vs. estimates of +3.1%. GDP growth was a much higher +4.6%, but a big part of that was the bounce-back from the unusually weak first quarter. Consumer Spending, or ‘personal consumption expenditures’ (PCE) in GDP speak, was up a better-than-expected +1.8% in Q3, down from Q2’s +2.5%. Spending on durable and non-durable goods decelerated from the prior-quarter’s pace, while spending on services accelerated.
Business spending (called ‘non-residential fixed investment’ in the report) increased +5.5% in Q3, with investments in structures up +3.8% and investments in equipment up +7.2%. Housing was a smaller growth driver in Q3 relative to the preceding quarter, up +1.8% vs. +8.8% in Q2. Government spending contributed to growth, while inventories were a drag.
This is reassuring for the U.S. economy, particularly in light of some of the softer recent economic readings. This will nevertheless add to the growing conviction that the U.S. economic outlook is on a firmer footing, with the growth picture steadily improving lately. It is this improving economic picture that prompted the Fed to end its bond-purchase program and is getting ready to start raising interest rates. I thought the Fed did an excellent in its post-meeting statement yesterday even though stuck with their ‘considerable time’ phrase. They were able to upgrade their economic outlook without spooking the markets in a big way. The modestly lower finish for the markets yesterday and today’s soft open don’t qualify as a fearful market.
The GDP report aside, this morning was also the busiest of the Q3 season thus far. Including this morning’s reports from ConocoPhillips (COP), MasterCard (MA) and others, we now have Q3 results from 331 S&P 500 members that combined account for 73% of the index’s total market capitalization. Total earnings for these 331 companies are up +6.9% from the same period last year, with 72.5% of the companies beating earnings estimates. Total revenues are up a much stronger +4.9%, with 50.8% beating top-line estimates.
Comparing the results thus far with what we have been seeing from the same group of companies in other recent quarters in terms of growth rates, beat ratios and guidance presents somewhat of a mixed picture. Earnings growth is weak relative to other recent quarters, but revenue growth is tracking better. Earnings beat ratios are about in-line with recent history, though revenue surprises are a bit on the weak side. And with no improvement on the guidance front, estimates for Q4 have starting coming down along the familiar negative revisions trend that we have been seeing quarter after quarter for more than two years now.
Sheraz Mian
Director of Research
Note: In order to get an email alert each time this author publishes a new article, click on the ‘Follow Author’ link at the bottom of the top-right box of links.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment