Greece is dominating the headlines again today with fresh announcements from the Greek government adding to “Grexit” risks. This shouldn’t be a problem in the long run for anyone but the Greeks, but the uncertainty is nevertheless a headwind for the already weak Euro-Zone economy.
The new Greek government wants to renegotiate the terms of its bailout, with the resulting uncertainty adding to market turmoil both in Europe as well as worldwide. The latest on that front is the government’s announcement on Sunday to chip away at the austerity measures agreed to by its predecessor and seek out a bridge loan through June instead of an extension to the existing arrangement as preferred by its creditors.
This announcement follows last week’s ECB decision to stop accepting the Greek government’s junk-status bonds as collateral has put a big question mark over the long-term viability of the country’s banking system. While it’s still possible that a comprehensive deal could be reached with the creditors, today’s announcements have increased the odds of Grexit to a great extent. The decision today by Standard & Poor’s, the bond rating agency, to push the country’s sovereign rating further into junk territory is a reflection of this risk.
On the earnings front, including this morning’s reports from Diamond Offshore (DO), Hasbro (HAS) and others, we now have Q4 results from two-thirds of the S&P 500 members and three-fourths of its total market capitalization. Total earnings for these companies are up +7% from the same period last year on +1.3% higher revenues, with 71.4% beating earnings estimates and 56.5% beating top-line estimates.
The Energy drag as a result of weak oil prices notwithstanding, the beat ratios and earnings growth rate in Q4 thus far is roughly in-line with what we have been seeing from the same group of companies in other recent quarters, but revenues are on the weak side. Importantly, estimates for the current and following quarters have been coming down sharply, with the Energy sector again playing a leading role. As mentioned before in this space, the entire expected growth rate for the first half of the year has effectively disappeared in recent days.
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