Monday, November 2, 2015
The major indexes are indicated to start today’s session modestly in the green. But a lot will depend on the factory sector ISM survey coming out a little later whether the positive open can be sustained throughout the session.
The October manufacturing sector ISM survey is expected to show a reading of 50 vs. the prior month’s 50.2 reading – the reading of 50 represents the dividing line between expansion and contraction in the factory sector. We know that the factory space has been hurting lately under the combined effect of weakness in export markets and the strong U.S. dollar. As such, a sub-50 reading would not come as a big surprise, but will nevertheless frame expectations for this week’s jobs data that has direct Fed implications.
The central bank’s latest statement left the door open for a December lift-off. But I am of the view that if the October non-farm payroll report coming out on Friday fails to reverse the negative trend we saw in the last couple of monthly jobs readings, then a December lift-off is off the table.
The Q3 earnings season has started winding down, with this week as the last major reporting week with more than 100 companies of the S&P 500 index. Including this morning’s reports from Visa (V), Clorox (CLX) and others, we now have Q3 results from 350 S&P 500 members.
By the end of this week, we will have seen results from more than 90% of the index members. Total earnings for these companies are down -1% on -4.9% lower revenues, with 71.5% beating EPS estimates and 41.9% beating revenue estimates. Excluding the Energy sector drag, total earnings for the rest of the index would be up +6.1% on +1.5% revenue gains (Energy sector earnings are down -52.5% on -35.4% lower revenues).
As we have been pointing out repeatedly in this space, the growth challenge is all around, with revenue weakness particularly notable this reporting season as a disappointingly low percentage of companies have been able to beat top-line estimates. Guidance for the current period has been overwhelmingly weak as well, causing Q4 estimates to come down at an accelerated pace in recent days. Total earnings for the S&P 500 index are currently expected to be down -6.1% from the same period last year, down from an expected decline of -1.1% in mid-September – the third back-to-back quarter of negative earnings growth.
Sheraz Mian
Director of Research
Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.
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