Q2 Earnings Season Seems To Be Reassuring – Economic Highlights

On the earnings front, we now have Q2 results from 226 S&P 500 members that combined account for 53% of the index’s total market capitalization. Total earnings for these 202 companies are up +9.9% from the same period last year on +5.4% higher revenues, with 69% beating EPS estimates and 64% coming out with positive revenue surprises.

The earnings related spotlight today will likely be from last evening’s reports from Amazon (AMZN), Starbucks (SBUX) and Visa (V). Amazon lived up to its reputation of sacrificing short-term profits for long-term growth by coming out with a bigger than expected loss and weak guidance for the current period. Margins at the online retailing giant continued to suffer as it pours money into new offerings and the logistical wherewithal to deliver them. Amazon shares are indicated to open down in a big way in today’s session. Investors were unimpressed with Starbucks’ results as well, keeping the stock under pressure today.

Beyond the Amazon results, the overall picture emerging from the Q2 earnings season thus far is fairly reassuring: the growth rates are better, more companies are coming ahead of estimates, and there is even some modest improvement on the guidance front. With respect to guidance, the majority of companies providing guidance are still guiding lower as we saw with Amazon last night, but their proportion is smaller than what we have been seeing in recent quarters. And even those that don’t offer guidance have been qualitatively talking up their business outlook.

This modestly improved guidance is starting to have a bearing on estimates for the current period – and the effect is positive. By this time in each of the last four reporting cycles, we had started seeing estimates for the current period come down. But we aren’t seeing that at present. Estimates for 2014 Q3 have held up very well thus far. In fact, they have moved up a tad since the current earnings season got underway. This is an improvement over what we have been seeing in recent quarters.