Wednesday, January 28, 2015
The Fed meeting and a barrage of earnings reports provide the backdrop for today’s trading action. Stocks were down big on Tuesday in response to weak earnings reports from a host of blue-chip operators. But the mood may be a lot more positive following the strong Boeing (BA) report this morning and the record Apple (AAPL) announcement last evening.
The decision facing the Fed is far from simple. Everybody expects the FOMC to start raising rates by the middle of the year, meaning in June. With the day of reckoning this close, the committee needs to start telling the markets in more concrete terms pretty soon. The Fed may not have to show its hand at today’s meeting, but certainly will at one of the next two meetings, in February or April.
The problem is that the Fed may be having second thoughts over its earlier plans for mid-2015, given the subdued U.S. pricing pressures and the uncertain international backdrop. The high value of the U.S. dollar has emerged as a recurring theme in the ongoing Q4 earnings season, as have concerns about global growth.
On the earnings front, Apple’s blockbuster report after the close on Tuesday has single-handedly turned around the aggregate Q4 earnings picture. While growth didn’t compare favorably with other recent quarters prior to the $18 billion earnings report from Apple, it is broadly in-line with the recent past, post-Apple.
Including this morning’s reports from Boeing, International Paper (IP) and others, we now have Q4 results from 97 S&P 500 members that combined account for 42.4% of the index’s total market capitalization. Total earnings for these companies are up +6.5% on +3.9% higher revenues, with 71.9% beating EPS estimates and 49.3% coming ahead of top-line expectations.
The growth picture has no doubt improved following the Apple report, but the trend on the estimate revisions front is still overwhelmingly negative. Estimates for 2015 Q1 and Q2 are falling at such a fast clip — thanks to oil and the strong dollar — that the first half 2105 growth rate for S&P 500 companies has essentially evaporated in recent days. And with the bulk of the Q4 reports still ahead of us, there is likely still plenty of downside to these estimates.
Sheraz Mian
Director of Research
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