Weak Guidance To Continue This Earnings Season - Economic Highlights

Stocks rebounded strongly last week, with the S&P 500 gaining in excess of +4% and erasing most of its recent losses. A good enough Q3 earnings season and a still-supportive Fed appear to have driven the rebound. Stocks aren't expected to do much today, at least not at the open, though this week's busy earnings docket and the Fed meeting will provide plenty of catalysts.

Including this morning's reports from Merck MRK, Roper Industries ROP and others, we now have Q3 results from 211 S&P 500 members that combined account for 55.4% of the index's total market capitalization. Total earnings for these 211 companies are up +4% from the same period last year, with 68.7% of the companies beating earnings estimates. Total revenues are up a much stronger +4.6%, with 53.6% 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 we are not seeing any improvement on the guidance front, either.

Guidance has been weak for more than two years now, and we are seeing that trend continue into this earnings season as well. What this means is that the persistent negative revisions trend that we have been seeing for a while will remain in place for the current and coming quarters. The current +5.1% earnings growth expected in Q4 has come down from close to +9% just a few weeks back. With the reporting cycle peaking this week, we will likely see the revisions trend accelerate in the coming days as well.