Taking Stock Of Q3 Earnings Season - Ahead Of Wall Street

Thursday, November 13, 2014

Stocks likely won't do much in today's session either, kind of a rerun of the Wednesday session. But overall sentiment remains positive and the trend remains to the upside.

The rebound from the late-September/early-October sell-off has been very impressive. Global growth fears were the dominant driver of the pullback. But market participants were able to convince themselves that the U.S. economy wouldn't require outside help to sustain its growth momentum. And U.S. data has broadly been helpful, with the labor market steadily firming up as this morning's low initial jobless claims numbers show and the outlook for business and consumer spending improving.

The Q3 earnings season (now moving into the rear-view mirror) also helped matters, as earnings reports and management commentary belied some of the more exaggerated global growth fears. Concerns about Fed policy appear to have taken a back seat as well, with investors collectively seeming to be hoping for a lower-for-longer interest rate trajectory.  

We have to keep in mind, however, that the stock market's sharp rebound hasn't been concentrated in sectors that we would typically associate with excessive bullish sentiment. The list of top-performing sectors this year includes Medical, Utilities and Consumer Staples. Transportation, Aerospace and Tech have been stellar performers as well, but the strength in the defensive health, utilities and staples stocks shows that investors aren't being overly exuberant.

Energy has been a laggard this year for understandable reasons, with the sector's travails giving the transportation sector a further lift. One would have expected the oil-price drop to help shore up the consumer sectors as well, but the Retail and Consumer Discretionary sectors have been weak this year. This morning's strong Wal-Mart WMT shows that lower gasoline prices may have been beneficial to the retailer, after all.

Including this morning's reports from Wal-Mart and Viacom VIA, we now have Q3 results from 461 S&P 500 members or 91.8% of the index's total membership. Total earnings for these 461 companies are up +6.9% from the same period last year, with 70.5% beating earnings estimates. Total revenues are up +4.1%, with 56.8% 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.

The earnings and revenue growth rates are tracking below the prior quarter's levels, though they do represent an improvement over the averages for the preceding four quarters. With respect to beat ratios, more companies are beating on the bottom line, but a smaller proportion of companies are able to beat revenue estimates.  

Importantly, the guidance picture remains weak, with a majority of companies guiding lower. As a result, estimates for Q4 are following the familiar negative revisions trend that we have been seeing quarter after quarter for more than two years now. In some respects, the negative revisions trend for Q4 is even more pronounced relative to what we saw in other recent reporting cycles at a comparable stage.

Sheraz Mian
Director of Research

Note: In order to get an email alert each time this author publishes a new article, click on the ‘Follow Author' link at the bottom of the top-right box of links.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
WAL-MART STORES WMT: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Posted In: PreviewsTrading Ideas
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!