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Stocks have been unable to shake off the bond market's skepticism of recent positive economic data and have essentially been drifting in a directionless fashion. The soft data out of China will likely keep that trend in place in today's session as well, though Janet Yellen's Congressional testimony could potentially move the markets as well.
China's April service sector PMI survey from HSBC Bank HBC modestly dropped from the prior month's level, though it still remained in expansionary territory. This follows the official service sector PMI measure over the weekend that showed some improvement in this measure. Hard to tell which survey is a better measure of China's service sector economy, but the two surveys taken together are pointing towards the service expanding at a decelerated pace. Importantly, the service sector growth appears insufficient to offset the continued weakness in the all-important manufacturing sector.
The government's announcement of a mini stimulus some time back targeting increased outlays for railroads and tax breaks for small businesses had raised hopes of a rebound in the economy. But that hope hasn't panned out, though it may be premature to write-off the stimulus measure altogether. All in all, there is little doubt that China's growth outlook remains uncertain.
With respect to the Q1 earnings season, the scorecard as of this morning shows that 420 S&P 500 members have already reported results. Total earnings for these 420 companies are down -0.3% from the same period last year on -0.1% lower revenues, with 68.4% beating EPS estimates and 49.3% coming out with positive revenue surprises. The composite growth rate for Q1, combining the actual results from the 420 S&P 500 members that have reported results already with estimates for the 80 companies still to come, is for total earnings to be down -0.3% on +0.1% higher revenues. What this basically says that earnings and revenues in Q1 are on track to be essentially flat from the same period last year.
Estimates for the current quarter have been coming down and the pace of negative revisions seems to have accelerated in recent days. Total earnings for the S&P 500 in Q2 are now expected to be up +3.4% from the same period last year, down from +4.2% last week and +5.5% at the start of the quarter. Estimates for the Finance sector have started coming down following the J.P. Morgan JPM announcement last week and we will likely see something similar from the retail sector as more companies from that sector come out with Q1 results in the coming days. Given this persistent negative revisions trend, it is hard to see earnings serving as a catalyst for this market, at least over the next few months.
China's April service sector PMI survey from HSBC Bank HBC modestly dropped from the prior month's level, though it still remained in expansionary territory. This follows the official service sector PMI measure over the weekend that showed some improvement in this measure. Hard to tell which survey is a better measure of China's service sector economy, but the two surveys taken together are pointing towards the service expanding at a decelerated pace. Importantly, the service sector growth appears insufficient to offset the continued weakness in the all-important manufacturing sector.
The government's announcement of a mini stimulus some time back targeting increased outlays for railroads and tax breaks for small businesses had raised hopes of a rebound in the economy. But that hope hasn't panned out, though it may be premature to write-off the stimulus measure altogether. All in all, there is little doubt that China's growth outlook remains uncertain.
With respect to the Q1 earnings season, the scorecard as of this morning shows that 420 S&P 500 members have already reported results. Total earnings for these 420 companies are down -0.3% from the same period last year on -0.1% lower revenues, with 68.4% beating EPS estimates and 49.3% coming out with positive revenue surprises. The composite growth rate for Q1, combining the actual results from the 420 S&P 500 members that have reported results already with estimates for the 80 companies still to come, is for total earnings to be down -0.3% on +0.1% higher revenues. What this basically says that earnings and revenues in Q1 are on track to be essentially flat from the same period last year.
Estimates for the current quarter have been coming down and the pace of negative revisions seems to have accelerated in recent days. Total earnings for the S&P 500 in Q2 are now expected to be up +3.4% from the same period last year, down from +4.2% last week and +5.5% at the start of the quarter. Estimates for the Finance sector have started coming down following the J.P. Morgan JPM announcement last week and we will likely see something similar from the retail sector as more companies from that sector come out with Q1 results in the coming days. Given this persistent negative revisions trend, it is hard to see earnings serving as a catalyst for this market, at least over the next few months.
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