Economy for the Week Ahead: Inflation and Consumer Sentiment!
Stock Market Earnings: ‘Unofficial’ Start Of The Third Reporting Season!
by Ian Harvey
October 08, 2012
With Alcoa Inc. (AA) scheduled to report quarterly results on Tuesday; the third-quarter earnings session should kick off in earnest in the week ahead. Wells Fargo & Co. (WFC) and J.P. Morgan Chase & Co. (JPM) are scheduled to report Friday.
Also, news for the economy in the week ahead, reports on small business and inflation, as well as the biggest group of initial public offerings in months, is expected.
Earnings in the Week Ahead
Alcoa’s (AA) release after the close on Tuesday will ‘unofficially’ kick-off the third reporting season, even though ‘officially’ results have been trickling in since last month. Companies like FedEx (FDX), Nike (NKE), Oracle (ORCL) and quite a few others have already reported third quarter results, but Alcoa’s report is typically considered as kick-starting the quarterly reporting cycle.
Also, in the week ahead there will be two major financial firms reporting earnings. As earnings session starts to heat up next week, two U.S. banking giants will weigh in with their latest third-quarter numbers on Friday. J.P. Morgan Chase & Co. (JPM) should give investors an early window into the recent strength of investment banking, while Wells Fargo & Co. (WFC) will provide a view of traditional banking's strength.
Webster Financial Corp. (WBS) and Bank of the Ozarks Inc. (OZRK) also are expected to report their latest results.
Alcoa’s first-to-report status notwithstanding, there have been third-quarter results from 24 companies in the S&P 500 (as of Friday, October 5th) so far – however, these results have not been that inspiring.
Total earnings are down 4.7% from the same period last year and only 41.7% of the companies beat earnings expectations. This is a weaker performance than what these same companies did in each of the last five quarters. Performance on the revenue side is surprisingly not that bad for these 24 companies, with total revenues up 1.2% from the same period last year and 11 coming ahead of revenue expectations.
But the big story on the earnings front is not what has come out already, but rather what’s in store from the 476 companies still to report results. There are 9 S&P 500 companies reporting results this week, which includes, besides Alcoa, Yum! Brands (YUM), Costco (COST), JP Morgan (JPM) and Wells Fargo (WFC). Total earnings for these 476 companies are expected to drop 3.4% from the same period last year, with revenues declining 2.3%.
The actual growth rates will most likely be better than these expectations, given how company managements have refined the art of under-promising and over-delivering quarter after quarter. Just to give you an idea of how good they are at anchoring expectations, roughly two-thirds of the companies in the S&P 500 would typically beat earnings expectations in any given quarter – it was 62% in the second quarter and 65% in the first quarter.
If we do get negative earnings growth this quarter as currently expected, that will be the first decline in quarterly earnings since the earnings recovery got underway after the end of the Great Recession in 2009. The earnings weakness is quite broad-based, with half of the sectors expected to have negative earnings growth.
As was the case in the second quarter, the Energy and Basic Material sectors are the weakest, with earnings declines of 23.5% and 25.5%, respectively. Energy and Basic Materials earnings were down 16% and 20.5% respectively in the second quarter, when total earnings for the S&P 500 as a whole were up 4%.
Only two sectors are expected to have double-digit earnings growth – Finance (up 17.3%) and Construction (up 37.6%). Construction doesn’t carry much weight in the aggregate picture as it contributes less than 0.5% of total S&P 500 earnings, but the Finance strength is making the aggregate growth rate look a lot better than it otherwise would be. Excluding Finance, total S&P 500 earnings in the third quarter would be down 7.1%.
Also, PetSmart (PETM) will be added to the S&P 500 after the close on Thursday, replacing Sunoco (SUN) following the latter's buyout by ETP. Cabela's (CAB) will take PetSmart's position in the S&P MidCap 400, while Acorda Therapeutics (ACOR) will replace Cabela's in the S&P SmallCap 600.
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|DLTR Aug 110 Calls||32%||UIS Oct 17 Calls||79%|
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|GLD Oct 170.00 Calls||52%||MON Jan 2013 87.50 Calls||26%|
Company Earnings and News in the Week Ahead
IPOs Slated for the Week Ahead
There are nine initial public offerings scheduled for the week ahead, the most since the week of March 26, according to Dealogic. Workday Inc., Shutterstock Inc. and Realogy Holdings Corp. are among the group.
• Realogy, the largest residential real-estate services firm in the country, owns and franchises residential real-estate brokerages, including Century 21, Coldwell Banker, ERA and Better Homes and Gardens Real Estate.
The company is seeking to go public some five years after Apollo Management LP took it private at the height of the housing market in a highly leveraged $8.5 billion deal. It has been rough sailing for Realogy since then as its business deteriorated in the housing bust.
• Workday provides business-management software for payroll, financial management, time tracking and employee expense management.
• Shutterstock, a photography agency, sources content from videographers and photographers and licenses it to businesses, advertisers and media organizations.
Economy in the Week Ahead
The week ahead will present varied reports on the economy which will cover small business, the trade deficit and inflation. Small business owners have been a prime focus of the presidential election given smaller firms' large share of job creation.
The state of small business will be reported Tuesday by the National Federation of Independent Business. The U.S. trade deficit and inflation readings are due Thursday, and Friday, the producer price index is presented.
Also of interest, American Airlines pilots on Tuesday will make their case against an immediate and unilateral overhaul of their employment terms while they appeal the bankruptcy court ruling that gave the airline the right to implement the changes.
In fighting to delay the judge's ruling from taking effect, the pilots will square off against the unsecured creditors of American parent AMR Corp. (AAMRQ). The creditors say the pilots aren't likely to succeed in their appeal, so there is no need for any delay.
Banks and bond markets are closed on Monday for the Columbus Day holiday, but stock markets are open.
Earnings: AngioDynamics (ANGO)
• No major reports on the economy for Monday
Earnings: Alcoa (AA), Chevron, Yum! (YUM)
• 7:30 am September Small Business Survey
• 1:00 pm Three- year note auction
• 8:30 pm Fed Vice Chair Janet Yellen on sovereign risk at IMF annual meting, Tokyo
Earnings: Costco Wholesale (COST), Host Hotel & Resorts, Progressive Corp. (PGR), OCZ Technology Group (OCZ), and Ruby Tuesday (RT)
• 10:00 am August wholesale inventories
• 10:00 am JOLTS
• 1:00 pm Ten-year note auction
• 2:00 pm Beige Book
Earnings: Winnebago, Fastenal (FAST), Safeway (SWY), and J.B. Hunt Transportation (JBHT)
• 3:30 am Fed Vice Chair Yellen on Japan and the global economy, Tokyo
• 8:30 am Initial claims
• 8:30 am International trade
• 8:30 am Import prices
• 11:30 am Fed Governor Sarah Bloom on growth inequality in Deauville, France
• 12:30 pm Philly Fed Governor Charles Plosser on the economic outlook in Hartefeld, PA
• 1:00 pm 30 Year bond auction
• 2:00 Federal Budget
|Company||Ticker||Current Qtr||Year-Ago Qtr||Last EPS Surprise %||Report Day||Time|
|TORTOISE CAP RS||TTO||0.96||-0.07||-120||Monday||BTO|
|YUM! BRANDS INC||YUM||0.97||0.83||-4.29||Tuesday||AMC|
|COSTCO WHOLE CP||COST||1.3||1.08||0||Wednesday||BTO|
|HELEN OF TROY||HELE||0.86||0.74||-15.91||Wednesday||BTO|
|MATERIAL SCI CP||MASC||0.2||0.29||58.33||Wednesday||BTO|
|VOXX INTL CP||VOXX||0.13||0.16||7.69||Wednesday||AMC|
|AUGME TECH INC||AUGT||-0.06||-0.08||0||Wednesday||BTO|
|HUNT (:JB) TRANS||JBHT||0.67||0.57||0||Thursday||AMC|
|API TECH CORP||ATNY||-0.01||-0.04||80||Thursday||BTO|
|WEBSTER FINL CP||WBS||0.45||0.45||0||Friday||BTO|
Reports for the Economy to Watch in the Week Ahead
Monday, October 01
The week will begin with a look at German industrial production. On Monday, the Economy Ministry in Berlin will release its industrial output data for August.
Nobody wants to see weak numbers as they mean pain and job loss in the economy. But the European cooperation [on the region’s sovereign debt crisis] began when pathetic data from poorer countries caught up with the richer countries and they realized that they aren't immune to the crisis.
In other words, weak reports on the economy, such as the industrial production data from Germany means the country is more likely to solve Europe’s debt woes in a timely fashion.
Tuesday, October 02
The National Federation of Independent Business will release its small-business optimism index on Tuesday. The index is based on a survey of small businesses which are asked whether they plan to hire or invest in their operations. The results are a gauge of whether small businesses feel confident enough to hire additional employees and grow through expansion.
The optimism index is expected to rise to 93.5 in September, from 92.9 in August, says the median forecast of economists surveyed by Dow Jones Newswires.
Wednesday, October 03
The Mortgage Bankers' Association will release purchase applications data on Wednesday. The index measures applications at mortgage lenders and gauges activity in single-family home sales and housing construction.
Also Wednesday the Federal Reserve Board will release its Beige Book, which describes the various conditions about the economy within the Fed’s 12 separate regions throughout the U.S. The Fed uses these reports to set policy during its monthly meeting of the Federal Open Markets Committee.
Thursday, October 04
The U.S. trade deficit is presented Thursday. Mostly because of higher oil prices, economists think the August deficit widened to $44.3 billion from $42.0 billion in July.
inflation readings will be released -- economists think higher oil prices pushed up total import prices by 0.8% in September.
Friday, October 05
The Producer Price Index -- inflation measures are being closely watched because of the Fed’s loose fiscal policies, which have pumped trillions of dollars into the U.S. economy since the financial crisis of 2008.
Fed Chairman Ben Bernanke has said frequently that the Fed is keenly aware of the potential for runaway inflation given the Fed’s easy money and low-interest policies, but that inflation has remained at or below the Fed’s target rate of 2%.
Also due next Friday is the University of Michigan’s consumer sentiment survey, which should get a boost from today’s better-than-expected jobs report. The U.S. unemployment rate fell to 7.8% from 8.1% primarily because many self-employed and part-time workers were included in the data. Nevertheless, the decline in the closely-watched unemployment rate is sure to give consumers a bit of optimism that the recovery is gaining traction.
Conferences in the Week Ahead
Among the conferences scheduled for next week are:-
• Banco BTG Pactual SA Latin American Conference from Tuesday to Thursday in New York City, and
• Deutsche Bank Leveraged Finance Conference from Tuesday to Thursday in Scottsdale, Ariz.
Other Important Articles Relating to the Week Ahead