Market Update
Stocks finally got a boost today and were able to gain back a good portion of what they had lost the preceding 3 days.
The S&P 500 jumped 11.11 points, or 0.6%, to close at 1,837.88, snapping its losing streak and climbing back towards its record closing level of 1,848.36 hit on Dec. 31.
The Dow Jones added 105.84 points, or 0.6%, to end at 16,530.94. UnitedHealth Group was the best performer among Dow components and provided a boost to the blue-chip index after Deutsche Bank upgraded the company on Tuesday to buy from hold. The Dow also moved near to its own Dec. 31 record close of 16,576.66.
Last but not least, the NASDAQ advanced 39.50 points, or 1%, to finish at 4,153.18.
Yesterday I told you that I would explain what the high number of earnings warnings means for Whisper.
I’m sure that when many of you hear that “earnings warnings are at record highs,” you might think that things are getting (or about to get) ugly.
That just might be the farthest thing from the truth…
The Wall Street Journal and Marketwatch published this chart yesterday showing the increasing number of negative pre-announcements and decreasing number of bullish pre-announcements (data provided by FactSet).
For Q4 so far, 94 out of the 107 companies on the S&P 500 that have issued an earnings outlook for the fourth quarter have been below Wall Street consensus.
Thomson Reuters noted that 108 companies have given earnings outlooks that fall below the Wall Street consensus, compared with 11 companies that have given an in-line figure, and 11 companies that have provided an estimate above the consensus. Thomson Reuters expects fourth-quarter S&P 500 earnings to grow by 7.6%.
Sound like a good quarter yet? Take a look below:
The red bars represent the number of negative preannouncements per quarter, with the green obviously being a positive.
First things first, let’s keep in mind that this data does NOT tell us what type (sector, etc) of companies are warning or how large they are (market cap). So there could be a concentration of companies more susceptible to the economic changes that have been taking place or some sort of statistical anomaly related to other phenomenon taking place.
More likely, it’s simply corporations controlling expectations and keeping the market abreast of their progression and moderating growth expectations.
The truth is that we are all a bit surprised by the market’s progression given the lackluster growth in earnings and slow but steady growth of the economy as a whole.
Over the last 4 years, you’ve heard many (including me) gripe about the lack of a true economic comeback…but maybe its better we don’t have an immediate resurgence in economic actively. Perhaps a moderate, almost pathetic recovery will keep major bubbles from forming amidst the FOMC’s cheap (free) money policies.
The anticipated growth curve was no doubt steep when we were first emerging from the last recession. Over the last several years, these warnings have helped flatten those growth expectations to a level that the market can digest, rather than force it to have to deal with earnings report shocks that could have caused severe volatility and doubts in true sentiment.
I actually see this chart as extremely bullish because despite the almost 100% increase in corporate warnings over the last 4 years, the S&P has managed to tack on an 80% return. Think what would happen if Wall Street just let growth expectations run amuck! If the majority of market participants were expecting record breaking growth, negative surprises would not only have dramatic negative effects on stock prices, but also on the psyche of the average investor.
So I say WARN ON! Just as the FOMC has successfully managed expectations and kept us in the loop about their progress and scaling of quantitative easing, corporate America should minimize surprises and help keep copious amounts of exuberance and gloominess controlled.
I would rather get small bits of not-so-great news over time than an abrupt deluge of really bad news any day!
The fact that the majority of pre-announcements are bearish and growing further supports the strength and viability of a service like Whisper. To me, there is nothing like owning a stock with low expectations through a stellar earnings report. From what I am seeing in Q4 warnings and estimates, the bar is staying low, which is a great thing for us!
Chat soon,
Jared
– taken from my daily market commentary as part of the Whisper Earnings Service offered by Zacks and I
