Market Drivers: More Earnings, Seeking Revenue, Weak Durable Goods

cookies and milk

cookies and milk (Photo credit: jendubin)

The week of April 22nd has been driven by earnings and more earnings. Here are some trends we are seeing.

Earnings Trends

As Q1 earnings season moves forward we are starting to see some interesting trends forming. It should not come as a surprise that companies are beating on earnings, with 72% of the S&P companies that have reported topping estimates. However the beats become a little less impressive when considering that they are coming against relatively watered down estimates. That being said, at least topping your numbers is pretty much expected by the market. Now on the top line, we are seeing some cause for concern. Many reports are showing low to non-existent revenue growth.  As Patrick J. O’Hare from Briefing .com puts it, “take a look at Briefing.com's Earnings Calendar page and you will see that there are a plethora of minus signs in the column where year-over-year revenue growth is posted. If there isn't a minus sign, chances are there will be a very low, single-digit number.” Originally analysts were calling for double digit growth in the second half of 2013 and into 2014, but in the face of a potential economic slowdown theses estimates may need to be revised. With relatively weak economic data over the last few weeks though, it is becoming more unlikely that the Fed will make any moves to scale back their bond buying, and low interest rate policies any time soon. This should help to keep investors in a buying mood, even in the face of a potentially difficult slow growth in the second half of the year.

And more on Earnings

Considering the avalanche of earnings reports this week, I figured a section had to be devoted to results. Here are some notable releases: Apple shares initially slid lower after beating on both lines, but rallied to end their earnings day on the plus side (but still a far way from their mid-September $700 level). Keeping with the trend mentioned earlier, Xerox, Exxon Mobil and United Technologies all saw their shares fall after beating on earnings, but failing to impress on the revenue side. Insurance giant Travelers Corp topped on both lines and traders rewarded the company by pushing them to new all-time highs. Caterpillar also saw shares rally after the construction equipment manufacturer reported mixed results, with a bottom line miss but a solid beat on revenues.  n the telecom space,  AT&T saw a steep decline following in-line earnings and below-consensus revenue. 3M Company also came under pressure after missing on both lines and lowering their full year guidance.

Durable Goods

After posting a surprise surge in February (+4.3% revised) durable goods orders plummeted in March decreasing by 5.7%, far worse than expectations which called for a decline of 2.8%. Excluding transportation related items, durable goods orders decreased by 1.4%, which was worse than the unchanged reading that had been broadly anticipated. Some investors are concerned the poor numbers, which represent the largest drop in 7 months, could be a sign of a spring economic slowdown. Paul Edelstein, director of financial economics at IHS Global Insight was slightly more optimistic, noting, "The headline numbers appear worse than they are,  once volatile aircraft and defense orders are excluded, orders for capital equipment were basically flat in March, with strength in computers and electronics offsetting weakness in machinery and metals." Even so, the report comes on the heels of a string of data that is suggesting both consumers and businesses alike are becoming increasingly cautious.

Weekly Bonus -Dunking Cookies

“To dunk or not to dunk” has been debated throughout the ages. Only now there may be some science to back up those who favor the dunk. Apparently certain dunked items can actually be determined to have more flavor than those that stay dry. Recently, British chef Heston Blumenthal set out on a quest with the help of a high tech gadget called the “MS-Nose” to determine why this is the case. Without getting into all of the technical terms, the results showed that a  biscuit dipped in a hot cup of tea not only released more cookie flavor, but the aromas also burst into Blumenthal's mouth more quickly. “Taste” as we know it is a combination of both taste and aroma, and the moist warm cookie provides a better way for the aromas to move through the air, thus enhancing the experience.

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