{"id":211,"date":"2012-10-22T19:18:41","date_gmt":"2012-10-22T19:18:41","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=211"},"modified":"2012-10-22T19:23:09","modified_gmt":"2012-10-22T19:23:09","slug":"q3-earnings-even-worse-than-expected","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=211","title":{"rendered":"Q3 Earnings: Even Worse than Expected"},"content":{"rendered":"<p>On October 9 we issued a Complacency Alert, warning that, contra <strong>The Wall Street Journal<\/strong>, weak earnings did indeed matter to stock prices despite QE3 liquidity injections by the Fed.\u00a0 The contours of third quarter earnings are about as expected, with Wall Street and other banks reasonably good relative to analyst forecasts while globally exposed cyclicals are reporting weak results.\u00a0 Big healthcare companies are reporting in line earnings, and companies like PPG with exposure to housing (paints) are doing relatively well.\u00a0 Housing exposed stock should continue to shine, relatively speaking.<\/p>\n<p>However, both the overall tone of earnings and investor reaction to them are even more negative than we expected. \u00a0A large and diverse group of multinationals have posted results that are mediocre or worse, including IBM, INTC, MSFT, VFC, CAT, MCD, DOV, DHR, APD, PH and GE.\u00a0 Look for similarly weak results from the industrial and chemical companies that report this week.\u00a0 There is some indication that September orders were weaker than July and August, probably because companies are increasingly worried about the \u201cfiscal cliff.\u201d CNBC reports that 90% of companies are cutting Q4 earnings guidance, which is consistent with our October 9 statement that \u201cforward estimates will continue to drop.\u201d<\/p>\n<p>These results once again illustrate that \u201cS&amp;P is not GDP\u201d because, inter alia, S&amp;P is global not just domestic and is far more leveraged to manufacturing and exports.\u00a0 A modest improvement in U.S. GDP driven by stronger housing would not offset recession in Europe and weakness in emerging markets. So we see little reason to believe profits are now \u201ctroughing\u201d and will soon strengthen:<\/p>\n<ul>\n<li>Though arguably the U.S. economy is improving slightly, it will continue to be quite weak even if Washington avoids going over the \u201cfiscal cliff.\u201d\u00a0 Recall that Republicans and Democrats agree that one significant tax cut, the reduction in the Social Security payroll tax, should end on January 1.\u00a0 And on that day Obamacare taxes will start to hit Americans who make too much money.\u00a0 If Obama wins business will worry about a renewed regulatory onslaught, which will discourage capital spending and hiring.<\/li>\n<li>With Europe\u2019s banks and governments deleveraging, we see little reason why Europe will quickly and decisively pull out of recession.\u00a0 Decision makers continue to be reactive not proactive; it takes financial crises to scare them into moving forward on fiscal integration and banking reform.\u00a0 For example, friendlier bond markets are allowing Spain to delay asking for a bailout from the ESM.\u00a0 Whether in the Street or at the polls, citizens may revolt against the elite\u2019s ruinous policy of recession cum fiscal austerity.<\/li>\n<li>The situation in China and other emerging markets is opaque, but these economies are fairly dependent on exports to \u201cdeveloped markets\u201d and on commodity prices\u2014neither of which will be strong next year.\u00a0 Even if effective policies are pursued, it will take quite a while to shift China from an export-oriented to domestic-demand footing.<\/li>\n<\/ul>\n<p>We expect Street analysts to slash their 2013 earnings estimates over the next six months, bringing the 2013 \u201cbottom-up\u201d S&amp;P 500 EPS estimate down from $116 recently to around $106, which would only represent\u00a0a 5% gain from $101 in 2012. According to <strong>Barrons<\/strong> data, in early September Wall Street strategists\u2019 median \u201ctop-down\u201d \u00a02012\/2013 EPS estimates were $102.25\/$108.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>On October 9 we issued a Complacency Alert, warning that, contra The Wall Street Journal, weak earnings did indeed matter to stock prices despite QE3 liquidity injections by the Fed.\u00a0 The contours of third quarter earnings are about as expected, &hellip; <a href=\"https:\/\/www.wallstreetandkstreet.com\/?p=211\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[43],"class_list":["post-211","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-earnings"],"_links":{"self":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/211","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=211"}],"version-history":[{"count":5,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/211\/revisions"}],"predecessor-version":[{"id":250,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/211\/revisions\/250"}],"wp:attachment":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=211"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=211"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=211"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}