Wednesday, January 29, 2014
Pre-open sentiment is on the weak side as the emerging market scare is back and the U.S. Fed is expected stick with its Taper plan in Bernanke’s last FOMC meeting as Chairman. Adding to the uncertain backdrop is a slew of mixed Q4 earnings reports this morning, with companies beating estimates but guiding lower.
The Fed isn’t expected to produce any surprises in its statement this afternoon. Bernanke had effectively outlined a $10 billion Taper pace at each meeting in his December press conference (there is no press conference or forecasts after today’s meeting).
They will evaluate the economic landscape at each meeting, but public comments from the FOMC members following the December meeting point towards a high threshold level for them to deviate from the announced Taper plan. The weak December jobs reading and the recent soft Durable Goods report certainly wouldn’t cut it for them.
They are unlikely acknowledge the emerging market turmoil either; they didn’t do it last summer either when the emerging market currency and bond markets reacted sharply to the first Taper indication. Not that they will ever publicly concede it, but I don’t think they mind the recent pullback in Treasury yields as a result of the emerging market noise. While the possibility of some subtle changes to the post-meeting statement can’t be ruled out, the market will be perfectly fine with the Fed sticking with the announced Taper plan.
If there is any question or doubt in the market’s collective mind over Fed policy, it is about the prospect of an accelerated Taper in the event of an above-trend economic turnaround. But as some of the more recent economic reports have showed, we are not there yet.
On the earnings front, we got better-than-expected results from Dow Chemical (DOW - Analyst Report), while Boeing (BA - Analyst Report) beat estimates but came up a bit short on guidance. The guidance shortfall is also present in the EMC Corp. (EMC - Analyst Report), Tupperware (TUP - Snapshot Report) and Cirrus Logic (CRUS - Snapshot Report) reports this morning and last evening’s Yahoo (YHOO - Analyst Report) and AT&T (T - Analyst Report) results.
Including these reports, we now have 2013 Q4 results from 164 S&P 500 members, accounting for 45.3% of the index’s total market capitalization. Total earnings for these companies are up +16.6% from the same period last year, with 70.7% beating earnings expectations. Total revenues are up +4%, with 57.9% beating revenue expectations.?????? These are better results than we have seen from this same group of companies in recent quarters, even through the strong ‘headline’ earnings growth rate is mostly due to easy comparisons for a few big companies.