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Economic Highlights

Stocks will likely remain in a wait-and-see mode ahead of tomorrow’s jobs report, which is expected to provide some clarity about the U.S. economy’s growth momentum. Softer recent data has raised doubts the earlier robust U.S. growth outlook, which added to ongoing concerns about stability in the emerging markets. A favorable jobs report tomorrow will no doubt be a net positive for market sentiment, but it wouldn’t do anything for the emerging market questions.

Economic data remains in focus, but we are also in the midst of the 2013 Q4 earnings season. Including this morning’s reports from General Motors (GM), Kellogg (K), Cummins (CMI) and others, we now have Q4 results from 321 S&P 500 members that combined account for 75.5% of the index’s total market capitalization. Total earnings for these companies are up +11.7% from the same period last year, with 70.9% coming ahead of consensus EPS estimates. Total revenues are barely positive, up only +0.1%, and 61.3% have beat revenue expectations.

Relative to results from the group of 321 companies over last few quarters, this is better performance in terms of earnings growth and earnings & revenue beat ratios. Revenue growth has been weak for some time, but the trend emerging from these Q4 results presents an even weaker picture, with the +0.1% top-line growth down from +3.1% in Q3 and the 4-quarter average of +2.6%. The revenue growth picture improves a bit once the Finance sector is excluded from the aggregate data, but even then it’s on the weak side relative to other recent quarters.

Guidance has been on the disappointing side as well, showing no improvement from the trend we have been seeing consistently for more than a year now. As a result, estimates for 2014 Q1 have been coming down, with current consensus expectation of -1.7% drop in total earnings in Q1 down from +2.1% at the start of the Q4 reporting cycle.

This is no different from what we have been seeing quarter after quarter for more than a year now. But investors didn’t get overly concerned about this issue as the super accommodative Fed policy convinced them to look for better times ahead. With the Fed now getting out of the QE business and new questions about the global and U.S. growth pictures, investors don’t appear to be as understanding of the earnings picture as they have been in the past. Tomorrow’s jobs report will answer some of the questions about the U.S. growth outlook, but other issues will likely remain with us for some time.

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