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A lot of the weakness in the ongoing third quarter earnings season is attributable to problems in the Chinese economy. Europe obviously is also an issue, but it’s the loss of growth momentum in China that is showing up in a range of industries this earnings season.

We have heard the China growth issue mentioned on earnings calls from companies as diverse as FedEx (FDX - Analyst Report) and General Electric (GE - Analyst Report) to Caterpillar (CAT - Analyst Report), Yum! Brands (YUM - Analyst Report) and Coach (COH - Analyst Report). The domestic economic picture is not that pretty either, but it is in far better shape compared to what is going on beyond the U.S. shores.

Given this China fixation, it would make sense for the market to feel some ease on the sign that the country’s manufacturing sector may be improving. This morning’s preliminary October PMI by the HSBC Bank shows the measure improving to a three-month high, though it still remains below the ‘50’ level.

This comes after other key measures of economic activity, particularly export growth and industrial production, also showed signs that the economy may have bottomed already and will start stabilizing in the coming quarters. Conclusive evidence on that front should offset the earnings deterioration trend currently in play. But we will likely have to wait a bit longer for that evidence to emerge.

On the earnings front, the positive looking numbers from Boeing (BA - Analyst Report) and Facebook (FB - Analyst Report) are not enough to change the overall weak tone of this reporting season. In terms of a running scorecard, we have third quarter results from 179 companies in the S&P 500 as of this morning (Wednesday, October 24th).

Total earnings for these 179 companies are down 2.9% from the same period last year, with only 57% of the companies beating earnings expectations. On the revenue side, the growth rate is a bit better, though only 33% of the 179 companies have come ahead of revenue expectations.

This is a materially weaker performance than what these same companies did in recent quarters. Importantly, the tone and substance of guidance has been on the weaker side, which means that we will likely see an acceleration in negative estimate revisions over the coming days and weeks.

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