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Monday, October 29, 2012

The markets are closed Monday, and likely on Tuesday as well, due to the approaching Hurricane Sandy. The decision to close all market activity on Monday reversed the earlier partial shutdown call that would have kept open electronic trading activities even as it closed down all trading floors. This is the first unscheduled market shutdown since September 2001.

All scheduled economic releases on this week’s calendar are expected to come as originally planned, though some of the earnings announcements have been delayed. Most of the major economic reports are coming out later this week, with the October non-farm payroll report coming out Friday morning. The consensus expectation is for the jobs report to show gains of 120K this month, with a modest uptick in the unemployment report. More so than market impact, this jobs report will likely have far more resonance in the political field given the charged electoral backdrop. The ADP report on Thursday will give us a preview of the government jobs report. We will also get the October manufacturing ISM survey on Thursday.

On the earnings front, this week’s busy reporting schedule is unlikely to change the overall weak tone of the reporting season thus far. Including results this morning from Loews Corp. (L - Analyst Report) and CNA Financial (CNA - Snapshot Report), we have third quarter results from 273 companies in the S&P 500 or 54.6% of the index’s total members. Total earnings for these companies are down 2.4% from the same period last year and only 61.5% of the companies are beating earnings expectations. Total revenues are down 2.1%, but only 30.7% of the companies are able to beat revenue expectations. Combining the results the 273 companies whose results are known already with the 227 reports still to come gives us a composite growth rate for the third quarter of a 1.1% decline (the composite revenue growth rate is 2.4%).

The predominantly negative tone of company guidance has started showing up in estimate revisions, but overall estimates for the fourth quarter and beyond still remain elevated at this stage. Total earnings are expected to grow 6.1% in the fourth quarter and in excess of 11% of in 2013. These growth expectations have come down from a few months back, but they still have more room to fall. The market weakness of recent days is largely a reflection of this uncertain and downbeat corporate earnings picture.

Sheraz Mian
Director of Research

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