Ahead of Wall Street - Oct. 31. 2012

Wednesday, October 31, 2012

Trading resumes after two days of weather related disruptions, but market behavior is unlikely to be normal as volatility and volumes will likely be higher. Beyond the obvious post-hurricane candidates that will be in the spotlight today like insurers Allstate ( ALL - Analyst Report ) and Chubb ( CB - Analyst Report ) and home improvement retailers Home Depot ( HD - Analyst Report ) and Lowe’s ( LOW - Analyst Report ) , the storm will likely have an impact on fourth quarter earnings for a number of industries. We will be seeing the storm’s impact in a host of economic reports over the coming weeks and months as well.

The storm hit during peak earnings season, forcing a number of companies to push their releases to the later part of the week, making the reporting calendar for the remainder of the week much more crowded. But with more than 60% of the earnings reports already known, we have a pretty good sense of how weak this earnings season has turned out to be.

It is unlikely that remaining earnings reports will materially change the overall weak tone of this reporting season. And as we had suspected all along, earnings estimates for the fourth quarter and beyond have started coming down, though they likely have more room to go on the down side.

As of this morning, we have third quarter results from 303 companies in the S&P 500, or 60.6% of the index’s total membership. Total earnings for these 303 companies are down 2.5% from the same period last year, with 60.7% of the companies beating earnings expectations.

The performance on the revenue side is not much different, with total revenues down 2% and only 37.3% of the 303 companies are able to beat revenue expectations. The growth rates look even weaker when Finance is excluded from the aggregate numbers. Excluding Finance, total earnings and revenues are down 4.4% and 2.5% from the same period last year, respectively.

Earnings aside, we are days away from a close presidential election and a number of important economic reports coming out later this week. The most important economic report is Friday’s October non-farm payroll report, which will not only have a bearing on the market, but will also get plenty of play in the political discourse. The market is unlikely to get out of its recent downtrend unless it gets a sense of how these issues will get resolved.

Sheraz Mian
Director of Research