Ahead of Wall Street - Feb 19, 2013

Tuesday, February 19, 2013

Stock market indexes remained in positive territory last week for the seventh week running. But last week’s gains were barely noticeable, highlighting the market’s moderating momentum. Hard to envision the rally continuing into the 8th week given the absence of any major catalysts. But then again many of us were skeptical of the rally’s staying power to begin with. Like an Energizer bunny, this market keeps going and going, proving many of us wrong.

We don’t have much on the economic calendar this week aside from a couple of housing and inflation readings. And the earnings season has effectively come to an end, though we do have a handful of notable earnings reports this week from companies like Wal-Mart (WMT - Analyst Report), Nordstrom (JWN - Analyst Report), AIG (AIG - Analyst Report) and Hewlett-Packard (HPQ - Analyst Report). The overall narrative for the fourth quarter earnings season is well established by now, with none of this week’s reports changing it in a material way. The lack of growth notwithstanding, the Q4 earnings season turned out to good enough – not great, but not terrible either.

As of this morning, we have Q4 earnings reports from 401 S&P 500 companies, with total earnings for these companies up +3% from the same period last year. The ‘beat ratios’ for earnings and revenue represent a significant improvement from what we saw in the third quarter, but overall remain in-line with historical averages. With organic growth essentially non-existent, companies seem to be moving towards ‘purchasing’ growth as the growing M&A announcements indicate.

This morning’s headlines indicating a tie-up between OfficeMax (OMX - Analyst Report) and Office Depot (ODP - Analyst Report) add to a growing list of corporate deals in recent days. May be the deal announcements will keep the market momentum going in the coming days. We will have to wait and see.

Sheraz Mian
Director of Research