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Thursday, October 24, 2013

Mixed global manufacturing data -- positive in China and negative out of Europe – and a flood of Q3 earnings reports provide the backdrop for the stock market today. The Euro-zone PMI numbers missed expectations, spotlighting the tentativeness of the region’s recovery.

But as this morning’s positive guidance from Ford (F - Free Report) shows, the region’s outlook has definitely improved. The positive-looking Jobless Claims numbers on the home front may not have much informational value given lingering effects of the shutdown.

China’s preliminary Purchasing Managers Index for October by HSBC ticked up to 50.9 from September’s final 50.2 reading. This comes after last week’s positive GDP report, which showed the country’s economy expanded at a +7.8% pace in Q3 after growing at a +7.5% in Q2.

These data points raise hopes that Chinese growth picture has likely stabilized, though questions still remain as the country’s leadership meets in an important policy plenary session next month. Today’s PMI index showed broad-based improvements in new orders, exports and backlogs, though the employment sub-index weakened a bit.

We should keep in mind, however, that the final September PMI of 50.2 was a downward revision from the preliminary reading for that month. As such, over-interpreting today’s release may be premature.  

On this morning’s super-busy earnings calendar, we got solid reports from Ford, 3M (MMM - Free Report) and Pulte Group (PHM - Free Report) , though Dow Chemical came short of expectations. Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) will be reporting after the close. Including this morning’s long line-up of reports, we now have Q3 results from 191 S&P 500 members that combined account for account for 43.7% of the index’s total membership.??????

Total earnings for these 191 companies are up +7.8%, with 68.1% coming ahead of consensus earnings expectations. Total revenues are up +2.9% and 46.6% are beating top-line expectations. After a weak start, the earnings and revenue growth rates have improved as more results have come out, though they still track below what this same group of companies reported in 2013 Q2.

The composite earnings and revenue growth rates for Q3, combining the results for the 191 companies that have reported with the 309 still to come, are +2.7% and +1.1%, respectively. This means that Q3 is on track to be along the lines of what we saw in the last few quarters, likely no better or worse.

Expectations for 2013 Q4 have started coming down, but they still represent a material ramp up in growth pace, with total earning for the S&P 500 expected to be up +9.1%, down from +9.2% yesterday and higher than +10% at the start of the reporting season.

Sheraz Mian
Director of Research

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