Eurozone Growth Worries Looking To Dominate Market Attention
Stocks appear on track to start today’s session in the red, with Europe-gcentric rowth worries dominating the market’s attention. On the domestic data front, we have a couple of positive-looking retail sector earnings reports and neutral-looking CPI and jobless claims readings.
Private research firm Markit’s November PMI survey for the Euro-Zone came in weaker than expected this morning, with the index level reaching a 16-month low. The more widely followed November PMI surveys are a few days away, but this report is making market participants realize that the region’s weak growth numbers in Q3 have carried into the current quarter as well.
The picture isn’t much different in China either, with the HSBC flash PMI for November reaching a 6-month low. These are the growth challenges that gave us the early-October stock market correction, and they still carry the potential to reverse gains made since then.
Growth worries aren’t expected to go away anytime soon, but Q3 earnings season is slowly moving towards the finish line, with the reporting cycle over for 11 of the 16 Zacks sectors. As we have been describing all along, this earnings season was decent enough: not great, but not bad either. Overall, we aren’t seeing any material shift from the trends that have been in place in recent quarters, whether they be with respect to growth, surprises or guidance.
The only sector with any meaningful number of earnings reports still coming out are in Retail. This morning’s Best Buy (BBY) report is being cheered on by investors in the pre-open and will likely keep the stock up in the regular session. The reaction to the Best Buy report isn’t unique; we have seen positive reactions to results from other key players like Wal-Mart (WMT), Target (TGT) and Macy’s (M) as well. There is no doubt we see some improvement in the results from these industry players, but the magnitude of positive reactions appears more a function of rock-bottom expectations.
With results from 37 of the sector’s 43 companies already in the books, total retail sector earnings are up +2.5% on +5.3% higher revenues, with 70.3% beating earnings estimates and 62.2% coming ahead of top-line estimates. The growth picture emerging from the sector results thus far isn’t materially different from what we have been seeing from this group of companies in other recent quarters. Retailers don’t have much a revenue problem — they are dealing with margin issues instead.
As Best Buy mentioned in their report this morning, the overall environment remains extremely competitive. Unlike the growth rates, the beat ratios are notably better this time around, with low expectations as the most logical explanation for this performance.
This picture isn’t expected to change in any meaningful way in the coming days; these 37 retail sector companies account for almost 94% of the sector’s total market capitalization.
