A Tepid Week for Earnings
By Matt Rubin
October 23, 2012
- Housing data continues to display strength
- Final presidential debate Monday night to focus on foreign policy
Through the first two weeks of earnings season, corporate results have largely mirrored the releases we witnessed a quarter ago—of the 118 S&P 500 companies that have reported to date, only 60% have exceeded their earnings estimates while 29% have surpassed their revenue expectations. This week, we will see financial results from 169 S&P 500 companies, representing 32% of the index market capitalization, which will be well dispersed across all 10 S&P 500 sectors. Last week, earnings releases in the Financials and Information Technology sectors were in focus—Financials posted solid results and were rewarded by investors (+2.0% last week); earnings misses, most notably by Google and Intel, dragged on performance in the Tech sector for the week (-2.4%).
Round 3: Obama vs. Romney
This week will begin with the third and final debate between President Obama and Governor Romney on Monday. With two debates under their belts, the candidates have offered their views on a range of issues; surprisingly, monetary policy has not been a topic of discussion at either of the first two debates and will likely be left out of the third debate, which will focus extensively on foreign policy. Given the expanding role of the Federal Reserve and the vocal opposition Romney has expressed with respect to Federal Reserve Chairman Ben Bernanke, one might have expected monetary policy and the Fed to be a focal point on the campaign trail. While Bernanke and the Fed have largely avoided the political limelight, both will be a focus on Tuesday and Wednesday when the Federal Open Market Committee meets for the first time since announcing a third round of quantitative easing on September 13. We expect a largely uneventful meeting and statement considering the economic backdrop is little changed from a month ago.
China will likely be an important topic in Monday’s debate. As the world’s second largest economy after the United States, the path of China’s growth (+7.4% in 3Q12) is a key factor in the global economic recovery. However, the relationship between China and the United States remains tense and could become even more so if Romney wins on November 6 and declares China a currency manipulator as he has said he would. Under either president (Obama or Romney), the United States will need to manage the current dynamic with respect to China as both countries are intrinsically linked as a result of lending (China to U.S.) and consumption (U.S. to China). In addition, Monday’s debate will touch on America’s role in the world, which should be a hot topic of conversation given the multiple geopolitical rifts and weak global economic environment that exist today.
Data Source: FactSet and RIMES
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