Looking at the Earnings Seasons Results 3Q14
75% of the S&P 500 reported positive earnings surprises with an average surprise of 5.5% 1.
The sectors showing excessive positive earnings surprises, well in of the averages generally seen are:
Energy 73.6% 9.5%
Financials 73.8% 9.9%
Materials 75.9% 9.3%
S&P 500 75.8% 5.5%
The lower guidance trend continues. Most companies announced lower guidance for 4Q14. Energies received the worst guidance for next quarter 2. Yardeni’s detailed report of S&P 500 sectors can be found here
3Q14 REVENUE SCORECARD
Looking at the Earnings Seasons results for 3Q14, 60% of the S&P 500 reported positive revenue surprise with an average surprise of.4% 1.
Information Technology was the standout sector on the revenue side. Information Technology showed positive revenue surprise of 2%. Other positive revenue surprises were in range.
MIDTERM ELECTIONS – NOVEMBER 2014
Midterm elections showed a big win for the GOP, with some democratic incumbents losing their seats. So now we’ll see if having the same party majority in both houses creates efficient decision making and cogent feedback to our POTUS.
Political pundits point to three key industries benefitting from party alliance between house & senate. Also mentioned is the one key area within that sector which could benefit.
ENERGY: GOP unity over passing construction of the Keystone XL Pipeline
FINANCIALS: GOP winning Senate control of the Senate Banking Committee
INDUSTRIALS: GOP alignment is popularly thought to assist defense contractors and spending
MONETARY POLICY – IMPACT OF HIGHER RATES
Monetary policy will affect earnings. The question is when and the extent of the impact. After close to 6 years of essentially free money, rising interest rate will change the relationship between revenue and earnings from 3 primary areas. Using the current forward curve (calculated using Eurodollar Futures)
INCREASED COSTS IF RATES RISE QUICKER THAN FORWARD CURVE EXPECTED
The cost of corporate dividend payments
The cost of corporate interest payments on bank loans
The cost of share repurchases (increased cost of funding to borrow money to purchase shares)
INCREASED ASSETS IF RATES RISE QUICKER THAN FORWARD CURVE EXPECTED
The revenue on Financial Services loans
The receivables on Subscription based internet sites
The overall impact that rising interest rates will have on next quarter earnings still requires a bit of study.
There’s more to follow as 4Q14 gets on its way.
But we’ll be back with more information as it become available.