Stocks appear on track to continue the positive momentum from Thursday in today’s session, with positive news out of Europe helping boost sentiment.
Good to know that Europe is capable of producing a positive surprise – and it’s not tied to the day’s headlines about the Greek drama, though there are some reassuring reports on that front as well. Today’s news is about the Euro-Zone economy, with the region’s GDP in the final quarter of 2014 growing at a better than expected +0.3% pace from the preceding quarter and +1.4% from the same period last year.
The outperformance came from Germany, with business and consumer spending giving the growth momentum a nice boost. Not everything is growing, however — the picture for France, Italy, Greece and others is still fairly weak. But the weakness in those countries wasn’t the surprise, the German momentum was. Germany is one of the world’s biggest exporters, and its economy has gotten an extra boost from the sharp drop in the common currency.
The Euro-Zone’s economy is still below its early-2008 peak, with the overall size of the Greek economy about one-fifth lower now compared to then. But the improving growth momentum is nevertheless a net positive for the deflationary pressures that the region’s economy has been grappling with lately. The lackluster growth outlook has become a recurring theme on the corporate earnings front as well, with the issue cropping up many times in the ongoing Q4 earnings season.
[Read: ECB Sets Up Biggest Contrarian Play of 2015]
On the earnings front, including this morning’s reports from V.F. Corp (VFC), J.M. Smucker (SJM) and others, we now have Q4 results from 390 S&P 500 members that combined account for 84.7% of the index’s total market capitalization. With more than 50 index members reporting results next week, the bulk of the earnings season will be behind us by next Friday.
Total earnings for the 390 S&P 500 members that have reported results already are up +6.3% from the same period last year on +1.3% higher revenues, with 70% beating earnings estimates and 56.4% beating top-line estimates. While the revenue growth rate is weak relative to what we have seen from the same group of companies in other recent quarters, the earnings growth rate is about in-line with the recent past. But that’s primarily due to Apple (AAPL); excluding Apple, the earnings growth picture is a lot weaker.
Estimates for the current and following quarters have been coming down sharply, with the Energy sector again playing a leading role. As mentioned before in this space, the entire expected growth rate for the first half of the year has effectively disappeared in recent days.
