Stocks turned around Thursday afternoon to close the session modestly in the green and start today’s session on a very positive note. The favorable shift notwithstanding, market sentiment remains fragile and at risk of further deterioration despite an overall reassuring start to the Q3 earnings season. With not much on the domestic economic calendar next week, earnings will be front center as we enter the heart of the Q3 reporting season with more than 130 S&P 500 members coming out with results.
On the earnings docket this morning, we got strong reports from General Electric (GE), Morgan Stanley (MS) and Honeywell (HON). The Morgan Stanley report wasn’t surprising, as the investment bank’s results essentially reconfirmed what we have been seeing in the earnings reports from its Wall Street peers, with advisory and trading revenues starting to show a healthy momentum in Q3.
Investors seem to be happy with the GE report as well, even though the company modestly came short on the top-line and the energy business was a big contributor to the Q3 gain. But investors seem to have been heartened by the improved profitability outlook for the industrial unit, record backlog and lack of any reference to global growth worries in the report. The positive outlook from Honeywell is also reassuring on the global growth question.
Including this morning’s reports, we now have Q3 results from 82 S&P 500 members that combined account for 24.9% of the index’s total market capitalization. Total earnings for these 82 companies are up +4.2% from the period last year, with 63.4% of the companies beating earnings estimates. Total revenues for these companies are up a much stronger +5%, with 56.1% beating top-line estimates.
With results from almost a quarter of the S&P 500 index’s total market capitalization already out, we have a representative enough sample to start making initial assessments of the Q3 earnings season. Results aren’t great, but they aren’t bad either. A fair assessment would be that they are around levels that we become accustomed to seeing in other recent quarters.
[Read: The Long Awaited 10% Correction Just Happened; Cramer: No Bottom Until Ebola Contained]
The earnings and revenue growth rates for these 82 companies are modestly below the level we saw in 2014 Q2 for the same group of companies, but essentially in-line with the 4-quarter average growth pace. This is particularly so when the aggregate picture is viewed on an ex-Finance basis to adjust for the outsized Bank of America (BAC) charge. Positive surprises for the S&P 500 as a whole are tracking a bit below Q2 levels, but largely along the 4-quarter run rate. Surprises are a bit numerous when viewed on an ex-Finance basis. Bottom line, on most conventional comparative metrics, the Q3 earnings season is tracking closely what we have seen in other recent quarters, on most conventional comparative metrics.
