Friday’s strong finish to last week’s extremely volatile session may not be the end of the market’s weak run. We must add, however, that this morning’s weak indicated open isn’t directly related to the issues that weighed on stocks last week. Today’s weakness is mostly a result of the surprisingly weak report from IBM (IBM).
IBM’s miss is a big deal because the company not only carries a lot of weight in the Dow Jones Index, but it is also a bellwether for the broader Technology space. This report adds to the weak trend we have been seeing in Tech sector results thus far, both in terms of growth rates as well as beat ratios.
Including this morning’s reports, we now have Q3 reports from 12 of the Tech sector’s 65 companies in the S&P 500 index that combined account for 33.9% of the sector’s total market capitalization. Total earnings for these 12 Tech sector companies are up +4.9% on +3.4% higher revenues. The proportion of companies coming out with positive surprises is running at a low level, with 50% beating earnings estimates and only 41.4% of the companies coming ahead of top-line estimates.
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With Apple (AAPL) after the close today and a host of other Tech players coming out with results in the next few days, these trends could potentially change. But it’s nevertheless the weakest start to the sector’s reporting cycle in recent quarters.
Beyond the Technology sector, the Q3 earnings season is tracking broadly along lines we have been seeing in recent quarters. For the S&P 500 index as a whole, we now have Q3 results from 87 index members that combined account for 26.3% of the index’s total market capitalization. Total earnings for these 87 companies are up +3% from the same period last year, with 62.1% of the companies beating earnings estimates. Total revenues for these companies are up a much stronger +4.8%, with 57.5% beating top-line estimates.
The earnings and revenue growth rates for these 87 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.
