Stocks ended Tuesday’s session modestly in the red and appear on track to start today’s session the same way. Overnight action out of Asia was mixed, with Chinese stocks rebounding strongly after sell-offs the last couple of sessions, while Japan was down.
The market’s focus lately has been on the Fed ahead of next week’s meeting, with many nervous that the central bank will drop hints at its last meeting of the year about its future plans. The focus lately has been on the ‘considerable time’ phrase in the Fed statement following press reports that the committee was thinking of getting rid of it.
The Fed Chairwoman had once defined ‘considerable time’ as about 6 months. This would mean that if they drop the phrase at next week’s meeting, then the first rate hike will be somewhere around the middle of 2015, which is about where current consensus expectations remain as well. But some Fed officials appear to be in no rush to drop the phrase and start the countdown to the first rate hike. The Atlanta Fed’s Dennis Lockhart caused somewhat of a market turnaround on Tuesday by commenting along those lines.
[Check Out: Matthew Kerkhoff: Why QE Can't Lead to Hyperinflation (Part 1) and Part 2]
On the earnings front, we are still some ways removed when companies will start coming out with December quarter results. We do, however, count companies with fiscal quarters ending in November and currently reporting as part of our Q4 tally. Tuesday’s strong report from AutoZone (AZO), this morning’s positive surprise from Costco (COST) and a weak report from Krispy Kreme (KKD) will fall in that category. As such, one could say that we have started seeing the early Q4 results already; the reporting cycle will really get going only around mid-January.
Overall estimates for Q4 have come down over the last two months, with negative guidance from companies prompting analysts to cut their estimates. Total earnings for the S&P 500 companies are expected to be up +4.1% from the same period last year, which is down from the +9.6% growth that was expected at the start of the quarter in early October.
Estimates have been coming down for more than two years now, though the magnitude of negative revisions for Q4 is the highest that we have seen for any other recent quarter. Falling estimates for the energy sector as a result of the oil price decline are a big contributor to the outsized negative revisions for the current period.
