Lingering Greece-related questions appear to be weighing on market sentiment, offsetting favorable economic data from the region and expectations of a constructive resolution to that country’s monetary issues. Stocks were modestly in the red on Thursday and have started today’s session no better.
European data has held up reasonably well lately despite the Greek situation. Today’s better-than-expected composite PMI data from Markit reconfirms what we saw in the Q4 GDP report a few days back. Most of the gains are concentrated in Germany, with German composite PMI reaching a 7-month high of 54.3 in February from the prior month’s final 53.5 reading. But Germany isn’t alone — even France is starting to show signs of life.
All of this is before the ECB’s confidence-boosting QE program gets going next month, which will flush the region with fresh liquidity and help prop growth as it did this side of the pond. The ECB move is a key driver of what’s happening to the exchange value of the common currency as well, which itself is a boon for the export-centric German economy. Given this, it is all the more puzzling for the German government to be taking a tough stand against Greece’s 6-month extension request. Everyone expects a deal to come through before the existing credit facility runs out by the end of next week, but German behavior is causing the negotiations to linger longer than they need to be.
[Check Out: ECB Sets Up Biggest Contrarian Play of 2015]
On the earnings front, the reporting cycle has effectively ended for most sectors in the S&P 500, with Retail as the only one at this stage with a plurality of reports still to come (18 of the 42 retailers in the index have yet to report results). Including this morning’s reports from Deere & Company (DE), Laboratory Corp. (LH) and others, we now have Q4 results from 440 S&P 500 members. Total earnings for these companies are up +6.3% on +1.5% higher revenues, with 68.6% beating EPS estimates and 55.9% coming ahead of revenue estimates.
Adjusting for a few unusual factors like the extremely weak Energy sector results and the very strong report from Apple (AAPL), Q4 results are broadly comparable to what we have been seeing in other recent periods. But the pace and magnitude of negative revisions for the current and following quarters is unlike anything we have seen in the recent past, with the entire growth expected in the first half of the year now replaced by a decline. Energy is a big reason for the sharp declines, but estimates have been coming down beyond the Energy sector as well.
