Earnings Anxiety (Briefing.com)
S&P futures suggest an up open of about two points. It is just a bounce after yesterday's sell-off. Anxiety persists about upcoming earnings reports.
Yesterday, engine maker Cummins and semiconductor equipment maker Applied Materials warned of weaker than expected earnings, sparking intra-day selling. These were late-in-the-cycle announcements, and there are legitimate concerns that other companies have earnings problems that are not yet fully recognized by stock market participants.
There have only been a few companies reporting earnings so far, and most have been small companies. Nevertheless, the number reporting earnings below estimates is startling. Our earnings calendar shows 13 companies that have reported, and 10 have posted earnings below the average analyst forecast. Typically, close to 65% of companies will beat forecasts.
Again, these are small companies and not too much should be read into the limited data. Shaw Group, Wolverine World Wide, PriceSmart, and Helen of Troy are the largest of these 10 companies, and they aren't very big. Nevertheless, earnings season is off to a very poor start.
At 2:00 ET, the minutes from the June Fed meeting will be released. The minutes will be scrutinized for any hint of a leaning towards implementing another round of quantitative easing (Fed buying bonds to increase money supply). Quantitative easing is widely seen as supportive to stock prices.
Various Fed officials have been on record since the meeting representing a mixed view towards whether more quantitative easing is needed, and the minutes should reflect disagreement. The minutes often cause volatility in the markets regardless of expectations and that can not be ruled out for today.
The May trade balance improved to -$48.7 billion from -$50.1 billion in April. That is good news and provides a small boost to GDP from current expectations, but won't have much market impact. There are no earnings releases this morning.
There is a chance that the Fed minutes boost stock prices, but otherwise the market's anxiety over the heavy slate of earnings due the next few weeks is likely to weigh on sentiment in the days ahead.
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