Perhaps investors can now stop obsessing with that paradise on earth, otherwise known as the eastern Ukrainian town of Slovyansk? This is the city where some clashes between pro-Ukrainian and pro-Russian forces have taken place lately. Investors and analysts could now stop using it as the “explanation” for negative market movements…as if what goes on there has anything to do with the U.S. economy.
After the three dynamic up-days so far this week, the various stock index futures took a bit of a beating early in the session on Thursday due to the poor results from Dow component IBM…and the third largest stock in terms of market cap, namely GOOG. The Dow closed the day down 16, while the Nasdaq and S&P 500 posted modest gains. These lower levels started the previous evening after these two big company reports. The market direction improved due to better results from Dow components GE and GS, plus other important companies such as MS and SNDK.
There is futility in listening to various television touts telling people to “hedge” portfolios against market declines. This advice has proven a bust despite last week’s largest market decline since June 2012. 3 million SPY ‘puts’ will go out worthless along with 1.2 million ‘calls’ that will also suffer the same fate.
One of the inhibiting factors for the market is that earnings estimates for the first-quarter are being reduced and now stand at a gain of 0.7%, down from as high as 6% at the start of the year. The profit picture has moved into higher gear this week with 54 S&P companies reporting. These reports will add to the total of 29 that we have heard from so far.
Earnings season will have the largest number of stocks reporting next week. The list is so long that we will include them day by day, as Monday alone sees high-flier NFLX along with HAL, HAS, KMB, STI and WYNN.
With 45 S&P companies having reported earnings, 57.4% have beaten the estimates. This is below the traditional 62% that surpass in this department. Of the S&P companies, 53.2% have beaten on revenues, also below the traditional 61% in this area.
We have now gone 29 months without a 10% decline despite cries heard throughout the land for this to take place. This is the longest such streak since 2007.
The S&P trades at 15.8 times the projected 2014 earnings of $118. Earnings were $85 in 2010, $92 in 2011, $102 in 2012 and $111 in 2013. The average P/E multiple for the S&P going back to 1954 has been 16.4 and it has been 14.4 for the last 10 year’s average.
Donald M. Selkin
These are excerpts from Don Selkin’s Daily Market Notes. Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: Bloomberg Financial, Reuters, Associated Press.