October 23, 2012 at 09:30 AM EDT
Earnings & Revenue Worries Overwhelming Central Bank Relief!
Tuesday, October 23, 9:25 a.m. Investors seem to be realizing that just because a company’s reports are beating Wall Street’s drastically lowered estimates, a company with declining earnings that is now also reporting declining revenues, and warning about future quarters, is not worth what it was when sales and earnings were growing strongly, and the [...]

Tuesday, October 23, 9:25 a.m.

Investors seem to be realizing that just because a company’s reports are beating Wall Street’s drastically lowered estimates, a company with declining earnings that is now also reporting declining revenues, and warning about future quarters, is not worth what it was when sales and earnings were growing strongly, and the future looked like more of the same.

Forecasts that S&P 500 earnings growth would turn negative in the 3rd quarter for the first time since 2009 were pretty much ignored, but have taken on new meaning now that investors see what it means in the reports of the companies they’re invested in.

And it has been a quite dismal reporting period so far.

I said a month ago that revenue trends were going to be more important this reporting season than earnings. A company having problems with its bottom line due to shrinking profit margins will find it hard to promise a quick profit margin recovery anytime soon if the top line (sales and revenues) are also now coming under attack.

That’s pretty much how the reporting season is playing out. And it’s forcing investors to look beyond relief over central bank easing, and realize that in the final analysis earnings and revenue trends do matter in the pricing of stocks.

With the ability to protect earnings by dramatic cost-cutting having run its course, companies have to depend on a return to the normal growth pattern of increased sales and revenue to produce earnings growth. That is not in the cards in the face of the global economic slowdown, and companies are being forced to acknowledge that.

The problem seems to be even worse than Wall Street realized, with fewer than 40% of S&P 500 companies so far even beating Wall Street’s aggressively lowered estimates. And bellwether corporations that guided lower prior to the reporting period, are now issuing further warnings and even lower guidance for future quarters, even as many issue 3rd quarter reports that are worse than their most recent guidance.

What will it all mean for the market? Can the 50-day m.a. really hold in the short-term?

Or is the next question how low will it go, with our next important job being to determine when it’s time to buy in again?

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More importantly, what are the intermediate-term charts and indicators saying about whether it’s just another short-term pullback or the beginning of something worse?

If short-term support levels are broken, we can be sure that investor sentiment will become more bearish and be convinced something worse is underway.

To read my weekend newspaper column click here: Gold Has Lost Its Glitter Again!

Subscribers to Street Smart Report: In addition to the charts and signals in the ‘premium content’ area of this blog, there will be an in-depth U.S. Markets update tomorrow in your secure area of the Street Smart Report website. 

Yesterday in the U.S. Market.

A fairly ugly day most of the way ended mixed. The Dow was down as much as 108 points near the close but a big inflow of buy programs spiked it up to a fractionally positive close, up 2 points for the day.  Trading volume remained light, only 0.6 billion shares traded on NYSE.

The Dow closed up 2 points, not measurable as a percentage. Similarly the S&P 500 closed up a fraction of 1 point, not measureable. The NYSE Composite closed up 0.1%. The Nasdaq closed up 0.4%. The Nasdaq 100 closed up 0.6%. The Russell 2000 closed down 0.1%. The DJ Transportation Avg. closed down 0.4%. The DJ Utilities Avg closed down 0.4%.

Gold closed up $6 an ounce at $1,730 an ounce.

Oil closed down $1.79 a barrel at $88.26 a barrel.

The U.S. dollar etf UUP closed unchanged.

The U.S. Treasury bond etf TLT closed down 0.6%.

Yesterday in European Markets.

European markets were mixed but mostly down yesterday. The London FTSE closed down 0.2%. The German DAX closed down 0.7%. And France’s CAC closed down 0.6%. Greece closed up 2.7%. Ireland closed down 0.1%. Italy closed unchanged. Spain closed down 0.5%. Russia closed up 1.0%.

Asian Markets were down fractionally Sunday night and again last night.

The Asia Dow closed down 0.2% Sunday night, and 0.2% last night.

Among individual markets last night:

Australia closed up 0.1%. China closed down 1.0%. Hong Kong closed up 0.7%. India closed down 0.4%. Indonesia closed down 0.3%. Japan closed up 0.1%. Malaysia closed up 0.1%. New Zealand closed up 0.4%. South Korea closed down 0.8%. Singapore closed up 0.2%. Taiwan closed down 0.5%. Thailand closed up 0.2%.

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Markets This Morning:

European markets are down sharply this morning. The London FTSE is down 1.3%. The German DAX is down 1.6%. France’s CAC is down 1.6%. Spain is down 1.7%.

Oil is down $1.64 a barrel at $87.01, back under $90 a barrel after yesterday’s big plunge.

Gold is down $15 an ounce at $1,715.

This Morning in the U.S. Market:

This week will be an average week for potential market-moving economic reports, including some important ones like the Fed’s announcement after its FOMC meeting, Durable Goods Orders, and the first report on 3rd quarter GDP. To see the full list click here, and look at the left side of the page it takes you to.

There were no reports yesterday.

This morning’s report will be the Richmond Fed’s Business Index, which will be released at 10 a.m.

So it’s still all about 3rd quarter earnings, and more so faltering revenues and warnings from corporations about future quarters and next year.

And they are having an impact on the pre-open indicators this morning.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down sharply, 150 points or so, in the early going.

To read my weekend newspaper column click here: Gold Has Lost Its Glitter Again!

Subscribers to Street Smart Report: In addition to the charts and signals in the ‘premium content’ area of this blog, there will be an in-depth U.S. Markets update tomorrow in your secure area of the Street Smart Report website.

I’ll be back with the next regular blog post on Thursday morning at 9:25 a.m.

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