Zacks Investment Research | Sep 15, 2013 01:20AM ET
The market’s focus is justifiably on the Fed this week, given expectations that the FOMC will start ‘Tapering’ its bond-purchase program. Also of interest will be the FOMC members’ updated economic forecasts and the Bernanke press conference where the outgoing Fed Chairman will try to explain their ‘Taper’ decision, or lack thereof.
Some in the market continue to hope that the Fed will hold off on the ‘Taper’ decision this week given the still-tepid economic picture and the potentially destabilizing upcoming budget and debt-ceiling debates in Congress. With the Syria debate now moving to the background, Congress’s attention will be shifting to these divisive topics in the coming days, not to mention a potentially noisy Senate confirmation battle for Larry Summers as the next Fed Chairman, should he get the nod as many speculations seem to suggest.
The Fed will no doubt be the big subject this week, but we are getting close to the start of the 2013 Q3 earnings season as well. In fact, the Q3 earnings season will actually get underway this week with the earning release from Adobe Systems (ADBE) after the close on Tuesday, followed by reports from such bellwethers as FedEx (FDX) and Oracle (ORCL) on Wednesday.
Alcoa (AA) typically gets credited for kick-starting each earnings season, but since we count all companies with quarters ending in August as part of our Q3 tally, the Q3 earnings season will have gotten underway weeks before Alcoa reports on October 8th. It will be interesting to see how much attention the aluminum giant’s earnings report will get this earnings season since it will have lost its position in the Dow Jones Industrial Average. In total, we have 20 companies reporting Q3 results this week, including 5 S&P 500 members.
As has been the case at the start of recent quarterly earnings cycles, expectations for the Q3 earnings season have fallen sharply over the last three months. Total earnings for companies in the S&P 500 are now expected to be up only +1.3% from the same period last year. This is down materially from what was expected at the start of the quarter in early July, as the chart below shows.
The chart below compares the Q3 total earnings growth expected for these five sectors at the start of the quarter and where those expectations stand at present
While estimates for Q3 have come down, the same for Q4 and the following quarters have held up fairly well, as the chart below shows.
Judging by what has happened over the past year or so, these Q4 estimates will come down as companies share their outlooks on the Q3 earnings calls. The market didn’t care much as estimates came down in the last few quarters, hoping for better times ahead. Will it do the same this time as well, pushing its hopes of earnings ramp up into 2014? We will find out the answer to that question over the next two months.
Monday-9/16
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