The Markets
Singing the earnings song . . .
Each year, in January, April, July, and October, most publicly-traded companies announce their corporate earnings results. These announcements can have a dramatic effect on companies’ share prices – and markets – especially when companies don’t meet analysts’ expectations.
The way a company’s share price moves after an earnings announcement can strike a discordant note. For instance, a company can have a great quarter, but if it earns a few pennies per share less than expected, its share price may tumble. Likewise, a company can be in dire straits, but if it produces a few cents more than expected, its share price may climb.
Last week’s earnings song was a bit melancholy. By the end of the week, about one-fifth of the companies in the Standard & Poor’s 500 Index had submitted their reports and earnings were on track to grow by about 1.5 percent year-to-year. That’s a bit lower than the 4.1 percent earnings growth analysts had expected, but it was in positive territory.
Unfortunately, as The Wall Street Journal pointed out, financial companies have exceptionally easy year-to-year comparisons. When they were pulled out of the mix, earnings hit a low note: down by almost 3 percent from last year, according to FactSet. That’s worse than analysts expected at the start of the quarter.
Earnings were weak relative to expectations, but the S&P 500 still finished higher for the week. That may be because of the soothing refrain offered by Ben Bernanke (monetary policy will remain accommodative… monetary policy will remain accommodative). The important thing to remember is the Fed’s definition of accommodative monetary policy doesn’t necessarily mean maintaining its quantitative easing program.
Data as of 7/12/13 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 (Domestic Stocks) |
0.7% |
18.6% |
22.9% |
16.5% |
6.1% |
5.6% |
| 10-year Treasury Note (Yield Only) |
2.5 |
N/A |
1.5 |
3.0 |
4.1 |
4.2 |
| Gold (per ounce) |
1.3 |
-23.5 |
-18.2 |
3.1 |
6.2 |
14.0 |
| DJ-UBS Commodity Index |
0.9 |
-6.8 |
-11.1 |
0.7 |
-9.5 |
1.1 |
| DJ Equity All REIT TR Index |
1.2 |
11.0 |
13.9 |
18.9 |
8.3 |
11.3 |
Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
Best regards,
Jonathan K. DeYoe
P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added. This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.
Sources:
http://www.investopedia.com/terms/e/earningsseason.asp
http://www.investopedia.com/financial-edge/1010/4-things-to-know-about-earnings-season.aspx
http://money.cnn.com/2013/07/17/investing/premarkets/
http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20130619.pdf (Page 6)
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3242
http://www.foxnews.com/story/2009/03/19/century-disasters-top-10-worst-inventions-in-history/
http://www.globalinnovationindex.org/content.aspx?page=GII-Home (Click on the Quick Link “GII 2013 Report,” then “Download the GII 2013 Report here” and go to page V)
http://www.economist.com/blogs/graphicdetail/2013/07/daily-chart-14
http://www.brainyquote.com/quotes/authors/b/buddha.html#FspDAtGzW65EdVdm.99
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