US STRATEGY - EARNINGS ERODING

TODAY’S SET UP

 

As we look at today’s set up for the S&P 500, the range is 27 points or 1.6% (1,085) downside and 0.8% (1,112) upside.  The equity futures are trading mixed ahead of the housing data point and little earnings news. 

 

TODAYS ECOMOMIC EVENTS AND RELEVANT HEADLINES

 

Hedgeye 2Q10 Theme “Housing Headwinds” - An important data point is out today with  consensus estimates showing sales of new U.S. homes up 3.7% to an 311,000 annual pace last month. The report is due at 10 a.m.

 

Other economic events today:

  • Chicago Fed Nat Activity Index 
  • Dallas Fed Manufacturing Activity
  • U.S. to sell $30b each in 3-mo., 6-mo. bills
  • Crop progress

With oil up 8.6% over the last three weeks, the average price of regular gasoline at U.S. filling stations rose to $2.73 a gallon.    

 

Over the weekend Treasury Secretary Timothy F. Geithner said U.S. companies scarred by the financial crisis remain “very cautious” and are trying to get more productivity from current employees before hiring new ones. Job growth is “not as fast as we need.”

 

India’s central bank is likely to raise interest rates for the fourth time since March after a strike to protest rising prices brought much of the nation to a halt this month.

 

Pound is finally overbought at 1.54 and the Euro at 1.30; In the Hedgeye virtual portfolio we are still short the USD and long the FXB, but will call overbought as it is.

 

In early trading today, Europe having a tough time deciding what to do today now that the stress test "news" isn’t news; FTSE flat and remains broken TREND.

 

Overnight China closes up for the 6th consecutive day and is now trading above Hedgeye's immediate term TRADE line of 2484 (Shanghai COMP).

 

2Q10 EARNINGS SESON

 

Of the 149 S&P 500 companies that have reported so far, 124 beat consensus estimates on earnings, while 103 beat on revenues. The 81% beat ratio on the bottom line was down slightly from the 86% last week, while the 69% revenue beat ratio also fell from the 75% seen during the first week of earnings season.   This week's beat ratio on both the earnings and revenue lines remained well-above the long-term average and near the high end of the historical range.

 

So far this earnings season, the largely positive takeaways from earnings seem to have taken a backseat to some of the pushback surrounding a double-dip scenario as the big directional driver for the market.

 

Earnings were a headwind for Healthcare (XLV), which was the worst performing sector last week and the only sector in the Hedgeye models not to positive on TRADE. 

 

Industrials outperformed most sectors on strong earnings reports. Aerospace and defense one of the stronger spaces. The notable outperformers were HON up 2.0% on a beat and raise and GE rose 3.3% after the company announced a 20% dividend increases. 

 

Howard Penney

Managing Director

 

US STRATEGY - EARNINGS ERODING - levels and trends

 

US STRATEGY - EARNINGS ERODING - S P

 

US STRATEGY - EARNINGS ERODING - DOLLAR

 

US STRATEGY - EARNINGS ERODING - VIX

 

US STRATEGY - EARNINGS ERODING - OIL

 

US STRATEGY - EARNINGS ERODING - GOLD

 

US STRATEGY - EARNINGS ERODING - COPPER


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