The Fed watch and a flood of Q3 earnings reports provide the backdrop for today’s market action, with the major indexes reflecting the Fed-centric tentativeness. On the earnings front, we moved past the halfway mark today with results from 251 S&P 500 members now out.
A majority of Fed watchers don’t expect the rate decision to come today or at the December meeting. But a sizable number of forecasters still see the central bank making its first move at the December meeting, with comments from a number of Fed officials keeping the December timeline on the table.
A combination of global economic headwinds and the persistently low inflation readings prompted the FOMC to stand back from lift-off at the September meeting. So the odds of a December lift-off will increase if the statement coming out this afternoon shows a lot more confidence in the domestic economic outlook than has been coming through in recent economic readings.
The first read on Q3 GDP coming out Thursday morning is expected to be barely above +1%, a major deceleration from Q2’s +3.9% growth pace. Given this dataflow, the odds of any sign of hawkishness in today’s statement are quite flow. But we will have to wait a bit longer to find out for sure.
On a busy reporting day with 45 S&P 500 members reporting Q3 results, including 25 in the morning, we saw strong results from Northrop Grumman (NOC) and Mondelez (MDLZ) and weak results from International Paper (IP) and many others. Total earnings for the 251 S&P 500 members that have already reported results are up +2.6% on -1.4% lower revenues, which is a weaker performance than we have seen from the same group of companies in other recent quarters.
The overall picture for Q3, combing the actual results 251 S&P 500 members that have reported results with estimates for the still-to-come 249 index members, is for total earnings to decline -2.7% from the same period last year on -3.9% lower revenues.
Estimates for the current period are coming down at an accelerated pace, with total Q4 earnings for the S&P 500 index now expected to be down -6.6% from the same period last year, which is down from an expected decline of -4.7% two weeks back. The magnitude of negative revisions to the Q4 earnings estimates is greater than what we saw in comparable periods for the preceding two quarters.