EmailThe major averages eked out slight gains on Monday following a closing spike that was reportedly driven by dubious rumors suggesting the Fed was going to boost its policy accommodation at this week's FOMC meeting. Not likely, yet the idea was probably enough to force some short sellers to take cover.
Judging by the futures market this morning, however, there isn't a lot of conviction in the thought that the Fed is poised to prime the QE pump even more as soon as tomorrow. Currently, the S&P futures are down 19 points and are trading 1.2% below fair value.
The deterioration in the futures market has unfolded throughout the morning hours, following the downtrend of most European markets and taking place in conjunction with a series of corporate earnings reports from major companies that have been light on revenue and short on guidance.
A New York Times report suggesting Fed Chairman Bernanke may not enlist for a third term even if President Obama is re-elected has also kept some pressure on the futures market. Not everyone agrees with Mr. Bernanke's policymaking decisions of course; nonetheless, the notion that he might stand down at the end of his second term isn't making a liquidity-starved market feel at ease right now.
From our vantage point, the earnings results are the bigger concern. They are illustrative of the fact that quantitative easing, while supportive for stocks, has not made much economic difference.
The table below of select companies reporting since yesterday's close provides a snapshot of the fundamental divide between the real economy and the alternate reality of a liquidity-driven stock market. Those worlds may be starting to collide as participants recognize weak top-line results are evidence of the weak economic response so far to extraordinary stimulus measures implemented by the world's major central banks.
| Company | Symbol | Yr/Yr Revenue |
|---|---|---|
| Texas Instruments | TXN | -2.2% |
| Yahoo | YHOO | 1.6% |
| 3M | MMM | -0.5% |
| DuPont | DD | -11.6% |
| Harley-Davidson | HOG | -11.6% |
| Illinois Tool Works | ITW | -1.7% |
| Ryder Systems | R | 0.2% |
| United Technologies | UTX | 5.7% |
| UPS | UPS | -0.7% |
| Whirlpool | WHR | -2.8% |
| Xerox | XRX | -2.9% |
The remarkable thing is that none of the companies in the table above, with the exception of DuPont (DD), missed the Capital IQ consensus earnings estimate for the September quarter. The guidance from many of these companies though -- and DuPont in particular -- left a lot to be desired.
To be sure, there are some companies that are still delivering some solid results in a tough macroeconomic environment. Coach (COH) stands out in that respect this morning, having reported a 10.5% increase in revenues and beating the consensus earnings estimate by a penny.
Companies like Coach, however, have been the exception and not the norm this reporting period. That is a problem... and that is the problem.
End demand in general is weak right now.
The past 11 quarters provided a basis to believe companies would pleasantly surprise with their guidance. They are not. The vast majority of companies offering guidance are doing so with a negative bias and that has become a sticking point in the post-QE3 world.
The S&P 500 closed yesterday at 1433.82, which is nearly the same level it closed at on September 12 (1436.56) -- or the day before the QE3 announcement.
With the current opening indication, it is going to be looking further up at the pre-QE3 level when trading begins.
