With reports this morning on the labor market and international fronts matching expectations, stocks are likely to remain in a wait-and-see mode as earnings season gets into high gear. This is understandable given the solid gains of the last few trading sessions that have pushed stocks back to the top of its recent trading range.
A lot is riding on the quality of this earning season, particularly with respect to expectations for the coming quarters. With the domestic economic scene increasingly becoming less worrisome in recent days, the market is looking for visibility on the earnings front. Europe-related headaches have not gone away, but a more reassuring earnings picture will go some way towards the market higher.
From the market’s perspective, this morning’s Jobless Claims and International Trade reports were neutral — neither positive nor negative. Weekly Jobless Claims dropped by one thousand to 404K, but the prior week’s tally were revised upwards to 405K from 401K. The August Trade Deficit number was also roughly in-line with expectations, with July’s number modestly revised upwards.
The monthly deficit number for both August and July are now in the $45.5 billion vicinity. This is an improvement from the monthly run rate of close to $50 billion in the May/June period and indicative that international trade will likely be a positive contributor to the third quarter GDP number.
Please keep in mind that the export orders component of the manufacturing ISM report bounced back in September after falling in August. This indicates that demand for U.S. goods improved in September following the lull in August, which coupled with the impact of falling oil prices on the value of imports should keep the September deficit number comparable, if not better, than August and July.
In the first of this quarter’s bank earnings reports, we got a positive earnings and revenue surprise from J.P. Morgan (JPM) this morning, though the beat partly reflects quite subdued expectations. Estimates for bank companies have been in a persistent downtrend over the last few weeks, highlighting the tough operating environment for the industry. The consensus EPS number for JPM had come down roughly 24% in the last two months.
In other earnings news, we had Universal Forest Products (UFPI) miss earnings and revenue expectations after the close on Wednesday. Google (GOOG) reports after the close today.
After making rapid gains in the last few days, the market will likely wait to get a sense for the earnings outlook before making its next collective move. I expect it to clearly breakout to the upside from its trading range. If earnings expectations come through and Europe doesn’t spoil party again — big ‘ifs’ no doubt — then we will march towards the end of the year in style.