MARKETS SPECTATOR: Earnings alert

Concern over US company earnings continues, although the number beating expectations are in line with long-term averages. The Australian market looks set for a flat start.

US stocks closed out the week relatively flat on Friday as nervousness continued over weaker-than-expected Q3 earnings and the upcoming US election and fiscal cliff. The Dow Jones Industrial Average and NASDAQ managed to eke out small gains of 0.03 per cent and 0.06 per cent respectively while the S&P 500 posted a fall of 0.07 per cent.

Something worth noting that could easily influence trade today was the significant rally from the lows. Occurring on a Friday afternoon too, the S&P 500 rallied more than 1 per cent from technical and psychological support around the 1400 level.

On the earnings front, the big issue has been the number of company’s beating revenue estimates. So far, with just over 54 per cent of S&P 500 companies having reported Q3 figures, 63 per cent have beaten market expectations, which is smack bang in line with the long term average of 62 per cent.

However, what the market is worried about is the lack of companies beating estimates on a revenue or top line basis. Beating on a top line basis means the company is growing sales and revenues, which is a much more sustainable way of growing a business.

However, the bulk of S&P 500 companies beating estimates have been doing so on an earnings per share (EPS) basis, which is when a business boosts its bottom line (net profit) by cutting costs or other shot-term means.

Locally, it looks like the domestic market will open flat to slightly higher with SPI futures pointing towards the 4493 level. There’s not a lot due for release today on the economics side although there will continue to be some corporate news flow.

Bendigo and Adelaide Bank and New Zealand Oil and Gas will hold AGMs while GPT Group will release third quarter earnings figures and Harvey Norman will trade ex-dividend.

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