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Tickers in this Article: JPM, WFC, C
Monday, October 15, 2012

Favorable looking inflation and trade data out of China and positive Retail Sales numbers on the home front provide the backdrop for today's trading action. But more significant than economic data will be earnings reports and we have a fairly busy calendar on that count with about one-sixth of the S&P 500 companies coming out with third quarter results this week. Last week's stock market weakness was largely due to uncertainties about the earnings picture and it may not be much different this week either.

The moderate Chinese inflation data will likely get seen as indicating that the country's policy makers have more room to implement stimulus measures without stoking inflation. The country's international trade data over the weekend also showed strength, with exports to the U.S. offsetting some of the Europe-centric weakness. Today's better than expected U.S. Retail Sales numbers for September indicates that China can continue to rely on the decent enough consumer spending momentum. The Retail Sales strength will  also likely nudge third quarter GDP growth estimates in the coming days. In other data releases this morning, the October Empire State regional manufacturing survey came in weaker than expected, though it did show improvement from previous month's reading.  

On the earnings front, we will have a much better sense of the third quarter reporting season at the end of this week as by then we will have seen results from more than one-fifth of the S&P 500 members. The earnings growth rate for the 40 or so companies that have already reported third quarter results stands at close to 7%, largely due to strong growth in J.P. Morgan (JPM) and Wells Fargo (WFC) reports last week and Citigroup C) this morning. But excluding results from these banks, the growth rate from the other companies falls into the negative territory. This is a trend that will likely will hold throughout this reporting season, as total S&P 500 earnings outside of banking (bank earnings are expected to be in double digits) are expected to show a decline from the same period last year.

Sheraz Mian
Director of Research
 
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