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Housing, Retail and Earnings Analysis

October 22, 2012

To date, 98 companies in the S&P 500 have reported revenues and earnings for the third quarter. Of these 98 companies, only 42% have reported actual sales above the mean estimate.
-Haverford Trust

Last Week: 

·         Housing Starts Best in Four Years:  The housing sector is showing somewhat stronger-than-expected health with both starts and permits gaining in the latest report. The September starts pace of 0.872 million units topped market expectations of 0.765 million and was up 34.8 percent on a year-ago basis. This was the highest number since 2008.

·         Industrial Production Solid: Manufacturing made a partial comeback in September. But it does not appear to be related to underlying fundamentals-more to hurricane related swings. Overall industrial production rebounded 0.4 percent in September after falling 1.4 percent in August. Market expectations were for a 0.2 percent rise. However, according to the Fed, roughly 0.3 percentage points of the decline in overall industrial production in August reflected the effect of precautionary idling of production in late August along the Gulf of Mexico in anticipation of Hurricane Isaac.

·         Retail Sales Above Expectations: The consumer was out spending more than expected in September-even after discounting gasoline prices. Apple appears to have bumped the numbers up. Total retail sales in September advanced 1.1 percent after gaining 1.2 percent the month before. This was notably above market expectations for a 0.7 percent boost.

·         Earnings So Far: To date, 98 companies in the S&P 500 have reported revenues and earnings for the third quarter. Of these 98 companies, only 42% have reported actual sales above the mean estimate. This percentage is well below the average for this stage of the earnings season (20 days after the end of the quarter). Over the past four years on average, 59% of companies have reported sales above estimates at this point in time.

Look Ahead: 

·         Earnings Season: This is a big week for earnings as DuPont, UPS, AT&T, Apple and Procter & Gamble all report their 3rd quarter results. 

·         FOMC Meeting Announcement: The FOMC announcement at 2:15 p.m. ET for the October 23-24 FOMC policy meeting is expected to leave policy rates unchanged. With the September announcement of QE3 and guidance on low rates to mid-2015, new policy initiatives are not likely. The focus of this statement is likely the status of the economy-notably the labor market.

·         GDP: The first reading of the third quarter will be released Friday with expectations for a 1.9% increase, above the second quarter reading of 1.3%.