Financial Professionals


Earnings Scorecard: Concern is Elevated

As of Friday, October 19, 2012, earnings have been reported for 116 of the 500 corporations that make up the S&P 500® Index (SPX).
Here is the current earnings scorecard for the index overall and by sector:
Overall SPX (116 of 500)                  
EPS growth  +0.05%
Sales growth  +1.77% 
Energy (6 of 43)
EPS growth  -13.38%
Sales growth  +6.41%
Materials (6 of 31)
EPS growth  -25.49%
Sales growth  - 7.51%
Industrials (18 of 61)
EPS growth  +10.30%
Sales growth  + 1.88%
Consumer Discretionary (17 of 80)
EPS growth  - 0.56%
Sales growth  +3.59%
Consumer Staples (10 of 41)
EPS growth  - 1.49%
Sales growth  +2.29%
Health Care (11 of 52)
EPS growth  + 5.47%
Sales growth  + 3.85%
Financials (29 of 81)
EPS growth  + 5.31%
Sales growth  + 1.04%
Technology (18 of 70)
EPS growth  - 9.48%
Sales growth  + 0.41%
COMMENTARY:  Within my Q4 Playbook, I identified four conditions to watch that would provide evidence that a shallow, corrective sell-off was unfolding. While the SPX remains above the 1422.38 support level, I offered in the commentary that investors should be concerned with current overweight positions given the earnings to date. In particular, earnings for large-cap technology is lousy. Only a spectacular earnings report from Apple (AAPL) on October 25 could reverse the negativity surrounding tech heavyweights Google (GOOG), IBM, and Intel (INTC).  
I suspect the SPX is trapped in a range between the September 14, 2012 high for the year at 1474.51 and the October 12, 2012 low at 1425.53. Which way the SPX breaks will depend on whether further reallocations out of Treasuries will unfold and if Apple (AAPL) can deliver a blockbuster earnings report. This past week the U.S. 10-year Treasury did, in fact, approach the 200-day moving average at 1.81% but has not been able to sustain an advance above there. 
Finally, the U.S. presidential election is 17 days away and appears as tight a race as at any other time during the campaign.  Concern for an uncertain outcome on November 7 is elevating. It is possible that one candidate could win the popular vote and the other the electoral college. Either condition would severely impair the ability to put forth a grand compromise for the pending fiscal cliff.
Do not turn your attention away from the market next week; a reduction in risk might be warranted as the evidence is mounting.

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.