81% of Earnings Reports Are Beating Expectations

The market seems poised to rise today after staging a nice afternoon rally yesterday. For a while there it looked like it was going to be an ugly day. Around 1:15 pm, the S&P 500 was at 1,172, but we added more than 10 points from there. In the end, the S&P 500 only lost 0.27% yesterday.

The good news today is that the unemployment claims report came in below expectations. Normally this is among the least-important economic reports, but I think traders want to latch on to something positive. The number of jobless claims fell by 21,000 to 434,000, which is the lowest total since July. The total number of people receiving unemployment insurance dropped to a two-year low.

The big news today will be earnings from Nicholas Financial (NICK). After that, the big event will be tomorrow’s GDP report. I’m not sure what to expect, probably something between 1.5% and 2.2%. Anything below 3% isn’t good enough. The fourth quarter, however, may be better.

Then next Tuesday we have the election and after that, the Fed will meet and announce QE2. I think the Fed will say that it plans to buy somewhere between $300 billion and $500 billion worth of Treasuries between, say, five years and twenty years. What the Fed will say is still up in the air, but I guarantee you that whatever they say, it won’t be enough for some people.

The Fed is reportedly asking bond dealers, “Suppose we said we’re going to buy tons of Treasuries—and we’re not saying we are—but say we said we might say we are, how might that affect yields, if that event did in fact occur?” I’m paraphrasing, but that’s the idea.

Here’s something interesting I spotted at MarketWatch:

In all, with roughly half of the S&P 500 reporting by Wednesday, 81% had exceeded expectations, with just 13% coming up short, according to data compiled by Thomson Reuters.

If that percentage holds, it would be the highest level of companies beating estimates in a quarter ever — or a least since Thomson Reuters began tracking them 16 years ago. It would top even the 79% mark hit in the third quarter of 2009, when the economy came off the absolute rock bottom of late 2008.

Posted by on October 28th, 2010 at 9:04 am

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