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As Sam Sees It: What Happens Post-Shutdown?

By  +Follow October 17, 2013 9:41AM
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Each week, we tap the insight of Sam Stovall, Chief Equity Strategist for S&P Capital IQ, for his perspective on the current market.

For more from S&P Capital IQ, be sure to visit www.getmarketscope.com.

EQ: In this week’s Sector Watch report, you discussed how the government shutdown thus far hasn’t seemed to impact the market’s trading volume or volatility based on data going back to 2000 for the month of October. Did this finding surprise you?

Stovall: Actually, I did not really expect to be surprised because we’re only dealing with 10 trading days, which was over a two-week period. So unless we had tremendous spikes upward in either volume or in volatility, or everybody basically staying on the sideline, the numbers that I came up with was pretty much consistent with the volume that we had seen throughout all of 2013, as well as both the volume and the volatility of intraday prices for these 10 trading days in October going back to 2000.

The original question was related to the absence of government-supplied economic data and what could that do to trading patterns, I think investors have been going through a bit of a whipsaw recently because of on-again, off-again agreements between the House of Representatives and the Senate. Still, it was not enough to really make a big change when you are looking at volatility and volume over an extended period.

EQ: Did the headlines coming out of Washington serve as a replacement of economic figures as tradable news, at least for the short term?

Stovall: I would tend to say, “Yes.” That’s a very likely possibility. The volatility that we would have received from daily economic releases was replaced by the daily uncertainty offered by the disagreements between the Democrats and Republicans in Washington. In a sense, what one took away, the other one replaced.

EQ: It’s only been two weeks, but the market has held up quite well thus far. Could we still see a potential pop if/when a resolution is announced soon?

Stovall: We already had a pop last Thursday when the S&P 500 gained more than 36 points, and we saw a pop on Wednesday when the S&P 500 gained by well over 1 percent. So it ends up being a nice little pop.

Will the market jump by more than 10 percent in the month following an agreement that has been established by both houses of Congress? I don’t really think we’re going to see that strong of an advance. We’re heading into the third quarter earnings reporting period, and the most recent estimate was for about a 2.7-percent increase. That’s down from the estimate as of October 1 of 3.4 percent. So either company managements are again doing a good job managing expectations, or we might end up seeing a little bit of a pause in year-over-year earnings growth this quarter. If so, investors will have to wait until early 2014 to become enthusiastic about earnings growth prospects once again.

EQ: Could the market potentially drop following a resolution announcement as traders “buy the rumor, and sell the news?”

Stovall: An immediate-term drop, yes. But something that’s meaningful that would last over several days, probably not. I think it would certainly take away the uncertainty that almost nobody can forecast, and replace it with forecastable uncertainty in the form of economic growth as well as earnings increases.

Let’s face it, valuations today are still appealing while not compelling. The price-to-earnings ratio on trailing 12-month earnings is still at about a 10-percent discount to the median to the past quarter century.

The P/E on projected 12-month earnings is still 8 to 9 percent below what the average has been since this secular bear market started in 2000. It points to a level of 1840 on the S&P 500 to be fair value should we go back to that 16 times projected operating results.

EQ: Earnings season has been largely overshadowed by politics thus far. It’s still early, but the beat rate seems weaker than previous years. Is this a possible cause for concern?

Stovall: With only 54 companies having reported, which is just a shade above 10 percent of the S&P 500 companies, we have a lot more companies to go before I’d get too worried about it. The beat rate usually has been 65 percent and right now we’re finding that 32 of these 54 have beaten estimates. That’s a 59-percent rate, which is less than the 65 percent average, as well as the 67 or 68 percent that we saw last quarter. But I still think it’s very early in the game.

EQ: Telecom is supposed to be the leader for Q3 earnings growth. Once that sector starts reporting in a more meaningful way, do you think that will help to even out the results?

Stovall: The Telecom Services group is expected to show the strongest increase, up more than 25 percent, primarily because Sprint (S) was removed from the index. The Telecom sector has a very small number of constituents to begin with, so removing Sprint leaves us with five or fewer in there. Most of the components are the behemoths of AT&T (T) and Verizon (VZ) , so I would say that you have to look at that 25-percent growth rate with a very big grain of salt because of the exclusion of Sprint having an outsized impact.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for S
IKfoon
1 Nov 14 04:21:39
'war of every man against every man' (Hobbes) poor man says: you work 80hrs/w. & get millions, I work 0 and get your $s now? @ThomasPiketty
Stock Signaling
1 Nov 14 04:01:05
Upgrades: $ALU $RKT $BWA $AVX $WFT $NUE $S $tqnt $hes $FB $RKUS $BAC $ARC $ADHD $mpw http://t.co/Vtx6dLy0Nw #nyse #investors #finance #mkt
Mo_Mosher
1 Nov 14 03:49:52
RT @takesthelane: @Bergg69 But @ great slush fund with which to buy votes with taxpayers own $s., eh?
Bergg69
1 Nov 14 03:43:50
RT @takesthelane: @Bergg69 But @ great slush fund with which to buy votes with taxpayers own $s., eh?
Corey Blacksell
1 Nov 14 02:24:00
@CraigDettling @JohnKeily1 @James_Stacey_ @ballomes @basmed75 crystallised equity in NZ and bought more productive capacity for same $s?
Alpha Maven
1 Nov 14 01:56:10
RT @PipsToDollars: Earnings MONDAY $HLF Herbalife $S Sprint TUESDAY $BABA $PLCN Priceline WED $WFM
Steve Mahoney
1 Nov 14 01:54:02
@PipsToDollars $S + $AAPL Halo should be interesting - SoftBank (large $BABA Shareholder) owns $S and has Intentions to Expand LTE Stuff
Steve Mahoney
1 Nov 14 01:50:20
RT @PipsToDollars: Earnings MONDAY $HLF Herbalife $S Sprint TUESDAY $BABA $PLCN Priceline WED $WFM
ola olajide
1 Nov 14 01:49:06
RT @adequnle: Many years of hardwork & billions of $s down the drain | 1 pilot dead, 1 injured after Virgin spacecraft crashes in Californi…
Life's Good
31 Oct 14 22:46:14
@MaryAnneMacedon @rkd993 @KimWellsMP Same in NSWRFS. Lucky residents pitch in $s, volunteers & families pitch in time!
びLoTheDonBabyび
31 Oct 14 22:43:15
$20s $50s $💯s Bitch I'm stuntin
#TraderJ1
31 Oct 14 21:09:25
ended up buying more 7.00 calls in Sprint, and hedged with some 5.00 puts as well next week should be interesting $Sprint $S
John Evanochko
31 Oct 14 19:31:05
@Bergg69 But @ great slush fund with which to buy votes with taxpayers own $s., eh?
Adam Offerman
31 Oct 14 19:28:26
RT @PipsToDollars: Earnings MONDAY $HLF Herbalife $S Sprint TUESDAY $BABA $PLCN Priceline WED $WFM
lachiemc
31 Oct 14 19:26:17
RT @mymeggles: @LiberalVictoria why do I want you hypocrites using my tax $s to be telling me this
yes
{Love M LIFE}
31 Oct 14 19:25:15
Mohammad ali {Love $s$ LIFE}
kenr0966
31 Oct 14 19:11:18
RT @PipsToDollars: Earnings MONDAY $HLF Herbalife $S Sprint TUESDAY $BABA $PLCN Priceline WED $WFM
Joshua Payne
31 Oct 14 19:11:02
RT @PipsToDollars: Earnings MONDAY $HLF Herbalife $S Sprint TUESDAY $BABA $PLCN Priceline WED $WFM
Don Bartkowiak
31 Oct 14 19:10:52
@gigatowngirl @RodBaxy not only $ 4 winning but investor $s will follow when #gigatownnsn pushing data at speed of light
Leilani Pips
31 Oct 14 19:10:39
Earnings MONDAY $HLF Herbalife $S Sprint TUESDAY $BABA $PLCN Priceline WED $WFM
Leilani Pips
31 Oct 14 18:45:12
RT @turtle9794: @PipsToDollars What do you thonk about $S sprint for monday earnings?
Hedge Fund Turtle
31 Oct 14 18:44:04
@PipsToDollars What do you thonk about $S sprint for monday earnings?
fisheye
31 Oct 14 17:27:53
Could it really be a million $s was spent on #Ebola political scare ads across #USA? How much #healthcare could be bought for #Americans?
Barbara J Ferrell
31 Oct 14 17:09:00
#foxnews Bush? Another one? Forgotten Prescott, GHWB's S&L scandal & all GWB did? What giant corporations need taxpayer $s 2 put in JB?
Shiiloo S. Buttaa
31 Oct 14 16:43:06
RT @cobbo3: I hear bankers from allover the world calling #BurkinaFaso prez Compaore asking what he plans to do with his millions of $s if …
BOSSY Kat MC
31 Oct 14 16:42:36
@rightnowio_feed @wave3news @Jonnmichelle why be surprised, it's what theyre taught. Obama is still taking my tax $s & giving it to the lazy
Grenville
31 Oct 14 15:33:24
RT @txlaw_v2: Amazing John Legere interview at Re/Code Mobile. If you're interested in wireless, check it out: http://t.co/7fbiMH4iTi $T…
KarenSL
31 Oct 14 15:18:35
@Heritage Who r the fellow Americans who thought this was a worthy cause 2 spend Taxpayer $s on-during a time Americans r homeless & hungry?
Quantpost Technology
31 Oct 14 14:52:01
$T News: "Stock Screen: Established Growth Stocks $T $DTV $S $MTZ …" http://t.co/ow6Wtergkb Board view: https://t.co/9Bb5uozwqc
Seeking Alpha
31 Oct 14 14:52:01
Stock Screen: Established Growth Stocks http://t.co/tRu0Y3g6kL $T $DTV $S $MTZ
WS BULLY
31 Oct 14 14:04:52
Im grabbn $s sprint calls big ass buys http://t.co/Fi3Izjc5L6
smart-ticker.com
31 Oct 14 13:30:10
Market closed: $S&P(^IXIC)(+23.4 1.16%), $NAS(^GSPC)(+64.6 1.40%) and NY Vol% 118 and NAS Vol% 117 http://t.co/8e1w9aBXUB
David Rohde
31 Oct 14 13:29:25
$S earnings next week: What's left for them after big TMo sub numbers & 1M+ new tablet subs for $VZ? My blog thoughts http://t.co/u2dKL4BaZv
Zak
31 Oct 14 13:19:59
1st post, on tweeter, goes to errybooty put der dat likez $s. hmu snapchat kik # idrc just text me in some way shape or form. toodle oos!
P. Ricatti
31 Oct 14 13:18:50
RT @WrigleyTom: Some Earnings (to start the week) ➜ Monday $CYOU $CHD $SOHU $FN $HLF $NTRI $RKUS $S $SALE ➜ Tuesday $BABA
TrollColors
31 Oct 14 13:10:27
Now good time to look into buying space stocks: space is one of the 'next big things'; getting there cost more then just $s: it cost heroes.
#TraderJ1
31 Oct 14 13:08:35
RT @BlockTradeAlert: BLOCK TRADE: $S 250,000 shares @ $5.94 [14:20:37]
#TraderJ1
31 Oct 14 13:08:32
RT @BlockTradeAlert: BLOCK TRADE: $S 444,000 shares @ $5.94 [14:21:31]
#TraderJ1
31 Oct 14 13:08:28
RT @BlockTradeAlert: BLOCK TRADE: $S 280,300 shares @ $5.94 [14:24:16]
Hammer D. Lane
31 Oct 14 13:03:59
RT @Briefingcom: Upcoming #Earnings conference calls, webcasts http://t.co/dlabvkqtAz $CYOU $ACXM $SALE $S $CVS $EL $HLF $DISH $JAZZ $PBPB …
Briefing.com
31 Oct 14 13:03:03
Upcoming #Earnings conference calls, webcasts http://t.co/dlabvkqtAz $CYOU $ACXM $SALE $S $CVS $EL $HLF $DISH $JAZZ $PBPB $Z $S
Tom Wrigley
31 Oct 14 12:59:47
Some Earnings (to start the week) ➜ Monday $CYOU $CHD $SOHU $FN $HLF $NTRI $RKUS $S $SALE ➜ Tuesday $BABA
John K. Bramfeld
31 Oct 14 12:58:36
RT @billho888: @johnbramfeld Yes CapEx guided down in '14. What a nice segue to plug my article again http://t.co/mejjSE3u2J $S
Bill Ho
31 Oct 14 12:55:19
@johnbramfeld Yes CapEx guided down in '14. What a nice segue to plug my article again http://t.co/mejjSE3u2J $S
Kevin B. Bantz
31 Oct 14 12:53:00
Commented on StockTwits: I wouldn't play $S just because it's $6. Ask the $JNUG $GLD folks about a 'great deal'... http://t.co/Y0LU2AsgEi
John Smith
31 Oct 14 12:37:24
$AVNR - another 1m shares at close to be purchased by Russell 1000 #breakingnews #cnbc $shpg $cmrx $tkmr $ibio $SHPG $wfc $bac $s $ctic
Eternity101
31 Oct 14 12:19:01
RT @WSConsensus: EPS 11/3 after the close: $S, $DRYS, $AIG, $FTR, $MRO, $CFN, $GRT, $SRC, $ANV, $CTRP, $HLF, $GERN http://t.co/NnbI54fKwA
WallStreetConsensus
31 Oct 14 12:18:18
EPS 11/3 after the close: $S, $DRYS, $AIG, $FTR, $MRO, $CFN, $GRT, $SRC, $ANV, $CTRP, $HLF, $GERN http://t.co/NnbI54fKwA
AAS
31 Oct 14 12:16:53
Many years of hardwork & billions of $s down the drain | 1 pilot dead, 1 injured after Virgin spacecraft crashes in California desert
TrollColors
31 Oct 14 12:15:08
Test fail; space flight dangerous; those risking life for mans future heroes; progress cost more then $s; @virgingalactic et. al. continue.
				
				
By  +Follow October 17, 2013 9:41AM
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