CHICAGO, March 21, 2011 /PRNewswire/ -- Zacks.com releases
the list of companies likely to issue earnings surprises. This
week's list includes: Best Buy (NYSE: BBY), Darden
Restaurants (NYSE: DRI), Discover Financial (NYSE: DFS),
Oracle (Nasdaq: ORCL) and Walgreen (NYSE: WAG).
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First Clues to First Quarter
The fourth quarter earnings season is over, but now we are
starting to get a few first quarter reports (and a few stragglers
for the fourth quarter, many of which are ADRs). That makes for a
very light overall earnings week. A total of just 76 firms are due
to report. However, an unusually high number of those are members
of the S&P 500 -- 17.
The fourth quarter earnings season was a strong one, and this
week should start to provide clues if that will be true for the
first quarter as well. The firms reporting this week include:
Best Buy (NYSE: BBY), Darden Restaurants (NYSE: DRI),
Discover Financial (NYSE: DFS), Oracle (Nasdaq: ORCL)
and Walgreen's (NYSE: WAG).
It will be a moderate week for economic data. Not a lot of
reports, but the ones we will get are important, including both New
and Used Home Sales, new orders for Durable Goods and the final
look at GDP growth in the fourth quarter. With a very light week
for earnings, and a fairly weak week for economic data, the markets
will probably be focused on the international crisis du joir and on
the budget negotiations.
Monday
- Existing Home Sales are expected to dip to a seasonally
adjusted annual rate of 5.05 million from 5.36 million. What is
more significant will be the level of inventories, and if the
January months of supply rate of 7.6 months can continue to
decline. While down from last summer, the level is still extremely
high and indicates strong downward pressure on home prices. That
really is what to watch in the existing home sales numbers, since
the amount of economic activity generated by an existing home
changing hands is not really that big a deal. Home prices are a
very big deal. Unfortunately, it looks like they are falling
again.
Tuesday
- No major economic reports are expected.
Wednesday
- New Home Sales are expected to edge up to an annual rate of
288,000 from 284,000. While a 1.4% increase might look OK, it is
coming off an extremely depressed base. In fact, the lowest nine
months of New Home Sales on record have been in the last nine
months, and if the consensus estimate is hit, make that ten of ten.
It is hard to overestimate the importance of New Home Sales to the
overall economy, especially in the early stages of an economic
recovery. The low level of New Home Sales (and hence the low level
of homebuilding activity) is the principal reason that this
recovery has been so anemic. Every home built generates a huge
amount of economic activity that feeds through the entire economy.
With the possible exception of the GDP report, this is the most
important economic data of the week.
Thursday
- Weekly initial claims for unemployment insurance come out.
After being extremely erratic over the holidays, they have started
to fall significantly, but are still bouncing around a bit. Last
week they fell by 16,000 to 385,000. I would expect the downward
trend in claims to continue next week. The consensus is looking for
a minor decline to 384,000. A level of 385,000 seems pretty good
compared to the experience of the last few years. After a huge
downtrend from mid-April through the end of 2009, initial claims
were locked in a tight "trading range" for most of 2010. We now
appear to have broken out of that trading range to the downside.
This could well indicate that the economy is about to start
producing a significant number of new jobs. The four-week moving
average (which smoothes out the week-to-week noise) was under the
400,000 for the third week in a row. Historically that has been an
inflection point at which the economy starts to add significant
numbers of jobs.
- Continuing claims have also in a downtrend of late, but the
road down has been bumpy. Last week they fell by 80,000 to 3.706
million. That is down 988,000 from a year ago. I would expect a
further decline this week. Some of the longer term decline due to
people simply exhausting their regular state benefits which run out
after 26 weeks. But those don't last forever either. Federally paid
extended claims rose by 54,000 to 4.303 million, and are down by
1.690 million over the last year. Looking at just the regular
continuing claims numbers is a serious mistake. They only include a
little over half of the unemployed now given the unprecedentedly
high duration of unemployment figures. A better measure is the
total number of people getting unemployment benefits, currently at
8.954 million, which is up 181,000,000 from last week. The total
number of people getting benefits is now 2.769 million below year
ago levels. What is not known is how many people have left the
extended claims via the road to prosperity, finding a new job, and
how many have left on the road to poverty, having simply exhausted
even the extended benefits. Make sure to look at both sets of
numbers! Many of the press reports will not, but we will here
at Zacks.
- New Orders for Durable Goods are expected to have risen by 0.9%
in February. That would be on top of a 2.7% rise in January. These
numbers are frequently revised, and most forecasters think that the
January numbers are more likely to be revised up than down. The
January increase was due to a big percentage gain in orders for
Transportation equipment, most notably civilian aircraft. Those
orders had fallen to nearly nothing in December, so it was mostly a
"division by zero effect." That is an extremely "lumpy" area for
new orders, as just a few jumbo jets can swamp order growth or
declines for the rest of the economy in any given month. Excluding
transportation equipment, orders actually fell by 3.6% in January.
That number is also likely to be revised to show a smaller decline.
For February, growth of 1.8% is expected. Changing the base can
have a significant effect on the month-to-month change, and are
worth paying attention too.
Friday
- We get the final look at the Big Kahuna, GDP growth in the
fourth quarter. While that might be a bit of "old news," it is the
most comprehensive measure of how well the economy is doing. In the
first look, GDP grew at an annual rate of 3.2%, but the second peak
at the data showed a big downward revision to just 2.8% growth.
While that was a acceleration from the 2.6% in the third quarter,
it was widely seen as being a disappointment. The quality of the
growth was, however, far better than that of either the second or
third quarters. The growth came from higher consumer spending and
an improvement in net exports, not from simply re-stocking of
inventories. The composition of growth is just as important and the
overall level of growth. For the final look at the data, the
consensus is looking for a small upward revision to 2.9%
growth.
Dirk Van Dijk, CFA, is the
Chief Equity Strategist for Zacks.com.
About the Zacks Rank
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