S&P futures were already in trouble, down -0.9%, before the terribly weak Durable Goods Report. Last night Microsoft highlighted weakness in software sales over and above a -4% currency related headwind. Caterpillar (CAT), Procter & Gamble (PG) and Dupont (DD) all missed. So the earnings season is shaping up to be disappointing. If upcoming earnings reports don't disappoint, then the guidance probably will. Currency movements will be the excuse for poor results and/or poor guidance. So I don't see the earnings reports taking the market up unless the tone of the reports changes to become much more positive.
A marked increase in fighting in Ukraine is elevating the markets apprehension. After 3-4 months of relative calm, this resumption in hostilities is creating even greater uncertainty in a an already uncertain situation. I have read that Putin might be aiming for a frozen situation in Ukraine which means these headlines are not going away anytime soon.
The Durable Goods Report was a complete disappointment. Not only was the November revised down significantly, but December came in even weaker. Pretty much every industry was weak in the report except some signs of life in autos, communications, electrical equipment and fabricated metal. Case-Shiller came out in-line with expectations. Luckily the PMI Services, New Home Sales and Consumer Confidence reports all came out stronger than expected. So on the macro front, I guess today is a push. The Durable Good Report is a concern, but the other data is holding up.
The market has the headwind of weak earnings and guidance. Economic growth is slowing, but not at such an alarming rate to raise a red flag. GDP growth estimates will probably be revised lower. Currently consensus is looking for around 2.9% - 3.0% growth in 2015. The earnings reports are the key right now. Earnings have to improve or the market is going lower. The only way to justify this valuation is earnings growth, and right now we are not seeing any.
Michael Grove, CFA