(By Rich Bieglmeier) Wall Street appears to be waiting for Friday's employment Situation report before committing to taking stocks too far in either direction. After that, earnings season begins next week guidance, more than eps, is likely to push the market definitively in one way or the other.
FactSet reports "For Q3 2012, 82 companies have issued negative EPS guidance and 21 companies have issued positive EPS guidance. If 80% (82 out of 103) is the final percentage of companies issuing negative EPS guidance for the quarter, it will be the highest percentage recorded by FactSet." That's saying something.
The research company points out "The estimated earnings growth rate for Q3 2012 is -2.6%. If -2.6% is the final growth rate for the quarter, it will mark the end of the eleven-quarter streak of earnings growth for the index."
Over at Citigroup, they are telling clients, "Half of the sectors are expecting negative growth from a year ago and 9 out of 10 sectors have experienced a decline in estimates for this upcoming reporting quarter."
With low expectations, it's more likely that surprises will be to the upside; however, if 3rd quarter earnings fail to clear the lowest hurdle, then investors could head for the exits in a hurry.
As for today, stocks could get off to a slow start as ABC News reports that Germany is suffering from "bailout fatigue" and may delay aid to Spain. If European traders react negatively to the news, then US equities could be affected by some spillover at the opening bell. Although, the ADP Employment Report at 8:15 am ET could offset or enhance a westerly wave across the Atlantic.
ADP has been fairly good indicator for what to expect from the Employment Situation report. The word is 140,000 new jobs were created – fingers crossed that it comes in a little hotter than that.
At 10 am ET, ISM non-manufacturing survey results will be released. While not as important as the Monday's manufacturing report, Wall Street will still react to a positive or negative surprise from the service sector reading. The consensus expectation is a score of 53.5 for September, down slightly from August's 53.7.
In our view, that's all that's worth watching for Wednesday.
Health Net, Inc. (HNT): Suggested Target: $27 Suggested Stop: $22.50
United States Natural Gas (UNG): Suggested Target $26 Suggested Stop: $20