World Hurting U.S. Revenues, But U.S. Economy Holding up Earnings

By Thursday, November 1, 2012

U.S. EconomyThere are still a lot of earnings reports hitting the wires, and there’s a trend in the numbers. The global economy is dragging down U.S. business conditions, which are actually showing improvement. The stock market is down, but it’s not out yet.

Currently, shares in Apple Inc. (NASDAQ/AAPL) are leading the stock market lower. Shares in Amazon.com, Inc. (NASDAQ/AMZN) and Google Inc. (NASDAQ/GOOG) are down a solid 10% from their highs. Without upward price momentum from these market leaders, the broader stock market is going nowhere.

I still think the stock market is headed lower over the near term, but that it might bottom out around 1,350 on the S&P 500 Index. What third-quarter earnings season has shown is that companies with large overseas operations are hurting relatively stable earnings results from U.S. operations. NIKE, Inc. (NYSE/NKE) represents this trend both operationally and on the stock market. The company’s stock chart is below:

Nike Inc Chart

 Chart courtesy of www.StockCharts.com

From what I’m reading, large-cap companies are reporting stability and even some growth in their U.S. operations. Colgate-Palmolive Company (NYSE/CL) has shown strong resilience in its earnings reports, but like many other multinational companies, operations in Europe are hurting the bottom line. Colgate-Palmolive’s stock chart is below:

Colgate-Palmolive Co Chart

Chart courtesy of www.StockCharts.com

So, while the stock market is right at the point of breaking its 100-day moving average (MA), expectations for fourth-quarter earnings are minute, but not in decline. With stability in the eurozone and China, a recovering U.S. economy has the potential for fourth-quarter earnings to surprise to the upside.

Investor sentiment isn’t that great right now, and third-quarter earnings season will soon be at an end. But there is an underlying strength to U.S. corporate earnings that you can garner from large-cap companies; the resiliency is coming from the U.S. economy. There are a lot of headwinds to be dealt with over the next six months, but according to the earnings results, the sky isn’t falling quite yet.

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About the Author, Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »