Germany’s Ifo Survey

It was a bad day for stocks yesterday, with investors focusing on the latest batch of disappointing earnings reports for the third quarter. Actually, investors seem to be more upset about disappointing revenues. So far, the misses have been greater and more widespread for revenues than for earnings.

I’ve been monitoring the situation in recent weeks by closely analyzing the global economic indicators, which have been mostly on the weak side. So I haven’t been surprised by the proliferation of negative revenues surprises. The question is, Where do they go from here? I estimate that S&P 500 revenues fell 0.7% y/y during Q3, reflecting slower global economic growth and strength in the dollar.

I think that will be a cyclical low because I don’t expect further weakness in the global economy, though growth is likely to remain slow. Admittedly, this morning’s weaker-than-expected German Ifo survey doesn’t support my relatively optimistic view. German business confidence index fell for the sixth straight month from 109.7 in April to 100.0, the lowest reading since January 2010. The current situation component declined for the fifth time in six months (by 10.1 points) to a 28-month low of 107.3. The expectations component was unchanged at 93.2, the lowest since May 2009. The expectations component correlates closely with German factory orders and production, and currently suggests further downside in both. The overall index tracks exports more closely; it indicates foreign demand slowing to a near standstill. An advance estimate of October’s purchasing managers’ index (48.1), measuring activity in manufacturing and services, showed Germany’s private sector contracted for a sixth straight month.

In addition, the global economy will be in bad shape in 2013 if the US falls off the fiscal cliff. I still expect that after the elections, Congress will postpone it until mid-2013. Contributing to yesterday’s drop in the stock market were stories in the financial press that Fed Chairman Ben Bernanke has told close friends that he won’t seek another term once his current one expires at the start of 2014. In any event, if Mitt Romney wins, it’s obvious he won’t be asked to stay. Can the bull market survive without Bernanke? I think so.

Today's Morning Briefing: Energizing the US. (1) Lots of industrial revolutions in the US thanks to the one in high tech. (2) Yergin says cheap energy is the real stimulus. (3) Nat gas output up 33% since 2006. (4) Electric utilities using almost 50% more gas. (5) US producing 1.0 mbd more oil than four years ago. (6) Fuel efficient. (7) Volatile gasoline prices plunging again. (8) Disappointing revenues. (9) Addicted to Bernanke. (More for subscribers.)