Stocks continue to chop around as we head toward a lineup of huge events in the coming weeks. First, we have third quarter earnings reports underway. Remember, last quarter companies reported into lowered expectations. And they beat at about the same rate they historically beat–about 70% of the time. But conveniently, they accompanied those better earnings with downgrades on the third quarter outlook.

They lower the bar. Wall Street lowers the bar. And they set the table for more earnings beats for the third quarter. When we came into last earnings season, the financials where the only S&P 500 sector in the red for the year (down 5% at the time). Financials are now around flat for the year. Real estate and health care stocks have given up gains, so have utility stocks, from +20% in July to +10% year-to-date heading into third quarter earnings.

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Among the movers in the past quarter, technology stocks have jumped from +5% to +10% on the year. Interestingly, when we walked through the earnings picture last quarter, we talked about the earnings beats that we’d already seen from Microsoft, Intel and Qualcomm.
Apple was expected to be the big drag on the sector’s earnings from that point. But I also said this: “the last time Apple reported two consecutive quarters of year-over-year declines was mid-2013. The stock bottomed in that period. Carl Icahn disclosed a stake and called it ‘extremely undervalued.’ The stock nearly doubled over the next 15 months.”

The company did indeed report a second consecutive quarter of year-over-year earnings decline in July. But it crushed estimates. The stock took off from $96 and trades today at $117. The consensus earnings estimate for Apple, which reports on October 25, is $1.64–which would be a third consecutive year-over-year decline. The recent revisions to that estimate have been down (not surprisingly), which sets up for a beat.
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