Earnings, Retail Drag Market

Markets are weak on a couple of concerns today.

1) Lower earnings estimates. The downward earnings revision from Citi , Washington Mutual and Merrill Lynch last week are really having an impact on Q3 earnings revisions. Seven or eight days ago, we were expecting 3.9% earnings growth for the whole S&P 500; today it is down to 0.7%, the lowest growth in five years, and it may still go negative.

The bulls, or course, argue that this is the inevitable result of the "throw in the kitchen sink" mentality of financials, which are aggressively marking down impaired assets, and that this sets up for a nice gain in the fourth quarter. And those estimates are still holding up: analysts expect 11.0% earnings growth in Q4 from the S&P 500.

2) Meantime, retailers are weak today. The release of September comp store sales on Thursday and September Retail Sales this Friday is causing considerable anxiety. First, there's the weather--unseasonably warm. Second, comps are tough. Third, the Street believes that economic weakness may still be accelerating and spilling over to the consumer, despite the strong jobs report. This argument now has some credence due to the comments from Ryder , which lowered its earnings estimates this morning, saying "economic conditions have softened considerably in more industries beyond those related to housing and construction."

Ryder, remember, gets a good part of its business from truck leasing to small and medium sized businesses, and as the demand for goods shipped ebbs and flows the business of truck leasing becomes a good barometer of economic demand. It was this commercial leasing and used truck sales business that was notably weak for Ryder.

As a result, retail analyst comments have been gloomy today. "Promotional cadence remains high across the board," says Lehman. "September likely fell short of expectations," says Wachovia.

Will tough September results put the quarter in jeopardy for retailers (remember, the quarter ends in October for most retailers)? The answer is, it might. The good news is that expectations are now low for retailers. So expect selling into Thursday's numbers; if they are in any way stronger, you'll see a rally.

3) Meanwhile, airline stocks have rallied five of the last six days, as oil is having trouble staying over $80, and on fairly good traffic reports.

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