ADP Automatic Data Processing Inc

Stocks are up - really up - to levels not seen since the fall of 2007. We don't want to remember what came after 2007, but it's going to be 'different this time'. It always is, isn't it?

The market represents the collective wisdom of all investors. And it is telling us that it may be cloudy right now, but there are bluer skies on the horizon. The economy may not be growing that much; there may not be that many jobs and companies may not be able to increase their profits that much, but don't let that bother you at all. The market is saying that in just a few short quarters, everything will start looking up. The economy will be humming and corporate profits will be up again. This has everybody excited, mom and pop investors are back, and nobody wants to be left behind.

It's funny how funds kept going out of stocks for more than four years, but have now finally found the sense to 'get back in the game' just at the 'right' moment. Back in the day, they used to consider this very fact a contrarian indicator. But it's 'different this time'.

I digress. I am supposed to tell you about Q4 earnings, even though nobody seems to care much about earnings anymore. Unless of course it's Apple's (AAPL) earnings, then everybody cares. Apple's fairytale run through September last year seems so unbelievable in hindsight. But everyone gets it now – it seems so obvious, as it always is. What if we are on a similar journey with the entire stock market now? I can almost hear the explanations that will be coming our way once that happens - of how the market gains were unsupported by underlying fundamentals. But that's for another day; no point spoiling the fun at this stage.

Before you start accusing me of giving you a misleading headline, let me give you the details of where we stand with the Q4 earnings season and what's on deck for this week.

We have crossed the halfway mark in the Q4 earnings season - with results from 254 S&P 500 companies already out as of Friday, February 1, 2013. Please note that these 254 companies are more than just 50.8% of the index's total membership - they account for 65.1% of the index's total market capitalization and bring in 68.7% of all Q4 earnings. In other words, while there are still plenty of reports to come, we have seen more than two-thirds of Q4 earnings already.

This week brings in results from 471 companies, including 88 S&P 500 members. This includes operators like Yum Brands (YUM), Disney (DIS), Time Warner (TWX), Chipotle (CMG), and many others. By the end of this week, we will have Q4 earnings reports from 342 S&P 500 companies or 68.4% of the index's total membership. But we have a fairly good idea already of how the Q4 earnings season has turned out.

The reality is that the Q4 earnings season has turned out to be not as bad as many of us suspected. Leaving aside anemic earnings growth, on most other metrics the fourth quarter reporting season is quite good. Not only are the ratio and magnitude of surprises better than the previous quarter and comparable to the last many, but the tone of management guidance has also been on the reassuring side.

Total earnings for the 254 S&P 500 companies that have come out with Q4 results are up +2.7% from the same period last year, with 66.1% of the companies beating expectations with a median surprise of +2.9%. There is no growth on the revenue side (actually up +0.03%), but plenty of companies came ahead of revenue expectations – the revenue beat ratio stands at 60.6% and the median revenue surprise is +0.9%. In terms of growth, the 'beat ratio' and median surprise, the Q4 season thus far is better than what this same group of companies did in the third quarter and in line with the average for the last four quarters. We should keep in mind, however, that the Finance sector is keeping the aggregate growth rate in the positive column. Excluding Finance, total earnings would be down -1.3% while total revenues would be down -0.9%.

The earnings growth of +2.7% for the 254 companies is better than what these same companies reported in the third quarter, but is lower compared historical averages. The most notable variance relative to the third quarter is in the performance of the Basic Materials and Energy sectors. With Exxon (XOM) and Chevron (CVX) results already out, we can safely say now that the Energy sector will have positive earnings growth this quarter after negative growth for the last several quarters. Total earnings for the 45.2% of Energy sector companies that have already reported Q4 results (these companies account for 85.3% of the sector's total Q4 earnings) are up +7.1%. Total earnings for the Basic Materials sector are up +20.7%, which follows a -25.3% decline in the previous quarter and a 4-quarter average earnings drop of -21%.

The composite growth rate for Q4, where we combine the reports that have come out with those still to come, is +1.6% for earnings and +0.4% for total revenues. These would be better than the flat finish in the previous quarter, but not in any material sense. In fact, earnings growth essentially flat-lined in the last two quarters of 2012. Expectations for the coming quarters have come down, but they still represent a meaningful improvement from what we saw in 2012. Total earnings are expected to be down -2% in the first quarter, up +4.4% in the second quarter, up +7.6% in the third quarter and up +12.4% in the fourth quarter of 2013. For full years, total earnings are expected to be up +7% in 2013 and +11.5% in 2014.

(For a detailed look on how the fourth quarter earnings season has fared thus far, please check out our weekly Earnings Trends report)

Monday-2/4

• We have the December Factory Orders coming out in the morning, with expectations of +2.8% gain after the 'unchanged' reading in November.
  
• The key earnings reports include Gannett (GCI), Humana (HUM) and Simon Property (SPG) in the morning and Yum Brands (YUM) after the close.

Tuesday -2/5

• We will get the January non-manufacturing ISM index in the morning, with expectations of a modest pullback from December's 55.7 level.
  
• We have a busy day on the earnings front, with Archer Daniels Midland (ADM), Automatic Data Processing (ADP), and Eaton Corp (ETN) reporting in the morning, while Disney (DIS) and Chipotle Mexican Grill (CMG) will report after the close.
  
• Zacks ESP, our proprietary leading indicator of earnings surprises, is showing ADM coming out with an earnings beat.

Wednesday-2/6

• Cummins (CMI), Time Warner (TWX), and Ralph Lauren (RL) are the key reports in the morning, while News Corp (NWS), Visa (V), and Allstate (