Will the S&P 500 Miss the Earnings Estimate Again?

   Schwaben Blog

October 09, 2015

Weekly Statistics:

Today Week Ago Year Ago
09-Oct-15 02-Oct-15 09-Oct-14
S&P TSX 13,964 13,340 15,086
S&P 500 2,015 1,951 1,906
DJIA 17,084 16,472 16,544
OIL $49.49 $45.63  $83.58
USD vs CAD 0.7725 0.7507 0.9062
Gold $1,156 $1,137  $1,225

The minutes from FOMC’s September meeting were recently released and they clearly indicated that the members of Federal Reserve were more inclined towards raising the interest rates but did not do so because of fears of global slowdown. According to the minutes of the meeting, “ Participants anticipated that recent global developments would likely put further downward pressure on inflation in the near term; compared with their previous forecasts, more now saw the risks to inflation as tilted to the downside”. Although this led to sharp correction in the equity indices but the overall sentiment since the last meeting has greatly improved. Investors seem to have discounted the probability of a rate hike in October or probably even in December and a rally of around 4 percent (week-over-week) followed across the major indices of the US and Canada, but it does not mean that the outlook is certainly positive for equities. Earnings drive stock prices and with valuations at historical highs, it will take decent to strong earnings for this bull market to continue. According to FactSet, for Q3 2015, the average estimate for earnings decline is -5.5 percent for S&P 500. If the index reports a decline in earnings for Q3, it will mark the first back-to-back quarters of earnings decline since 2009. Only 5 percent of the S&P 500 companies have reported their earnings till now and many heavyweights like Intel, Johnson and Johnson, Kinder Morgan, JP Morgan etc. are reporting next week. Of the companies that have already reported their earnings, consumer driven companies like Nike, Costco have delivered strong results but industrials like Alcoa have disappointed the investors.  Slowing Chinese economy and a strong dollar could again be made the scapegoats and many companies have already cited a stronger dollar to have a negative impact on their Q3 earnings.

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