Is S&P 500 set for another decline in quarterly earnings?

    Schwaben Blog

January 15, 2016

 

 

Weekly Statistics:

  Today Week Ago Year Ago
  15-Jan-16 08-Jan-16 15-Jan-15
       
S&P TSX 12,073 12,445 14,384
S&P 500 1,880 1,922 2,044
DJIA 15,988 16,346 17,780
OIL $29.70 $32.88  $68.86
USD vs CAD 0.6889 0.7093 0.8503
Gold $1,089 $1,104  $1,174

 

Equity markets in the US closed sharply lower on Friday, locking in the worst 10-day start to a calendar year ever, as oil prices plunged and investors worried about slowing growth in the U.S. During the intraday trading, the S&P500 broke the August 24, 2015 low of 1,867 but closed at 1,880. The slowing growth in Chinese economy and correction in oil prices are the main reasons for this rout in equity markets. Now that the global sanctions have been lifted off from Iran and Russia continues to pump more oil to support its flagging economy, oil prices are expected to drop further below their current level of $29. While about $21 billion have been pulled out of equity funds in the past two weeks, the outflow pales in comparison to withdrawals of $35 billion during the August 2015 selloff and $90 billion in August 2011, back when the market was mired in the European sovereign debt crisis. The earnings season for Q4 2015 has already kicked off and 6% of the companies in the S&P 500 have already reported their earnings. Out of those, 78% have reported earnings above the mean estimate and 47% have reported sales above the mean estimate. For Q4 2015, the blended earnings decline is 5.7%. If the index reports a decline in earnings for Q4, it will mark the first time the index has seen three consecutive quarters of year-over year declines in earnings since 2009. While the US economy is growing at a decent pace, the slowing Chinese economy and falling oil prices could bring further correction to equity markets in the short term.