Earnings season begins as
White House race heats up
Send a link to a friend
[October 08, 2016]
By Caroline Valetkevitch
NEW YORK (Reuters) - The roughly month-long
corporate earnings announcement season that kicks off on Wall Street
next week coincides with the final, most intense stretch of the U.S.
If a particularly strong or weak batch of earnings were to tip the
market in one direction, stocks could help determine investors' mood
heading into voting booths on Nov. 8.
Strategists in a recent Reuters poll mostly viewed a victory by Democrat
Hillary Clinton as more positive for stocks until year end than a win by
Republican Donald Trump, largely because her positions are well known.
But the race is still close and two presidential debates remain,
including one late Sunday, Oct. 9.
A perceived win by Clinton in the first debate on Sept. 26 briefly
boosted stocks, but did nothing to pull the benchmark S&P 500 index from
its sideways drift since early July. It is now 1.6 percent below its
historic high set in August. Some analysts say uncertainty surrounding
the election is adding to investor caution.
Earnings could move the bar for stocks more than anything else,
especially because of their higher-than-average valuations.
"If there's something that can help the outlook for earnings, then it's
going to be good news for the stock market. It is the most important
variable," said Hugh Johnson, chief investment officer of Hugh Johnson
Advisors LLC in Albany, New York.
"What's needed is something that's going to make this look undervalued."
The S&P 500's forward price-to-earnings ratio sits at 17, above its
long-term average of 15.
As earnings season kicks off next week, the hope among some investors is
that the period will mark an end to the year-long U.S. profit recession.
While analysts expect third-quarter earnings will show a 0.7 percent
decline from a year ago, that number is likely to move to the plus side
based on the typically high percentage of companies that surpass
analysts' profit expectations, Thomson Reuters data shows.
From the start of an earnings season to the end, the S&P 500 earnings
forecast has had a median gain of 3.4 percentage points since 2002, the
If that's the case this time around, third-quarter S&P 500 earnings
could end up with growth of about 2.7 percent, which would be biggest
increase since the last quarter of 2014.
The increase, however, may not be large enough to convince some
investors that stocks are ready for a late-year rally.
[to top of second column]
Traders work on the floor of the New York Stock Exchange (NYSE) in
New York City, U.S., September 28, 2016. REUTERS/Brendan McDermid
"I expect companies to beat expectations - they always do. Any way you
slice it, we're not going to see the growth that we were hoping for last
spring. It's not going to happen," said Brad McMillan, chief investment
officer for Commonwealth Financial in Waltham, Massachusetts.
Revenue for the past quarter is expected to have increased 2.5 percent,
which would be the first year-over-year sales increase for S&P 500
companies since the end of 2014. It also is likely to rise as companies
A lot could depend on energy results, which again are expected to be the
biggest drag on S&P 500 quarterly earnings.
U.S. oil prices averaged almost $45 a barrel during the third quarter,
not far from the average during the same period in 2015. Prices have
risen to nearly $50 recently and if that level can be sustained it could
boost forecasts from energy companies, Johnson said.
The recent sharp decline in the British pound versus the U.S. dollar
underscored lingering concern over Britain's late-June vote to exit the
European Union. A wide range of U.S. companies conceded in the last
reporting period they expect a hit but were unsure how deep it may be.
Among companies due to report next week are Alcoa as well as several top
banks: Citigroup, JPMorgan Chase and recently battered Wells Fargo.
(Reporting by Caroline Valetkevitch; Editing by Daniel Bases and James
[© 2016 Thomson Reuters. All rights
Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.