|
 Though there has been some selling in recent weeks, there's been no
panic dumping of stocks, even though forecasts for S&P 500
first-quarter earnings have tumbled since Jan. 1, thanks to the
surging dollar, falling oil prices and another severe winter. The
earnings season unofficially kicks off Wednesday with results from
aluminum company Alcoa <AA.N>.
Among some key early results, JPMorgan Chase <JPM.N> is due to
report next week along with other banks and General Electric <GE.N>.
First-quarter S&P 500 earnings are projected to have declined by 2.8
percent from a year ago, which would make the quarter the worst for
results since the third quarter of 2009, not long after the United
States emerged from the Great Recession, according to Thomson
Reuters data.
But investor sentiment has been boosted by optimism that the Federal
Reserve will continue to delay its first interest rate hike in
nearly a decade. The S&P 500 lost 1.7 percent in March but remains
up 0.8 percent for the year so far.
"The market is holding up remarkably well... all in the face of
earnings concerns and the fact that economic news is a little worse
than expected," said Robert Pavlik, chief market strategist at
Boston Private Wealth in New York. "It speaks to people's
expectations that the Federal Reserve is going to remain on hold at
least until September, maybe a little longer."
S&P 500 earnings typically beat lowered analysts' expectations, and
strategists said the unusually large drop in first-quarter forecasts
sets a low bar for companies to surpass.
Energy is expected to take the biggest hit this earnings period,
although analysts have cut projections for every sector.
The market is "not expecting much" from earnings this quarter, said
Joe Bell, senior equity analyst at Schaeffer's Investment Research
in Cincinnati, which means "the higher probability would be for an
upside surprise."
From the first quarter of 2008 to the fourth quarter of 2014, the
median difference between the initial earnings forecast in a quarter
and the final result is a gain of 8.5 percentage points, Thomson
Reuters data showed.
The drop in estimates has been well telegraphed, especially by U.S.
companies themselves.
If earnings do come in along the lines predicted by analysts, stocks
would look a bit pricey, but any positive surprises could result in
shares being reasonably valued. The S&P 500's forward
price-to-earnings ratio stands at 16.7, down from more than 17 in
recent weeks but roughly where it was at the end of 2014. The
historical average is 14.9, Thomson Reuters data showed.
[to top of second column] |
Outlooks from S&P 500 companies are the most negative since the
fourth quarter of 2013, according to Thomson Reuters data. Of the
128 outlooks from S&P 500 companies, 105 were negative and 17 were
positive.
Among those 105 warnings on the quarter, at least 69 companies cited
the stronger dollar as a headwind, making it the most common
complaint, according to a Thomson Reuters analysis.
A stronger dollar tends to dampen profits for U.S. multinationals
when overseas profits are translated back into dollars. The dollar
gained 9 percent against a basket of currencies in the first
quarter.
Priceline and Hewlett-Packard were among companies with the most
pronounced currency impact, the search showed.
"Our biggest short-term challenge is currency," Priceline's
president and chief executive, Darren Huston, said in the company's
Feb. 19 conference call, noting that more than 90 percent of
Priceline's business is in its international brands.
Just a handful of companies pointed to this winter's weather, which
brought heavy snowfall in parts of the country.
At least 11 companies cited lower oil prices as a negative, while 13
cited energy as a positive factor. No S&P 500 energy companies gave
quarterly guidance, which is often the case, but big predicted
declines in energy shares is the largest reason for the overall
negative outlook.
S&P 500 energy earnings are projected to have dropped 64 percent
from a year ago, Thomson Reuters data showed. U.S. oil prices are
down about 50 percent since the end of June.
Without energy, S&P 500 earnings for the quarter are forecast to
have risen 5.4 percent.
(Reporting by Caroline Valetkevitch; Additional reporting by Sinead
Carew, Noel Randewich, Ryan Vlastelica, Chuck Mikolajczak and
Rodrigo Campos; Editing by Linda Stern and Leslie Adler)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
