Wall Street expects a 3.4 percent decline in earnings for the S&P
500 <.SPX> for the quarter. Estimates have already fallen for 9 out
of 10 of the benchmark index's sectors so far this year, according
to Thomson Reuters data.
S&P revenue is expected to fall 2.8 percent for the quarter, led by
steep declines in the energy and materials sectors. As companies
tend to revise guidance around the end of the quarter, estimates may
become even less optimistic.
"Analysts will likely be pulling in their reins going into the
quarterly reports and the pre-announcement season. This could happen
fairly quickly," said Tim Ghriskey, chief investment officer of
Solaris Group in Bedford Hills, New York.
The dollar index <.DXY>, measuring the greenback against a basket of
major currencies, has risen 0.8 percent so far this quarter after
falling 2.9 percent last quarter. Ghriskey sees the currency's
strength hurting the competitiveness of U.S. exports against local
products overseas and imports here, resulting in shrinking revenue
and earnings for U.S. multinationals.
In addition, demand is likely slower in many overseas markets with
slowing growth in China and recessions in Brazil and Russia hurting
both revenue and earnings.
Jim Paulsen, chief investment officer at Wells Capital Management in
Minneapolis, says that since the majority of S&P companies tend to
beat earnings estimates every quarter, he will focus more on revenue
than the bottom line, which can be tweaked with cost cuts and share
buybacks to beat estimates.
But Paulsen is not optimistic about the coming quarter.
"It seems clear to me that top-line sales results will be a little
disappointing again," he said. "If you look at what's going on in
global economies, it doesn't paint a real good picture of what
top-line growth will be like. The question is: 'How much of that is
already factored in?'"
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U.S. telecommunications <.SPLRCL>, which is mostly insulated from
global markets, is the only S&P sector that has shown improving
estimates for both third-quarter earnings and revenue.
With crude oil prices falling sharply, the energy sector <.SPNY> is
faring the worst, with current expectations for a 62 percent
earnings decline and a 33 percent revenue drop.
Analysts expect the materials sector <.SPLRCM> to report a 11.8
percent earnings decline due to falling commodities prices and a
10.4 percent revenue drop. They see earnings for industrials
<.SPLRCI>, which have big overseas exposure, falling 4.9 percent and
revenue falling 5 percent.
Many investors hope the equity market becomes less volatile after
August's sharp swings. But earnings weakness could make jittery
market participants question valuations all over again.
"A lot of people think the market will come back. If we see
fundamentals that challenge that story, that could be a very
significant part of this earnings season," said Paulsen.
(Reporting by Sinead Carew; Editing by Dan Grebler)
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