Skip to main content

Markets just saw the best earnings season since the financial crisis, and nobody cares

Even mildly pessimistic guidance has investors spooked amid macro headwinds

Earnings for S&P 500 companies grew by 25.8% in the third quarter, the strongest performance since the third quarter of 2010, when companies benefited from very attractive, recession-era comparable earnings.
Nevertheless, from the start of earnings season to the close of trade Friday, the S&P 500 index SPX, +0.22% has fallen 2.7%, the Dow Jones Industrial Average DJIA, +0.49% 1.1%, and the Nasdaq Composite Index COMP, -0.15% 5.5%.

“Third quarter earnings were outstanding both on earnings and revenue growth, the percentage of companies beating expectations, and the magnitude of those beats,” Michael Arone, chief investment strategist at State Street Global Advisors.

But the selloff that accompanied these announcements is a testament to the fact that “Wall Street doesn’t care what you’ve done in the past. It’s all about what you’re going to do next quarter,” Arone said.

The pairing of rosy earnings announcements and stock market declines can be explained by several big-name companies issuing cautious guidance going into the fourth quarter, Tom Essaye, president of the Sevens Report.

“The market doesn’t even need most companies to issue weak guidance to trigger a selloff in this environment,” Essaye said, “It’s the top hundred most widely held companies that mostly drive markets.”
Essaye points to Caterpillar Inc.’s CAT, +0.42% earnings as a microcosm of the market overall. The company beat expectations on earnings and revenue, but its guidance indicated that the construction-equipment manufacturer is already experiencing rising input costs as a result of new tariffs on steel and other products. Shares fell nearly 13% following its earnings release before subsequently recovering.

“These sorts of details play into existing fears in the market about rising costs and tariffs, which will more than double in January,” if U.S. and Chinese officials can’t strike a trade deal before the end of the year”.

Another bellwether firm that issued disappointing guidance was Apple Inc., AAPL, -1.71%  which decided to cease reporting the number of iPhones and other products it sells, leading BMO Capital Markets analyst Tim Long to lament that the “lack of transparency is disappointing, and will likely limit investor’s visibility into the company. He continued, “Our view remains that units may not grow at all going forward.” Apple shares are off 11.6% since the end of October.

Even more worrying is the guidance being reported by Apple suppliers. AMS AG,AMS, +3.33% Lumentum Holdings Inc, LITE, +1.07% and Qorvo Inc.QRVO, +1.78% all warned of lower than expected sales this week, feeding into the negative sentiment toward America’s most valuable company in particular and the tech sector in general.

These stocks were joined by a diverse set of companies from 3M Co.MMM, +2.00% to Qualcomm Inc., QCOM, +0.88% which spooked investors with less-than-encouraging outlooks.

Macro headwinds, including trade tensions, rising interest rates, a stronger dollar, and slowing growth abroad have also helped to trigger a pivot towards negative sentiment in the market. “This is where peak earnings growth comes in,” Essaye said, arguing that the stock market has been supported this year by two pillars: strong economic growth and strong earnings growth.

“The market knows that earnings growth has peaked, and so earnings growth can’t be a reason any longer to ignore the macro picture,” he said.
The evidence of this fallen pillar can be seen in the performance of the major indexes in the past week, where volatility reigned supreme while stocks ground lower. The Dow fell 2.2% over the past five trading days, while the S&P took a 1.6% hit, and the NASDAQ fell 2.2%.

With 93% of S&P firms having reported earnings for the third quarter, according to Fact Set, investors’ minds will be laser-focused on looming macro threats, as well as economic data and comments from Federal Reserve officials.

While U.S. markets will be closed Thursday for the Thanksgiving Day holiday, there will be much data for investors to digest in the week ahead, starting with the National Association of Home Builders Index on Monday at 8:30 a.m. Later that day Federal Open Market Committee member and New York Fed President John Williams will participate in a moderated question-and-answer session in New York.


Tuesday will bring data on both new building permits and housing starts, further informing investors on the state of one of the U.S. economy’s most depleted sectors. Wednesday will feature several major reports, including data on durable orders, initial jobless claims, the Conference Board’s Index of Leading Economic Indicators, and the University of Michigan’s consumer sentiment gauge.

According to MarketWatch
www.ecocropsinternational.com

Comments

  1. Hello everyone..Welcome to my free masterclass strategy where i teach experience and inexperience traders the secret behind a successful trade.And how to be profitable in trading I will also teach you how to make a profit of $12,000 USD weekly and how to get back all your lost funds feel free to email me on(brucedavid004@gmail.com) or whatsapp number is +22999290178







    Hello everyone..Welcome to my free masterclass strategy where i teach experience and inexperience traders the secret behind a successful trade.And how to be profitable in trading I will also teach you how to make a profit of $12,000 USD weekly and how to get back all your lost funds feel free to email me on(brucedavid004@gmail.com) or whatsapp number is +22999290178

    ReplyDelete

Post a Comment

Popular posts from this blog

Bitcoin sees massive sell off- plummets to $5,355

Trumps biomass policy

In 2007 the USA Federal Government passed the US Renewable Fuel Standard which required ethanol blending with domestic oil in large quantities with frequent increases in amounts of ethanol being used.  The bill was passed to reduce the USA carbon footprint and increase the amount of renewable biofuel being used in the USA. Under the Trump administrations, they have been far less supportive of the biomass blending mandate, granting biofuel waivers to major industry players and allowing the trading of biomass credits to develop. Despite the less than active support for biofuel domestically Trump has been pushing his trade negotiators to get big concessions from his Chinese counterparts by asking them to lower their tariffs on biomass in particular biofuel. China's ethanol demand is expected to grow nearly sevenfold as the country prepares to introduce E10 fuel throughout the country next year. E10 fuel is a fuel using 10% ethanol and 90% petrol. U.S. trade negotiato...

European stocks were very mixed up on Monday morning as investors read news on different political events.

Looking at some individual stocks, Vopak rose 5 %after reporting higher results, which wasn't expected. Siemens healthcare also jumped 2.7 % on its current earnings release. European banks were under scrutiny after the latest results of stress tests. Barclays bank and Lloyd's Bank had the lowest capital ratios in the scenario. According to KPMG, this was due to Newly set accounting rules and high levels of unsecured debts Both stocks were pretty much flat. The European Stoxx 600 was flat as well with the various sectors taking different directions. Financial services and industrial Services were down by about 0.6 %, whereas telecommunications had risen by almost 1 %. Italian banks were under pressure in early deals this morning. Though they eased past them. Analysts believe the macro assumptions for Italy were a little too optimistic. Banco BPM and Intesa Sanpaolo dropped about 2 %. Ubi Banca fell 1.4 %. Meanwhile, eurozone finance ministers are gathering in Brussels fo...