Commentary, Paul Ebeling On Wall Street
$SPY, $AA
Wall Street analysts’ expectations for Q-2 US earnings that begin Wednesday are at rock-bottom marks, and many companies could beat forecasts. That may set the US stock market for gains in the weeks ahead.
Analysts’ estimates for Q-2 US earnings are down sharply since the beginning of this year, concerns that a strong USD will pare the profits of the US multinationals and expectations that earnings of energy company will drop for a 3rd straight Quarter because of low Crude Oil prices.
With Alcoa (NYSE:AA) set to kick off the results season this week, participants see a 3 % projected drop in benchmark S&P 500 earnings from Y 2014, which would be the 1st profit decline since Q-3 of Y 2009.
Recall that a similarly dismal forecast from analysts for Q-1 earnings proved overly pessimistic, and S&P 500 companies ended up with a profit gainer of 2.2%.
That action has caused some strategists to expect similar good news in some sectors in Q-1, which could boost Wall Street stocks.
Should profits surprise to the Northside that would convince Wall Street that the US does not have a negative growth problem, that things are better than thought, that should be positive for stocks.
Some Wall Street analysts expects massive beats again in the energy stock sector in Q-2, as seen in Q-1. Excluding the energy sector, S&P 500 earnings are expected to be up 4.9% from a year ago.
Q-2 profit picture has been overshadowed by concerns about the debt crisis in Greece, now Greece has voted No, and nobody knows what is going to happen in the Eurozone, some say, Europe is dying.
The S&P 500 is down about 1.5% since the 19 June close, and all 3 US major market indexes posted losses in June.
US companies have offered grim outlooks for earnings, with negative forecasts for Q-2 outpacing positive ones by 4-to-1, compared with 5.7- to-1 in Q-1.
Those grim expectations are blamed on the impact of a strong Buck. .DXY declined 2.9% in Q-2, following a 9% rise in Q-1 in the first. A stronger USD makes it harder for US companies to compete overseas.
The semiconductor index lost 8.7 % in June, more than 4X the S&P 500’s 2.1% decline.
Tech companies have issued more negative outlooks than any other S&P sector, or 24 out of 97 so far from S&P 500 companies.
Financials are projected to a 14.8% in Y-Y earnings, the biggest of any stock sector.
Energy companies in the S&P 500 are forecast to see the biggest drop in profits by far from a year ago, by 63%, similar to declines projected for Q-1.
All of that means that the ultra-low forecasts makes it easier for companies to beat. We will soon see.
Have a terrific week.
Paul Ebeling
HeffX-LTN
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