Market Beat: Third quarter earnings preview
October 3, 2013
The main driver of stock prices is corporate earnings. Recently the market has been reacting to a variety of news items, including the debate in Congress over the budget and the debt ceiling, and whether or not the Fed will continue with its accommodative monetary policy known as QE, or quantitative easing.
It's hard to say when earnings season will start this year. Traditionally, Alcoa kicks off the corporate earnings season. This quarter, Alcoa will report on Oct. 8.
Alcoa was recently removed from the Dow Jones Industrial average and replaced by Nike. Nike reported their first quarter earnings on the 27th of September and had a strong report, earning 86 cents per share on revenues of $6.97 billion.
I'm not sure if Nike's report will unofficially kick off earnings season, now that it's a Dow component and Alcoa is out, but if so, they did open with a nice, solid report.
You may wonder why Nike is reporting first quarter earnings when we're heading into the third quarter earnings season. It is because they operate on a different fiscal year.
Even though Nike has just reported its first quarter's earnings, the indexes will consider them to be third quarter for the purpose of calculating the average earnings for the index.
The first of the Dow companies to report actual third quarter earnings will be JP Morgan on the 11th of October; maybe JP Morgan should be considered the first company to report, now that Alcoa is out of the Dow.
Companies release their earnings on a quarterly basis, and these reports are closely scrutinized by stock market participants for signs of growth. Lately, though, the economy has been in a slow growth mode, the stock market has performed well. Year to date the S&P 500 is up more than 18 percent.
Last quarter, earnings for the companies that make up the S&P 500 grew by about 2.5 percent, revenues grew by 1.9 percent. Banks and other financial stocks accounted for most of the earnings growth in the second quarter and other sectors of the economy were basically flat.
The earnings forecasts for this quarter have been lowering virtually every month. Right now the earnings forecast is saying that we'll see a growth rate of about 1.2 percent, which isn't very strong. That number has been revised downward from a rate of 7.0 percent back in February.
It will be interesting to see how the reports come out this quarter and what company will get the honor of unofficially kicking off earnings season going forward.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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