Tahoe-Truckee Market Beat: First quarter earnings preview
The first quarter is just about to come to a close, and earnings reporting will get going in the first few weeks of April.
At the close of 2015, the consensus forecast was that earnings growth would return to the stock market in the first quarter of this year. Since, several reporting companies have lowered their guidance, and currently the forecast is for an earnings decline of minus -8.7%. Revenues are predicted to decline by minus -1.1%.
If we do see some earnings decline this quarter, it will be the fourth consecutive quarter of earnings declines and the first time since 2008-2009 that we’ve seen corporate earnings drop for four consecutive quarters.
As of March 24, the S&P 500 was down minus -0.39% year to date. Another quarter of earnings decline will not be really good news for stocks, but the forecasts are for a drop and the expectations have been set fairly low.
According to FactSet, the Energy and Materials sectors are supposed to have the largest drop in earnings followed by the Financial sector.
The best performing sectors are forecast to be Telecom and Consumer Discretionary. The Telecom sector should have a growth rate of 13.2% and Consumer Discretionary is presently forecast to grow at 10%. In the Consumer Discretionary sector, Internet Retail and Auto Manufacturers should be the leading industries.
Growth in both earnings and revenue is supposed to occur in the second half of this year. Earnings are also forecast to drop in the second quarter by minus -2.4%, but growth is expected to return in the third and fourth quarters. The forecast growth rate for the third quarter is +3.9%, and for the fourth quarter of this year, earnings are supposed to grow at a +9.0% rate.
I’ll provide updates as the earnings reporting season gets going in the next month. Corporate earnings are the main driver of stock prices.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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