Tahoe-Truckee Market Beat: Fourth quarter earnings update
February 2, 2016
We're just about halfway through earnings season, and so far the results have been in line with the expectations. The forecast was for earnings to decline over 5 percent this quarter.
With over 40 percent of the S&P companies reporting already the decline has been 5.8 percent. According to data from FactSet, 72 percent of reporting companies have reported earnings above the mean estimate, but only half have reported sales above the mean estimate.
Several major companies will be reporting earnings this week, including Alphabet, the parent company of Google, Exxon Mobil, Pfizer, Mattel, General Motors and one that's popular at the ski resorts, Go-Pro.
This will most likely end up being the first time since 2009 that we've had three consecutive quarters of earnings decline. Earnings are supposed to start growing again in the first quarter of this year.
As predicted, the Telecom sector is leading with the highest growth rate at +28.1 percent, and the Energy sector has been the worst performer with a decline of -78.6 percent.
AT&T has been leading the Telecom sector. The only industry reporting positive earnings growth in the Energy sector has been Oil and Gas Storage and Transportation, with a growth rate of +32 percent. The worst performing industry in the sector has been Oil and Gas Exploration and Production, which is down a whopping -177 percent.
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Stocks are not off to a very good start this year. The month of January just closed out and the S&P 500 dropped -5.07 percent in January. It had been faring worse, the final trading day of the month saw the market jump +2.48 percent in one day as the Bank of Japan announced a stimulating negative interest rate policy.
The January Barometer is a commonly referred to stock market indicator that says that the market should follow January's performance for the remainder of the year. It's another one of those old stock market sayings that doesn't have much real value. Actually it worked pretty well in the 35 years from 1950 to 1985, but has been about 50/50 as a predictor for the last 30 years, no better than a coin toss.
The main factors driving the market this year have been the slowdown in China, the strong US dollar and the low price of crude oil. We'll have to see how the rest of the earnings come in this quarter and if we can get back on track for positive earnings growth next quarter as forecast.
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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