Tahoe-Truckee Market Beat: Third quarter earnings outlook
Special to the Sun
Third quarter earnings reporting season is just about to get into full swing. Alcoa will officially kick off Q3 earnings when it reports on Thursday, Oct. 8. Corporate earnings are the main driver of stock prices.
One factor that has been affecting earnings this year has been the strength of the US dollar. The strong dollar hurts earnings of multinational corporations that generate a substantial amount of their revenue denominated in a foreign currency. The US dollar has stayed strong throughout the year.
Another factor has been lower commodity prices. The low price of crude oil has hurt profits in the energy sector. Year over year earnings in the energy sector are forecast to decline by over 60 percent.
Personally, I like the drop in crude oil prices because it translates in to savings at the gas pump. According to the AAA, the national average gas price has dropped just over 1 dollar in the last year, from $3.297 to $2.29 as of Oct. 5.
One dollar per gallon is a nice savings for most consumers and frees up some dollars to be spent elsewhere.
Earnings for the S&P 500 are expected to decline by minus-5.1 percent for Q3, if the earnings actually drop this quarter it will be the first back-to-back quarterly earnings drop since 2009.
According to data from FactSet, the Telecom services sector is supposed to have the best rate of growth at 17.8 percent. Consumer discretionary should come in second with a gain of 10.3 percent.
The worst sector is forecast to be the energy sector with an earnings decline of minus-64.5 percent; if energy was dropped from the S&P 500, the index would be looking at earnings growth of 2.3 percent instead of a decline of minus-5.1 percent.
The Materials sector is also forecast to post an earnings drop due to weakness in metals and mining. The Materials sector is forecast to have an earnings decline of minus-13.7 percent year over year. Earnings for the Metals and Mining industry should be down minus-68 percent.
The S&P 500 closed out the third quarter with a drop of minus-6.94 percent and it was also down in the second quarter, posting a small decline of minus-0.23 percent. Year to date, the S&P 500 is down minus-6.75 percent as of Oct. 5.
Currently earnings are forecast to return to a growth mode in the fourth quarter of 2015 and revenues are supposed to return to growth in the first quarter of 2016.
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.