World markets  |  October 09, 2012 14:29:08

Earnings season in the background fiscal cliff

Apple helped to shares in 2Q

Earnings season for the fiscal third quarter unofficially begins today after the closure of the stock market, when quarterly results publish aluminum producer, Alcoa. Since the company is expected to gain only one cent per share, compared with profit of 15 cents a year ago. This is a very significant drop in profits, but when we look at consensus for the entire index SP500, it's not the only surprise.

Consensus to Thomson Reuters expected profit decline for SP500 index by 2.4% on an annual basis, while earnings should be lower by 0.1%. At the beginning of June, analysts expect profits increase by 2%. Who saved the last quarter Apple with its excellent results to the publication of the profit decline, this quarter was the largest company in the world will not save the index and are expected to decline in profit for the first SP500 index from 3Q 2009, that is from the time when the economy as awell as financial markets are recovering from the financial crisis, the strongest since the Great Depression.

At that time, economic growth reached only a low level of 1.4%. But we recently found that after review of the massive growth in 2Q we have seen in the previous quarter growth of only about 1.3%. For 3Q consensus growth are even worse and consensus Thomon Reuters speak only about the number 0.9%, while the data can even worsen, and there is indeed a fiscal cliff and early next year will rapidly okresané State spending and tax increases. Prospects of the companies certainly will not be healthy.

The fact that the company's future not see too good, we've already seen over the past weeks, when the company revised its outlook for profits and revenue, in order to be closer to the consensus of analysts. Current is the ratio between the negative and positive business prospects also the highest since 2009.On average, the ratio moves to 2.3, no current is already n 4,3 (companies prefer to publish bad results and surprises Ahead nechávajú on a conference call after the results).

Shares have weaker data ignored

The stock market but these reports did not respond too, since it trafil Cupid arrow liquidity, when the Fed announced QE3 + and came with unlimited ECB bond purchases risk countries. Thanks to stabilizing the situation in the debenture market in Europe and lacnej liquidity the Fed, which makes the shares more attractive before the bond, we have seen the growth of the said shares, despite reductions in the expected profits.

Profit revisions were based on weak macroeconomic results of which began to improve during the past weeks. Greatest number of negative changes Perspectives companies (pre-announcement) came from the technology sector, consumer consumption of holdings and the additional health care.

Compared to the first July of view, it is therefore the largest revision of the estimates during technologickom GROWTH profit sector (revision from 13.1% to 2.3%). The biggest profits are expected to decline in future energy and basic materials and because of the decline in oil and natural gas as well as other commodities. Also fall in demand for commodities due spomaľujúcej the economy is manifested also očakávaniach profit declines. The expectations for this decrease are also see the results of the above mentioned, Alcoa.

Even though these data do not mean that earnings season will be bad. Expectation of weak results we have seen for example in 2Q 3Q 2010 or 2011th But historical data shows that, on average, 62% of companies used to it supersede the expectations of profits. Analysts are in fact these days become heavier and pesimistickejší company as may subsequently be overcome consensus. For example, last quarter outstripped expectations of 67% of firms.

Risk is of course that analysts under-reduced profits as well as the stronger dollar. Green banknote is 4.8% stronger than a year ago. Also revising estimates of growth in China and Europe can act that earnings season will be worse. Due to the zhoršujúcemu globálnemu vision, companies must be careful also on the prospects that are likely to be much wider than usual.

Earnings season in the background fiscal cliff

Moreover prospects will certainly be pursued even earnings. Improved profits companies can do to create redundancy, reduce costs, poor odkupom shares and other strategies, no firm can not create income. In the last four quarters, but rather income stagnated. Currently the majority of sectors are expected to increase revenues by 1-4%, a significant reduction of 16% is expected in the energy sector.

Overall, earnings season will probably be the last season, beat well with a rate above 60%. Season should start positively, since it was first waiting for large banks, which should be disclosed excellent results. Then, on the advice but also add large international corporations, where the results could be worse. Season well be volatile. On the background it will closely monitor policy in the U.S., since fiscal cliff is the stock market is still a huge risk.

Date Company Estimate / share
Oct 9 Alcoa Inc. $ 0.01
Oct 9 Chevron Corp $ 3.11
Oct 12 JPMorgan Chase $ 1.19
Oct 12 Wells Fargo & Co. $ 0.87
Oct 15 Charles Schwab Corp $ 0.17
Oct 15 Citigroup $ 0.97
Oct 16 Coca-Cola Co. $ 0.50
Oct 16 Goldman Sachs Group $ 2.42
Oct 16 Intel Corp $ 0.50
Oct 17 State Street Corp $ 0.96

Author: John Benaki | TRIM Broker, as | Trading on exchanges TRIM Broker

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