The peak of the US June quarter earnings season will be reached this week with around 172 S&P 500 companies due to report – with big drug companies and giant energy groups, along with Facebook dominating the headlines, but watch for more talk about the negative impact of the US dollar.
After hitting top gear last week the US earnings season continues along the same vein this week.
But watch for the weaker results – Caterpillar last week was a big surprise as it was whacked by the combination of weak demand in China and the impact of the stronger US dollar.
Because investors are now worried about these weaker results and what they signal, the susprises on the downside will have a bigger adverse impact than the gains – witness the way Apple’s relatively weak figures offset the positive boost from the week before and from Amazon last Friday.
Facebook could set the trend this week when it reports on Wednesday, US time.
It has to do better than Apple (and as well as Amazon) in reporting its June quarter figures to offset the negativity around tech stocks (and industrials).
The size of the increases in Facebook’s revenue, especially from mobile, will have to be a shock on the upside, otherwise nervy investors will sell off techs again.
The big oil groups will be hit by the strength of the dollar and the sharp rise in oil price sin the quarter (but they will still be much lower than a year earlier).
Thomson Reuters estimated on Friday that 70% of S&P 500 companies have reported earnings above analyst expectations, topping the 64% average beat rate since 1994.
However a just 53% have topped revenue forecasts, below the 61% average beat rate since 2002 with the stronger US dollar blamed.
FactSet reported at the weekend that "of the 187 companies that have now reported results, 76% have beat consensus EPS estimates, ahead of the one-year average of 74%. In the aggregate, companies are reporting results that are 4.6% above expectations, just ahead of the 4.5% one-year average positive surprise rate.”
Reporting this week will be Shell, BP, Exxon Mobil, Facebook, merck, Pfizer, Chevron, Twitter, Ford, Gilead Sciences, DR Horton, Mastercard, Northrup Gruman, Whole Foods, ConocoPhillips, Wynn Resorts, UPS, Goodyear, Garmin, Colgate-Palmolive, Expedia, Iron Mountain, Time Warner and Procter and Gamble.
