Weak reports from US oil and gas and retailers will be a feature of the June quarter earnings season which kicks off this week.
No energy or retailers are down to report this week as seven S&P 500 companies are due to report, led by three of the country’s biggest banks, JPMorgan Chase, Citigroup and Wells Fargo.
The trio of banks due to report on Friday night, Sydney time and while the results will be solid, trading income may not be as low as previously though following the outbreak of the taper tantrum in late June.
All three results will give the market a health check for an important sector for investor confidence.
They all passed the Fed’s latest stress tests and will confirm capital management programs including higher dividends and share buybacks.
Outside of finance, Delta and Pepsico are among the non-bank companies slated to report results next week.
The results from Delta midweek and then Wells Fargo on Friday will be of interest to Warren Buffett’s Berkshire Hathaway which is the largest shareholder in both companies.
Delta should see some benefit from weaker fuel prices in the quarter.
Analysts say investors should watch for weaker than expected results from oil and gas groups with prices in the June quarter lower than a year ago when they were slowly recovering.
Marketwatch.com pointed out on Friday that of the companies in the S&P 500, 40 saw their share prices fall skid 20% or more into correction territory in the quarter and especially June .
With the slide in oil prices (which are down 17% or so since the start of the year) there are 16 energy stocks among the 40.
And there are also 13 retailers, a sign of just how much the fear of Amazon and online shopping is hurting traditional brick-and-mortar stores.
In fact retailing is a disaster area according to investors with Macy’s shares are down 36% so far this year, Ralph Lauren down 22%, Target shares have dropped nearly 30%, Kroger shares are off 33%, while shares in bed Bath and Beyond have dropped 27% and L Brands are down 20%.
Shares in Foot Locker and Under Armour (sporting apparel, shoes etc) are both down 29%. Shares in retail investment trusts with big retail holdings are also lower with shares in Kimco Realty off 29%. It is the biggest owner operator of open air markets in the US (These are one to two story centres instead of malls of the type Westfield operates.
In energy, shares in Apache are off 28%, Anadarko shares are down 37%, Marathon off 33%, Hess down 31%, Devon off 34%, services giants, Halliburton and Schlumberger are down 22% each, while Transocean shares (its a big offshore driller) are down 45%. The irony is that many of the energy stocks that have fallen steeply, are responsible for this year’s resurgence in US oil production from shale areas such as the Eagle Ford and Permian areas of Texas, that has helped send prices lower.
Outside of these areas, shares in car parts group, Advance Auto Parts are down 39% as new car sales slide, used car prices slump and smaller rivals miss sales forecasts. Autozone shares (it’s a car dealer) have lost 36%.
And shares in Mattel and Hilton Hotels are both down 25% and Hewlett Packard Enterprises shares are off 29%.
According to investors the 40 S&P stocks are those where the revenue and earnings report for the second quarter will reflect the damage from the falling oil price and weak consumer spending and the continuing rise in online operators.
