Techs, energy and some media/telco stocks will dominate the US third quarter reporting season this week and the current upbeat outlook on Wall Street will be tested by reports from the likes of tech giants Amazon, Microsoft and Alphabet, along with the serial under performer, Twitter.
It will be the first of two tough weeks for the markets and investor confidence because next week Apple and Facebook report with the former the most watched of all reports given the growing belief in the market that the reception for the iPhone 8 has been weak, especially compared to demand for the more expensive iPhone X.
As well two of the world’s biggest oil companies – Exxon mobil and Chevron are due to report late in the week and their figures will have a major influence on the overall performance of the reporting companies, just as reports from Microsoft, Alphabet and Amazon will impact investor sentiment.
Alphabet is expected to again do well, but how Amazon, with its volatile quarter to quarter figures, performs remains a bit of a mystery to most analysts, especially with the company due to reveal the impact of the acquisition of grocery chain, WholeFoods.
General Electric’s third quarter report was the big shock last week with a very weak result. The shares were down 6% in early trading Friday, then recovered to finish higher. The shares were up 3.6% for the week.
But with GE having an investor day next month, analysts are wondering if there is more bad news with the future of the company’s dividend up in the air and very likely to be cut (like Telstra did in Australia).
In fact 189 companies in the S&P 500 are expected to report results this week. Incouded in these will be 12 members of the 30 company strong Dow Index.
Besides Alphabet, Microsoft, Amazon the likes Intel and Texas Instruments are due to report alongside companies like Hasbro, Mattel, Halliburton, Eli Lilly, United Technologies, General Dynamics, Comcast, General Motors, Caterpillar, UPS, 3M, Halliburton, Crane Co, Coca Cola, Bristol Myers, Merck and Co, Iron Mountain,Visa, Whiting Petroleum, Corning, American Airlines, Southwestern Airlines, Exxon Mobil, Tenneco, Chevron, ConocoPhillips, Colgate Palmolive, Marathon Petroleum, AT&T, Lockheed Martin, Expedia, Hershey, Hilton, Boeing, Ford, Chipotle and McDonald’s.
Companies with higher global exposure are expected to benefit from “the tailwinds of a weaker U.S. dollar and higher global GDP growth,” according to John Butters, an analyst with FactSet.
He estimates that companies that generate more than 50% of their sales domestically are expected to post a 0.1% earnings drop, while those that generate less than half their sales in the US are expected to see earnings growth of 7.9%. The overall earnings growth rate for companies listed on the S&P 500 is 2.8%.
"To date, 17% of the companies in the S&P 500 have reported actual results for Q3 2017. In terms of earnings, more companies (76%) are reporting actual EPS above estimates compared to the 5-year average,” Butters wrote.
"In aggregate, companies are reporting earnings that are 0.6% above the estimates, which is below the 5-year average. In terms of sales, more companies (72%) are reporting actual sales above estimates compared to the 5-year average. In aggregate, companies are reporting sales that are 1.0% above estimates, which is above the 5-year average.”
"The downside earnings surprise reported by General Electric was mainly responsible for the decrease in the earnings growth rate for the index during the past week. Overall, six sectors are reporting earnings growth, led by the Energy and Information Technology sectors. Five sectors are reporting or are projected to report a year-over-year decline in earnings, led by the Financials sector,” Butters wrote.
Big insurers and retailers have yet to reveal their figures and many will be hit by the cost of the trio of big storms – Irma, Harvey and Maria, and the two Mexican earthquakes. Already the likes of AIG have revealed costs around $US3 billion which suggest a big loss.
