The US third quarter earnings season kicks off this week with the reporting expected to be dominated by hurricanes Harvey, Irma and Maria, especially among financials and insurers.
Lead by a handful of big banks, 11 companies listed on the S&P 500 are due to release quarterly results.
The insurance industry (like Chubb Insurance) in fact has recorded most of the expected of decline in earnings estimates over the past month.
Big banks mark the unofficial start of earnings season with JPMorgan, Citigroup, Bank of America and Wells Fargo all slated to report next late this week.
Fund manager, BlackRock and airline Delta are also on this week’s list. Others due to report include retailer Neiman Marcus and trucking group, JB Hunt.
A record number of companies had issued positive revenue guidance for the third quarter, according to the US financial data group, FactSet.
Analysts say that the impact of Hurricanes Harvey, Irma and Maria will temper than optimism.
Since September 5, the estimated earnings growth rate for the S&P 500 has fallen by more than 2 percentage points to 2.8%.
And FactSet says that has been driven by downgrades from insurers. “Since September 5, the estimated earnings growth rate for the S&P 500 for Q3 2017 has fallen by more than two percentage points (to 2.8% from 5.0%).
“In the last month, estimated dollar-level earnings for the S&P 500 for the third quarter have decreased by about $6.3 billion (to $287.0 billion from $293.3 billion).
“At the industry level, the Insurance industry has by far recorded the largest decline in dollar-level earnings during this time at $4.8 billion (to $5.1 billion from $9.9 billion).
“Thus, the Insurance industry alone accounts for 77% of the decline in the estimated earnings for the S&P 500 for Q3 2017 over the past month.
“If the Insurance industry were excluded, the estimated earnings growth rate for the S&P 500 for Q3 2017 would improve to 4.9% from 2.8%,” FactSet estimated at the weekend.
So the trick will be to look through the insurance impact on overall earnings and examine individual sectors and companies.
The real drivers of third quarter earnings performance though will be the performance of the big techs – Amazon, Netflix, Apple, Alphabet (Google), Facebook and Microsoft, as well as media stocks like Comcast and especially Disney (and its faltering ESPN cable channel businesses).
The results from this week’s trio of big banks – especially Citi and JPMorgan Chase will set the scene – especially their trading income in fixed interest and commodities where they have already softened up investors to expect sharp falls.
And watch again the performance of US retailers – there could be the odd solid performance that surprises on the upside amid a continuation of weak to middling figures for the quarter. Their forecasts for the 4th quarter – the sector’s biggest – will be the biggest influence on share prices though.
