10/8/2012
By David Urani

More Articles by David Urani

Homebuilder Confidence Contradicts Investor Sentiment

Home Prices Stay on Course

Home Sales Still Climbing Steadily

Can you believe it? Q3 earnings season is already upon us. It's certainly been tumultuous and looking at the global economic situation, you wouldn't say the backdrop looks much better. In fact, judging by the consensus earnings estimates, expectations are for 3Q to be worse, both quarter to quarter and year over year. S&P 500 EPS for 3Q are expected to drop to $24.94 from $25.43 in 2Q, and that would be the first third quarter decline since 2008. That's a 1.9% decrease, yet the S&P is up by a full 6.8% since the end of 2Q.

But we know that the market does look forward, so the current S&P 500 value probably reflects a rebound for 4Q in large part. In fact, the Street still expects 4Q to reach $26.89 which would be a new all-time quarterly high. The problem is, we haven't gotten a whole lot of individual corporate guidance for 4Q so it's going to be really interesting to hear what management teams have to say about the quarter ahead.

Versus a year ago, 6 out of the 10 major sectors in the S&P are expected to go lower. Energy is projected to be the big loser, with earnings down 21.6%, followed by Materials at -17.3%. The big gainers are expected to be IT at +10.9%, followed by Health Care at +8.6%. One of the most interesting sectors for me will be Consumer Discretionary, which is projected to show a 4.2% increase in earnings over last year which perhaps is a little bit counter-intuitive; in the meantime, Consumer Staples earnings are seen falling by 0.7%.

David Urani
Wall Street Strategies