Bracing for Rough Earnings Season
10/12/2016
The earnings season kicked off with a thud from aluminum maker Alcoa (AA), which missed on the top and bottom lines. The company’s management is updating its global outlook in key areas:
It should be noted that the company sees China strengthening in the demand for autos and buses while the building boom around the world continues with a demand up to 6%. As for the earnings implication, the Street was already sobering to the notion of another quarter of year-over-year decline in earnings. Bracing for Rough Season According to FactSet, S&P 500 sales will increase 2.5%, but earnings are looking to be down 2.4%. Three months ago, the estimate was that sales were up 2.2% with a slight increase of 0.4% in earnings. However, the story is obviously deeper than that and we should look at individual sectors; here are the winners:
These are the sectors bracing for a rough ride:
So, when market skeptics look at the trend of lower year-over-year earnings (see below), it’s understandable that they would wonder why the market is higher; and they’ll certainly brace for it to tumble. On that note, I continue to say the market is slightly overvalued, making this more of a stock-picker’s market, which shouldn’t be confused with buying ‘cheap’ stocks. It’s a term that has a myriad of different meanings and has led to a myriad of losses for folks looking for false value. The long-term earnings trend suggests a rebound soon, possibly even in this earnings season. Key market support points:
Charles Payne
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