NEW YORK: With earnings season winding down and the employment report out of the way, the US stock market is likely to shift into a lower gear this week.
The earnings season so far has been largely positive with more than half of the companies that have reported beating estimates. But cuts in outlooks from a number of bellwethers, including Intel and Caterpillar, mainly due to increasing concerns over China’s growth, have raised fears about the third and fourth quarters.
“It has sort of become a trend now to go into earnings season with low expectations, so beating those expectations is not a big deal,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
“The market is starting to really look at outlook cuts and guidance more than earnings itself.” The market is also likely to trade sideways next week after the Dow and the S&P 500 marked record closing highs for a second day on Friday. For the year, both the Dow and the S&P 500 are up more than 19 percent.
The S&P 500 index has passed through two century marks this year — 1,600 and 1,700. The last time the broad market index covered more round numbers in a year was in 1998 when it touched 1,000, 1,100 and 1,200, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Of the 391 companies in the S&P 500 that have reported earnings for the second quarter, 67.8 percent have topped analyst expectations, in line with the average beat over the past four quarters, data from Thomson Reuters showed. About 55 percent have reported revenue above estimates, more than in the past four quarters but below the historical average.
Negative outlooks for the third quarter from S&P companies have outpaced positive outlooks by 3.7 to 1 so far in this earnings season, according to Thomson Reuters data. Last quarter, the ratio was 6.3 to 1, but on average since 1996, the ratio stands at 2.1 to 1.
So far this earnings season, just 75 companies have given guidance and about 50 more companies are expected to give their outlook in the coming weeks. During last quarter’s earnings season, 127 S&P companies gave guidance.
The market will be closely watching remarks by US Federal Reserve policy makers next week for more clues on when the U.S. central bank might begin to reduce bond-buying stimulus , despite mixed signals from the jobs market.
The latest jobs report on Friday showed non-farm payrolls rose by 162,000 in July, below expectations, but the unemployment rate fell to 7.4 percent, its lowest since December 2008.
Reuters
