Slowing
growth in emerging markets and currency fluctuations in anticipation of
a U.S. interest rate hike may push third-quarter revenue and earnings
estimates lower this month. Estimates have already fallen for 9 out of
10 of the benchmark index's sectors so far this year, according to
Thomson Reuters data. This could happen fairly quickly," said Tim
Ghriskey, chief investment officer of Solaris Group in Bedford…
NEW YORK (Reuters) - Slowing growth
in emerging markets and currency fluctuations in anticipation of a U.S.
interest rate hike may push third-quarter revenue and earnings estimates
lower this month.
Wall Street expects a 3.4
percent decline in earnings for the S&P 500 (.SPX) for the quarter.
Estimates have already fallen for 9 out of 10 of the benchmark index's
sectors so far this year, according to Thomson Reuters data.
S&P
revenue is expected to fall 2.8 percent for the quarter, led by steep
declines in the energy and materials sectors. As companies tend to
revise guidance around the end of the quarter, estimates may become even
less optimistic.
"Analysts
will likely be pulling in their reins going into the quarterly reports
and the pre-announcement season. This could happen fairly quickly," said
Tim Ghriskey, chief investment officer of Solaris Group in Bedford
Hills, New York.
The dollar index (.DXY), measuring
the greenback against a basket of major currencies, has risen 0.8
percent so far this quarter after falling 2.9 percent last quarter.
Ghriskey sees the currency's strength hurting the competitiveness of
U.S. exports against local products overseas and imports here, resulting
in shrinking revenue and earnings for U.S. multinationals.
In
addition, demand is likely slower in many overseas markets with slowing
growth in China and recessions in Brazil and Russia hurting both
revenue and earnings.
Jim Paulsen, chief investment
officer at Wells Capital Management in Minneapolis, says that since the
majority of S&P companies tend to beat earnings estimates every
quarter, he will focus more on revenue than the bottom line, which can
be tweaked with cost cuts and share buybacks to beat estimates.
But Paulsen is not optimistic about the coming quarter.
"It
seems clear to me that top-line sales results will be a little
disappointing again," he said. "If you look at what's going on in global
economies, it doesn't paint a real good picture of what top-line growth
will be like. The question is: 'How much of that is already factored
in?'"
U.S. telecommunications (.SPLRCL), which is
mostly insulated from global markets, is the only S&P sector that
has shown improving estimates for both third-quarter earnings and
revenue.
With crude oil prices falling sharply, the
energy sector (.SPNY) is faring the worst, with current expectations for
a 62 percent earnings decline and a 33 percent revenue drop.
Analysts
expect the materials sector (.SPLRCM) to report a 11.8 percent earnings
decline due to falling commodities prices and a 10.4 percent revenue
drop. They see earnings for industrials (.SPLRCI), which have big
overseas exposure, falling 4.9 percent and revenue falling 5 percent.
Many
investors hope the equity market becomes less volatile after August's
sharp swings. But earnings weakness could make jittery market
participants question valuations all over again.
"A
lot of people think the market will come back. If we see fundamentals
that challenge that story, that could be a very significant part of this
earnings season," said Paulsen.
(Reporting by Sinead Carew; Editing by Da
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