Friday, January 22, 2016

Woeful Earnings Threaten To Intensify Stock-Market Bloodbath.....

Woeful Earnings Threaten To Intensify Stock-Market Bloodbath

Another quarter of earnings declines follows worst start of year.

The prospect of four straight quarters of earnings declines is staring investors in the face on top of the worst multiweek selloff for stocks in years, and the worst start of the year ever.

For the year, the Dow Jones Industrial Average and the S&P 500 index are down at least 8%, and the Nasdaq Composite Index shed more than 10%.

Stocks also rang up a third week of losses for their largest multiweek percentage drop since the four weeks ended Aug. 19, 2011, according to FactSet data. Over the past three weeks, both the S&P 500 and the Dow industrials have declined 8.9%, and the Nasdaq has fallen 11.1%. 

Those hefty losses come as earnings season ramps up during the holiday-shortened week. Stock futures traded lower on Monday as oil moved in and out of positive territory. Weaker oil prices and concerns about China growth have been undermining stocks and investor confidence.

Earnings anxiety

Several companies on the S&P 500, along with seven Dow components, report quarterly results. And earnings season isn't looking promising.

Total earnings for the S&P 500 in the fourth quarter are expected to decline from the previous year, even factoring that Wall Street forecasts' have been lowered.

Over the past four years, estimates for S&P 500 earnings at the end of a given quarter have been an average three percentage points lower than the actual earnings results.

Earnings were estimated to decline by 4.9% at the end of the fourth quarter, that would translate to a 1.9% decline if the average holds up. Currently, earnings are on pace for 5.7% drop.

Plus, current-quarter earnings estimates have taken a notable downturn in the past week.

First-quarter earnings for the S&P 500 are expected to decline from the year-ago period by 0.6%, compared with estimated growth of 0.9% at the beginning of the quarter, according to FactSet data.

Earnings could well be a swing factor for stocks in the next few weeks.

In an earnings-driven market, higher earnings are required to support higher equity prices. Visibility on earnings isn't likely to improve until late-January/early-February and stocks could trade sideways to even downward until investors get some idea on the state of corporations.

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