‘Overwhelmingly negative’ expectations for U.S. corporate earnings
WASHINGTON — The US corporate earnings season kicked off Monday with analysts expecting lackluster profits that would underscore misgivings about the state of the broader global economy.
As Alcoa — the first Dow member out of the gate — posted a loss of $2 million for the second quarter, Wall Street analysts expected a one percent fall in profits from the largest 500 firms, according to an S&P Capital IQ survey.
“Expectations are overwhelmingly negative,” said Evariste Lefeuvre, an economist with Natixis.
A now-familiar cocktail of global malaise is responsible for the glumness: Europe’s ongoing debt and growth crisis, a slowdown in China and a pitiful US domestic picture.
“It appears as if there is enough blame to go around, should Q2 results truly be disappointing,” said Sam Stovall, chief equity strategist at S&P Capital IQ.
Consumer stocks like Wal-Mart were expected to be hit by a murky jobs outlook and stagnant US customer spending, which accounts for around 70 percent of US economic activity.
Despite lower gasoline prices, recent US data has been wretched for consumer-focused stocks, with only 80,000 jobs created in June at the same time as the US manufacturing sector shrank for the first time in three years.
Already consumer products giant Procter & Gamble has lowered its earnings guidance, citing slower sales and a hit from currency fluctuations.
Meanwhile financial firms are likely to see their earnings clipped by weaker business in Europe and a slowdown in earnings from merger and acquisition fees.
In June there were just four corporate deals worth more than a billion dollars, compared with 15 in the same amount a year before, according to data compiled by UBS.
“The environment during 2Q was far from kind to banks and brokers,” said UBS’s Jonathan Golub.
With JPMorgan Chase and Wells Fargo reporting on Friday and Citigroup, Goldman Sachs, Bank of America and American Express reporting next week, the financials could set the tone.
“Positive surprises may be less abundant compared to last quarter when analysts had grown too pessimistic,” said Bank of America’s Savita Subramanian.
But some analysts cautioned that previous quarterly earnings have surpassed low expectations and that some positive underlying trends are being given too little attention.
“There has been some fundamental improvement in household balance sheets that may be getting short shrift by investors,” said Joseph LaVorgna, a Deutsche Bank economist.
On Monday, the Federal Reserve reported that consumer credit rose a more-than-expected annualized eight percent in May, raising hopes that consumer spending may be stronger than expected.