January 8, 2011 (MarketWatch)
NEW YORK (MarketWatch) -- U.S. stock markets next week are apt to be focused on earnings as the first trickle of numbers from the last quarter of 2010 comes in.
Between two years of steady cost cuts and an economy that seems to be in uneven recovery, hopes are that there'll be some strong results when corporate America reports its fourth-quarter profits.
As a whole, the S&P 500 Index is expected to post earnings growth per share of 27% with all 10 sectors tracked by Standard & Poor's contributing. Estimates compiled by Thomson Reuters are projecting an even more robust 32% growth rate, marking the fifth consecutive positive quarter after nine straight negative ones. Thomson estimates forecast every sector except utilities reporting growth.
Expectations for some retailers may come down following largely disappointing holiday-sales growth, but Wall Street analysts have been busily raising their profit targets across the board.
The biggest jump is expected to come from financial services, with profit growth of 250%, according to Standard & Poor's, followed by energy at 118%, materials at 70% and consumer discretionary at 63%. Laggards include health care, with just 11% growth; the same for utilities; telecommunications at 7%; and consumer staples at 6%. Industrials and information technology hold the middle ground at 26% and 52%, respectively.
Alcoa Inc. , as has become customary, will be the first of the Dow Jones Industrial Average components out of the gate when it reports on Monday. The aluminum producer is expected to post an operating profit of 18 cents a share, a sharp turn from the loss of 28 cents in the same quarter last year.
Other components also slated to report include Intel Corp. on Thursday, expected to earn 53 cents a share, up from 40 cents; and J.P. Morgan Chase & Co. on Friday, which is looking for $1.10 a share vs. 75 cents in the year-ago period.
Investors will have to wait until the following weeks to see reports from the likes of McDonald's Corp. and International Business Machines, and well into February for Home Depot Inc. and Wal-Mart Stores Inc.
For all of the Dow 30, Thomson Reuters sees earnings growth of 24.4% and revenue growth of 4.9%.
Cost cuts, sales growth
Sam Stovall, chief investment strategist at Standard & Poor's, said there are three main factors driving the gains. "First, there is the cost-cutting [companies] did and continue to do. And we are also seeing an improvement in revenues, which were up in the low double digits in the third quarter."
Finally, there have been increased stock buybacks, which always help boost per-share numbers higher than overall profits.
Still, Stovall pointed out, "compared to the three prior quarters, you are seeing a decelerating rate of growth. In the first quarter of 2010, earnings grew 92%; in the second quarter, 51%; and in the third quarter, it was 37%."
He attributed some of that slowdown to toughening comparisons, since "in the fourth quarter of 2008, the S&P 500 posted an outright loss for the first time in history" and noted that growth rates will likely continue to slacken.
S&P is expecting an 11% growth rate for the current quarter, "and we will be back to more normal single- and low double-digit growth in 2011," according to Stovall.
Companies are likely to benefit from relatively high margins thanks to a spike in productivity since the credit crisis, said Paul Larson, editor of Morningstar StockInvestor.
The exceptions he expects to see to generally robust reports "will come from anything that is subject to interest rates, companies that depend on float. The payroll companies and insurance companies are going to have a tough time, as will any industry that is sensitive to overall employment, which is still lagging."
Larson also urged keeping a close eye on revenues. With cost reductions and other nonorganic factors behind so much of the growth, "it will be interesting to see if [firms] can muster some honest-to-God top-line growth. If they do, that is a very explosive combination."
Tech leads revenue growth
Thomson Reuters expects revenue growth for the S&P 500 to come in at 6%, led by technology at 13% and utilities at 11%.
When trading on or ahead of the results, Barry Knapp, head of equity strategy at Barclays, said that "in aggregate, this earnings season is likely to be relatively positive for stocks."
But, he advised, it is crucial to keep an eye on estimate revisions, from reporting companies and Wall Street analysts alike: "It is one thing if the numbers beat, but if the guidance doesn't get raised, the stocks don't move."
One key gauge Knapp uses is the "net revisions measure," essentially a compendium of changes to analyst estimates. "At this time last year, it was falling, but it is now turning back up," he said, which could bring good news all around.
By sector, Knapp sees a split in the performance of "defensive" stocks, as "health care and consumer staples look better than telecom and utilities."
Elsewhere, "industrials have had a big run and it doesn't look like the revision momentum is very strong right now. Tech is better and energy is showing some potential."
Bumping along
After touching two-year highs earlier in the week, the Dow Jones Industrial Average closed on a down note Friday, settling down 23 points to end at 11,675, but still 0.8% ahead for the week. U.S. stocks came under late pressure on the back of a weak jobs report and a foreclosure-related court ruling in Massachusetts that took a bite out of bank shares. Read more in Market Snapshot.
Gold futures also ended in the red, hurt by a strengthening U.S. dollar. Gold for February delivery slipped $2.80, or 0.2%, to end at $1,368.90 an ounce, bringing its weekly loss to 3.7%, its worst performance since early July. Read more in Metals Stocks.
Crude futures settled lower Friday, with oil for February delivery down 35 cents to $88.03 a barrel, its lowest level in three weeks. For the entire week, oil was down 3.7%. Read more in Futures Movers. |
发表于 2011-1-8 16:55
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