The Star Online > Business
Monday July 11, 2011
Recipe for a US stock rally?
Profit growth of US firms can still be strong in second quarter
NEW YORK: Wall Street heads into earnings season this week playing a typical game: Worrying about results a lot, and then rallying on pleasant surprises.
Analysts have been lowering earnings estimates of late and nervousness about the US economic picture abounds, especially after Friday's poor June jobs report.
However, profit growth could still be strong in the second quarter and that could boost stocks. The Standard & Poor's 500 fell 0.4% in the second quarter, but rallied in recent days on hopes for economic improvement.
Over the last month, analysts have revised downward their earnings estimates for S&P 500 companies, with the mean change in earnings estimates a negative 6.4%, according to Thomson Reuters StarMine data.
“I think there's going to be a lot of anxiety going into it, and I think companies are going to continue what they've done for the last few quarters: Put out better-than-expected numbers, and guidance should be OK,” said Scott Billeaudeau, portfolio manager at Fifth Third Asset Management, in Minneapolis.
S&P 500 components' earnings were expected to have increased an average of 7.3% in the second quarter from a year ago, down from first-quarter growth of 18.9%, Thomson Reuters data showed.
But the number could jump if most companies beat analysts' forecasts. Early estimates for first-quarter profit growth were at about 13%.
“The general economic data is suggesting some softness in the overall economy both globally and in the US. So that drives somewhat more realistic expectations for companies,” said Natalie Trunow, chief investment officer of equities of Calvert Investment Management in Bethesda, Maryland, which manages about US$14.8bil.
In the coming week, the Federal Reserve will release minutes of its June 21-22 policy-making meeting. Among the US economic indicators on tap are June retail sales, June inflation readings from the United States. Producer Price Index and the US Consumer Price Index, industrial production and capacity utilisation for June, and the preliminary July reading on consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers.
Financial services companies have seen the biggest downward revisions in earnings estimates in the last 30 days, with banks taking some of the biggest hits, including Goldman Sachs and Morgan Stanley.
JPMorgan Chase will be the first of the big banks to report, with results due on Thursday. Results from top tech player Google also are expected on Thursday, while aluminum company Alcoa unofficially starts the season with earnings after the bell on Monday.
The S&P financial index dropped 6.3% in the second quarter as worries escalated about the impact of the eurozone debt problems on the global economy. The mean change for earnings estimates in the sector in the last 30 days was a negative 34.4%, StarMine data showed.
Disasters and disappointments
Analysts have also said the aftermath of Japan's earthquake, months of extraordinary weather in the United States, and rising food and commodity prices took a toll on companies in the second quarter.
StarMine analysis showed companies, including Platinum Underwriters Holdings, were likely to disappoint with results because of tornado damage claims.
But companies had kept costs in check and that should support stronger results, while also giving a boost to stock prices, he said.
“I think things underneath the macro, global, political noise continue to percolate,” said Mike Jackson, founder of Denver-based investment firm T3 Equity Labs. But “you're going to see higherquality companies showing the surprises this quarter (versus) last.”
Based on his own analysis, he expects industrials and utilities to surprise to the upside, especially for companies involved in “machinery, and roads and rails” and for electric utilities.
On the flip side, he sees a high probability for earnings disappointments in healthcare, consumer staples and materials sectors.
An S&P healthcare index led gains in the S&P 500 in the first half of the year as the market shifted to defensive shares, with the sector up 14% since the start of the year, followed by an S&P energy index, up 11%.
The healthcare sector may be subject to profit-taking once earnings start after its strong run so far this year, according to Tobias Levkovich, Citigroup's chief US equity strategist, who made the point in a research note.
Some analysts expect total upside surprises to be less than in previous quarters, with the percentage of companies beating expectations likely to fall in the mid-60s percentage range, below the 70% range, where it has been.
S&P 500 earnings overall could beat estimates by a “modest” 1% to 3%, Charles Blood, senior market strategist at Brown Brothers Harriman, wrote in a research note.
“Margins typically rise in the second quarter, but our primary concern and one of the biggest investment debates, is, How much room do companies have for further improvement?'” he wrote. - Reuters
Source/转贴/Extract/Excerpts: The Star Online
Publish date:11/07/11
Monday July 11, 2011
Recipe for a US stock rally?
Profit growth of US firms can still be strong in second quarter
NEW YORK: Wall Street heads into earnings season this week playing a typical game: Worrying about results a lot, and then rallying on pleasant surprises.
Analysts have been lowering earnings estimates of late and nervousness about the US economic picture abounds, especially after Friday's poor June jobs report.
However, profit growth could still be strong in the second quarter and that could boost stocks. The Standard & Poor's 500 fell 0.4% in the second quarter, but rallied in recent days on hopes for economic improvement.
Over the last month, analysts have revised downward their earnings estimates for S&P 500 companies, with the mean change in earnings estimates a negative 6.4%, according to Thomson Reuters StarMine data.
“I think there's going to be a lot of anxiety going into it, and I think companies are going to continue what they've done for the last few quarters: Put out better-than-expected numbers, and guidance should be OK,” said Scott Billeaudeau, portfolio manager at Fifth Third Asset Management, in Minneapolis.
S&P 500 components' earnings were expected to have increased an average of 7.3% in the second quarter from a year ago, down from first-quarter growth of 18.9%, Thomson Reuters data showed.
But the number could jump if most companies beat analysts' forecasts. Early estimates for first-quarter profit growth were at about 13%.
“The general economic data is suggesting some softness in the overall economy both globally and in the US. So that drives somewhat more realistic expectations for companies,” said Natalie Trunow, chief investment officer of equities of Calvert Investment Management in Bethesda, Maryland, which manages about US$14.8bil.
In the coming week, the Federal Reserve will release minutes of its June 21-22 policy-making meeting. Among the US economic indicators on tap are June retail sales, June inflation readings from the United States. Producer Price Index and the US Consumer Price Index, industrial production and capacity utilisation for June, and the preliminary July reading on consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers.
Financial services companies have seen the biggest downward revisions in earnings estimates in the last 30 days, with banks taking some of the biggest hits, including Goldman Sachs and Morgan Stanley.
JPMorgan Chase will be the first of the big banks to report, with results due on Thursday. Results from top tech player Google also are expected on Thursday, while aluminum company Alcoa unofficially starts the season with earnings after the bell on Monday.
The S&P financial index dropped 6.3% in the second quarter as worries escalated about the impact of the eurozone debt problems on the global economy. The mean change for earnings estimates in the sector in the last 30 days was a negative 34.4%, StarMine data showed.
Disasters and disappointments
Analysts have also said the aftermath of Japan's earthquake, months of extraordinary weather in the United States, and rising food and commodity prices took a toll on companies in the second quarter.
StarMine analysis showed companies, including Platinum Underwriters Holdings, were likely to disappoint with results because of tornado damage claims.
But companies had kept costs in check and that should support stronger results, while also giving a boost to stock prices, he said.
“I think things underneath the macro, global, political noise continue to percolate,” said Mike Jackson, founder of Denver-based investment firm T3 Equity Labs. But “you're going to see higherquality companies showing the surprises this quarter (versus) last.”
Based on his own analysis, he expects industrials and utilities to surprise to the upside, especially for companies involved in “machinery, and roads and rails” and for electric utilities.
On the flip side, he sees a high probability for earnings disappointments in healthcare, consumer staples and materials sectors.
An S&P healthcare index led gains in the S&P 500 in the first half of the year as the market shifted to defensive shares, with the sector up 14% since the start of the year, followed by an S&P energy index, up 11%.
The healthcare sector may be subject to profit-taking once earnings start after its strong run so far this year, according to Tobias Levkovich, Citigroup's chief US equity strategist, who made the point in a research note.
Some analysts expect total upside surprises to be less than in previous quarters, with the percentage of companies beating expectations likely to fall in the mid-60s percentage range, below the 70% range, where it has been.
S&P 500 earnings overall could beat estimates by a “modest” 1% to 3%, Charles Blood, senior market strategist at Brown Brothers Harriman, wrote in a research note.
“Margins typically rise in the second quarter, but our primary concern and one of the biggest investment debates, is, How much room do companies have for further improvement?'” he wrote. - Reuters
Source/转贴/Extract/Excerpts: The Star Online
Publish date:11/07/11
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