By Wallace Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch)--Big banks and other financial
companies will dominate the start of earnings season this week, as
the sector is expected to underperform the broader S&P 500
index in a quarter where expectations have already dropped
considerably.
Stocks finished slightly lower the past week with both the Dow
Jones Industrial Average (DJI) and the Nasdaq Composite Index
(RIXF) down 0.5%, and the S&P 500 index (SPX) off by 0.7% after
the December jobs report on Friday showed a decline in wages.
Another quarter of topped lowball outlooks expected
Earnings for the fourth quarter are expected to grow by 1.1%,
according to John Butters, senior earnings analyst at FactSet.
That's down from the 1.6% growth estimate at the end of the
quarter, and well below the expectations of 8.4% growth at the
start of the fourth quarter.
Then again, seeing those estimates are traditionally lowballed,
earnings growth should work out slightly higher, by about 2.1
percentage points on average, according to Butters. Companies are
fairly pessimistic, or lowballing more than usual, as 81% of those
providing an earnings outlook for the fourth quarter have given one
that has fallen below the Wall Street consensus.
Big banks and financial firms kick off earnings season this week
after Alcoa Inc. (AA) reports on Monday. The financial sector is
expected to underperform the S&P 500 on earnings and revenue
for the fourth-quarter with a 1.7% decline on earnings and a 1.8%
increase in revenue, according to FactSet.
As energy profits fall, where does that money go?
While the U.S. economy added 252,000 jobs in December, making
2014 the best hiring year since the 90s, wages dropped for the
month, placing wage growth barely ahead of inflation.
It appears that stagnant wage growth is helping keep earnings
afloat this season.
"The biggest cost component for S&P 500 companies, wages,
has not yet exerted enough upward pressure on corporate cost
structures to raise concerns about profit margins, which continued
to expand throughout 2014 and currently remain at record highs,"
Burt White, LPL Financial's chief investment officer, said in a
recent note.
White expects the next few weeks to be "a tale of two earnings
seasons," where lower energy prices hit energy sector earnings but
may benefit other sectors like consumer discretionary,
manufacturers, and airlines. One big name in energy reports this
week Schlumberger Ltd. (SLB) on Friday.
"This earnings season, earnings 'ex-energy' will likely become a
commonly heard phrase because of the sector's expected divergence,"
White noted. "Analysts and strategists will likely strip out energy
and assess how earnings for the S&P 500 would look if that
sector is excluded."
Notable earnings reports this week
Report Date Company/Ticker (Estimated FactSet EPS / revenue)
Mon., Jan. 12 Alcoa (27 cents / $6.04 billion)
Tues., Jan. 13 CSX Corp. (49 cents / $3.18 billion) KB Home (56 cents / $774.7 million)
Weds., Jan. 14 J.P. Morgan Chase & Co. ($1.31 / $23.63 billion) Wells Fargo & Co. ($1.02 / $21.21 billion)
Thurs., Jan. 15 Intel Corp. (66 cents / $14.7 billion) Bank of America Corp. (31 cents / $21.12 billion) BlackRock Inc. ($4.72 / $2.88 billion)Citigroup Inc. (11 cents / $18.83 billion) Lennar Corp. (96 cents / $2.58 billion)
Fri., Jan. 16 Goldman Sachs Group Inc. ($4.38 / $7.78 billion)Schlumberger ($1.46 / $12.71 billion)
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